7 October 2016 by

The High Court provides guidance on how to deal with a bankruptcy presented with an ulterior object and opposed by creditors

The long running case of Maud v Aabar Block SARL and Edgeworth Capital (Luxembourg) SARL came before the High Court on 8 September. The issue before the Court was whether it should grant Mr Maud’s application for permission to appeal against the bankruptcy order made against him. Mr Maud sought permission to appeal on the basis that the petitioning creditors, Aabar Block SARL (“Aabar”) and Edgeworth Capital (Luxembourg) SARL (“Edgeworth”) had an ulterior object in seeking Mr Maud’s bankruptcy. An ulterior object in the context of bankruptcy proceedings, can be described as the presentation of a petition, where the object is to achieve or seek to achieve an advantage over other creditors, in the event that a bankruptcy order is subsequently made.

The background to the dispute leading up to the hearing on 8 September 2016 spans several years and consists of court proceedings in both England and Spain. Providing a detailed overview of the background to the dispute is outside the scope of this article, however, for the purposes of this article, it is important to note that Mr Maud is a shareholder of a group of companies known as The Marme Group. The Marme Group consists of various companies incorporated in Spain and The Netherlands. One of the assets acquired by The Marme Group was an office and real estate complex in Boadilla del Monte, Madrid (“Boadilla del Monte”). Currently the asset acquired in Boadilla del Monte is let out on a long lease to the Spanish banking group, Santander. It is used by Santander as its international headquarters.

The acquisition of Boadilla del Monte was assisted by a number of loans. In accordance with the terms of financing, Mr Maud executed a pledge in favour of his shares in two of the companies within the Marme Group, gave a personal guarantee in the sum of €40 million and gave security over various assets.

Subsequent to the acquisition of Boadilla del Monte, Mr Maud made a late payment of interest under one of the loans used to finance the acquisition and the Bank loaning the funds to acquire Boadilla del Monte decided to accelerate the loan and make demand for its repayment. Following that event, the Bank then sold its rights against Mr Maud to Aabar and Edgeworth, who commenced proceedings against both Mr Maud and his business partner, Mr Quinlan. Aabar and Edgeworth obtained judgment by consent against Mr Maud and Mr Quinlan for approximately €52.6 million.

Aabar and Edgeworth presented a bankruptcy petition against Mr Maud. Both Mr Maud and a number of his other creditors opposed the petition. At the third hearing of the bankruptcy petition, Registrar Briggs made a bankruptcy order.

Mr Maud sought permission to appeal the bankruptcy order. The High Court allowed Mr Maud’s application for permission to appeal and ordered that the petition be listed for another hearing. In deciding to allow the appeal, Justice Snowden ruled that when hearing a petition, the court needed to assess the situation and deal with three issues, namely:

  1. Does the petitioning creditor have an undisputed debt but also an ulterior purpose in seeking a bankruptcy order, that is completely at odds with the nature of bankruptcy as a class remedy, that it is an abuse of process.
  2. In the event the petition is not an abuse of process but is opposed by other creditors, the court should decide to make or refuse a bankruptcy order in the interests of the other creditors in the class. In doing so, the court should conduct an evaluation of the views of the creditor class.
  3. Whether, when exercising its case management powers, the court should adjourn the hearing of the petition because there is credible evidence that there is a reasonable prospect that the petition debt will be paid within a reasonable time.

Whilst much will turn on the facts of any individual case, the above ruling provides a useful clarification of the legal position where the court is faced with a bankruptcy petition that may well be presented with an ulterior object. Although this ruling related to a bankruptcy petition, it is likely to be followed at hearings relating to winding-up petitions.

At Bolt Burdon, we are able to advise in relation to both petitioning for and responding to bankruptcy and winding-up petitions.

If you wish to discuss any issues regarding bankruptcy or winding-up petitions, please contact one of our solicitors in the Dispute Resolution team here.

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