Winding up – Liquidator – Claimant ex-solicitor having carried out work for company
Re Legal & Equitable Securities Plc (in liquidation); Beller v Linton and another: ChD (Bernard Livesey QC (sitting as a judge of the Chancery Division)): 4 April 2012
The claimant was a former solicitor who had acted for LES plc (the company) from time to time. One borrower from the company was Y, for whom the claimant had also acted in relation to loan transactions. Y’s indebtedness was substantial and, in March 2006, he defaulted and fled the jurisdiction. The claimant obtained a freezing order against Y. However, the claimant had given undertakings to various creditors of Y which he was not able to discharge, since he had failed to perfect the relevant security on the loans. Consequently, he was struck off the roll of solicitors in September 2007. Three creditors who had lost money to Y claimed against both the claimant and the company. In April 2007, a deed of settlement (the deed) was drawn up between the claimant, the company and the creditors to conclude the claim. Under the deed, the company agreed to indemnify the claimant against certain claims to which he was potentially subject. Clause 4(e) of the deed defined the expression ‘loss claim’ under the deed as ‘any claim, loss, damage or reasonable expense… he [the claimant] may suffer or incur’. The parties further executed a separate agreement to provide that the deed should come into force on 18 April 2007. That was done because the claimant had entered into an Individual Voluntary Agreement (IVA), which was approved on 18 April 2007. The IVA gave a schedule of unsecured creditors, including ‘syndicated lenders’. In May 2008, the members of the company resolved that it should be wound up voluntarily and the defendants should be appointed as joint liquidators. The claimant submitted a proof of debt in the liquidation of the company as a contingent creditor by reason of his rights under the deed. The defendants rejected the claimant’s proof of debt. The claimant made an application for an order under rule 4.83 of the Insolvency Rules: (a) reversing or varying the defendants’ rejection of his proof of debt; and (b) that his proof be admitted in such sum as the court deemed appropriate.
There was no dispute that a contingent liability was provable in a liquidation. The principal question was whether the defendants were entitled to reject the claimant’s claim for an indemnity on the basis that it was not a contingent claim. The claimant submitted, inter alia, that in order to trigger his rights, three conditions had to be satisfied: (i) that he had to suffer a ‘loss claim’ as the result of a claim against him by a syndicated lender; (ii) his professional indemnity insurers had to have stated in writing that they were not prepared to provide the claimant with cover regarding the claim; and (iii) there had to be no finding by a court that the claimant was liable in fraud to a syndicated lender in respect of such a claim. He further submitted that it was wrong to consider only whether he might be found to have a liability to any of the syndicated lenders and contended that, on the true construction of the deed, an indemnity was available to him. The defendants contended, inter alia, that on the true construction of the deed there was no contingent liability and, that even if there was, it applied only to syndicated lenders.
The application would be allowed.
While the wording of clause 4(e) of the deed might create a condition precedent, that did not have the effect of preventing an obligation on the company from being created. The exchange of promises on the execution of the deed created an obligation on the company to provide an indemnity if a number of future events occurred, one of which was the due fulfilment of the condition precedent. Further, it was clear that the creditors were among the syndicated lenders to whom the obligations extended. Were any of the parties to pursue a claim against the claimant, and were he to be put to reasonable expense in defending it, the loss would fall within the definition of ‘loss claim’ and would have an entitlement to an indemnity in respect of his reasonable expenditure, provided that the other conditions of clause 4(e) were fulfilled (see - of the judgment).
The claimant would be entitled to a declaration that, at the date of the liquidation, he had a contingent claim against the company (see  of the judgment).
Kevin Pettican (instructed via public access) for the claimant; Marcia Shekerdemian (instructed by Isadore Goldman) for the defendants.