In a decision handed down just before the end of term, auditors have won an important House of Lords ruling limiting their liability in cases where a “one man” company is used as a vehicle for fraud. The Law Lords dismissed by a majority of three to two a negligence claim brought against an audit firm for failing to detect a massive fraud at Stone & Rolls, a trading company that fell in the late 1990s – holding that the liquidators could not bring a claim for damages when the company itself was responsible for the fraud.
Background
In Pick v Sumpter and another, the first defendant's trustee in bankruptcy applied for an order for possession of the defendants' matrimonial home. At the hearing in May 2006, the evidence showed that the sum outstanding as at November 2005 was £25,571 but did not take into account legal costs. That sum was an estimate and did not take into account statutory interest on the bankrupt's debts beyond the date of the hearing, solicitor's costs of the possession hearing or any increase or decrease in the trustee's remuneration.
The court will not review a bankruptcy order where there has been no material change and evidence subsequently adduced could have been available at the original hearing.
We first reported on The Trustee in Bankruptcy of Louise St John Poulton v Ministry of Justice in the October 2009 banking update. In short, the Court Service had failed to give notice of a bankruptcy petition to the Chief Land Registrar. As a result, no pending action had been registered against the name of the debtor and no notice had been registered against the debtor's property.
The case of Poulton v Ministry of Justice was decided by the Court of Appeal at the end of last month. The Court decided that a trustee in bankruptcy was left without a remedy against the Court Service when a bankrupt's estate suffered loss following an oversight by the Court Service to notify the Land Registry that a bankruptcy petition had been presented (as it is required to do by rule 6.13 of the Insolvency Rules 1986).
The background
Justice has to be seen to be done. Without clear reasons from the court as to the decision it reached, a party is entitled to have reheard issues it raised on an earlier application but which there is no evidence the court considered.
The Third Parties (Rights against Insurers) Act 2010 received Royal Assent on 25 March 2010. The Act modernises the Third Parties (Rights against Insurers) Act 1930 by streamlining the procedure by which a third party claimant can recover compensation from the insurer of a defendant.
The anti-deprivation principle provides that “there cannot be a valid contract that a man’s property shall remain his until his bankruptcy, and, on the happening of that event, go over to someone else, and be taken away from his creditors”.
A new wrinkle in the Lehman Brothers bankruptcy cases emerged recently when a U.S. bankruptcy judge issued an opinion directly at odds with the decisions previously rendered by certain English courts regarding priority of payment provisions (the “Priority Provisions”) with respect to collateral under the “Dante Program.”
The Dante Program
On January 25, 2010, the U.S. Bankruptcy Judge Peck struck down a provision that used the bankruptcy of Lehman Brothers Holdings, Inc. (“LBHI”) to trigger subordination of a Lehman subsidiary’s swap claim against a securitization vehicle in the United Kingdom.1