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Directions applications - costs risks

When an insolvency practitioner applies to the court for directions, the estate may be at risk of an adverse costs order.

Mike Pavitt and Nick Keitley's article on the Beam Tube Products case (Fanshawe & Adshead v Amav Industries Limited and others: All ER (D) 246 (Feb); (2006) EWHC 486 (Ch)), which followed Spectrum Plus, carries a footnote illustrating that risk.

The joint administrative receivers applied for directions about the proper characterisation of purported fixed charges. The court accepted the joint administrative receivers' views that:

  • a floating charge over the proceeds of book debts was inconsistent with the charge over the book debts being fixed; and
  • a purported fixed charge over plant, machinery and equipment was too wide and was properly characterised as floating.

The respondent debenture holder, whose arguments were unsuccessful, was awarded his costs as an expense of the receivership.

This is not a unique case. Insolvency officeholders should be aware of the risk of adverse costs on a directions application and should consider insuring that risk. (See an earlier post on insolvency litigation insurance here.)

 

 

Date: 12th March, 2007
Author: Chris Laughton

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