High Court Clarifies Scope of Section 212 of Insolvency Act in Dishonest Assistance Claim Case

Citation: [2023] EWHC 3020 (Ch)
Judgment on

Introduction

The High Court of Justice, in the case of Andrew Anderson Kelsall & Anor v Biljana Stajic & Anor [2023] EWHC 3020 (Ch), dealt with pivotal issues surrounding the interpretation and scope of section 212 of the Insolvency Act 1986. The judgment scrutinizes the application, by the joint liquidators, to strike out or seek summary judgment on the claim of dishonest assistance, the related costs considerations, and the assertion of amending corresponding pleadings. The court’s systematic approach rendered a meticulous analysis on whether claims of dishonest assistance fall within the ambit of section 212, its implications on procedural conduct and subsequent costs incurred in relation to amendment applications.

Key Facts

The case involves Gamenation (UK) Limited (“the Company”), alleged to be involved in gaming subscription services leading to regulatory investigations, administrative and liquidation proceedings, and subsequent insolvency action by the appointed liquidators. The central issue pertains to whether the application against the second respondent of dishonest assistance is a viable claim under section 212 of the Insolvency Act 1986. Additionally, the judgment considers the costs associated with an aborted application to strike out/seek summary judgment and the Applicants’ amendment application, which by the conclusion of proceedings was no longer opposed by the Respondents.

Dishonest Assistance and Section 212 of the Insolvency Act 1986

The court analyzed whether the claim of dishonest assistance fell within the purview of section 212 of the Insolvency Act, which provides a summary procedure for office holders to bring proceedings in their own name for certain wrongs against a company. A claim of dishonest assistance is predicated on the existence of a fiduciary obligation or trust, a breach of said duty by the trustee/fiduciary, and the third party’s dishonest assistance in that breach. The key legal principle derived is that claims of dishonest assistance can indeed be actionable within the confines of section 212, expounding on the personal liability for wrongful acts that involve misapplication of company assets, even where the defendant is not a trustee of the particular property.

Application and Amendment Procedure

The court scrutinized the procedural chronology, particularly the issuance and merit of the strike out/summary judgment application and the subsequent application to amend brought forward by the Applicants. Legal principles on the timeliness of applications and the inherent power of the court to allow amendments were applied. The ruling made it apparent that the premature nature of the application and unnecessary delays in consenting to the amendments were relevant to the assessment of costs.

Costs of Amendment Applications

The court considered who should bear the costs of both the amendment application and those parts of the strike out/summary judgment application which were not pursued. The general principle applied is that the costs of an amendment should generally be borne by the party seeking the amendment. However, the court exercised discretion, considering unnecessary costs incurred due to delayed response to proposed amendments and the appropriateness of the strike out/summary judgment application when it was issued.

Outcomes

The judgment dismissed the strike out/summary judgment application regarding the dishonest assistance claim. It found that such claims fit within the scope of actions that can be brought under section 212 of the Insolvency Act. Regarding costs, the court determined that the Respondents would be entitled to their costs occasioned by the amendments until the date of the Case Management Conference. Importantly, beyond this point, the Applicants were granted costs in relation to the amendment application due to the Respondents’ delay in consenting to the amendments. No order for costs was made regarding the parts of the strike out/summary judgment application that were not pursued.

Conclusion

This case demonstrates the court’s broad interpretation of section 212 of the Insolvency Act, supporting a liquidator’s capacity to invoke a claim of dishonest assistance in these proceedings. The judgment highlights the court’s critical approach to procedural appropriateness and time management, penalizing unnecessary delay with cost implications. Crucially, the decision serves as a reminder that parties must carefully consider the timing and basis of applications to strike out and the ramifications of delayed engagement with the merits of proposed amendments.