EWHC 1385 (TCC)
Will the courts summarily enforce adjudication decisions where the claimant is subject to a Company Voluntary Arrangement (“CVA”)?
FTH, who were subject to a CVA, sought summary enforcement of two adjudication awards. Varis accepted that they were valid awards but resisted enforcement and/or sought a stay, on the basis of FTH’s financial position and its own crossclaims. Coulson LJ in Bresco v Lonsdale (Dispatch Issue 241), had said that:
“… the general position relating to a CVA may, depending on the facts, be very different to the situation where the claimant company is in insolvent liquidation … A CVA is, or can be, conceptually different. It is designed to try and allow the company to trade its way out of trouble. In those circumstances, the quick and cost-neutral mechanism of adjudication may be an extremely useful tool to permit the CVA to work. In those circumstances, courts should be wary of reaching any conclusions which prevent the company from endeavouring to use adjudication to trade out of its difficulties. On one view, that is what adjudication is there for: to provide a quick and cheap method of improving cashflow.”
Here, the Judge noted that Bresco did not provide “very definitive guidance” as to how the Court should approach a case where a claimant subject to a CVA seeks summary enforcement of an adjudicator’s decision. There was jurisdiction to grant summary judgment, but whether the Court would do so in any given case depended on the facts of that case. The proper approach was to consider, on the facts of this case, whether there was a real risk that the summary enforcement may deprive Varis of security for its crossclaim.
Varis submitted that there was a real risk that summary enforcement would deprive Varis of security for its crossclaim. The CVA here was not, on its face, designed to allow FTH “to trade its way out of trouble.” Even if the CVA fulfilled all financial expectations, there would only be a recovery of 56p in the £. However, FTH’s two claims would not, in fact, produce the recovery foreshadowed in the CVA. The second, (not the claim here), would not lead to any recovery, which would make the projected recovery “entirely unachievable.” It was, therefore, much closer to “the straightforward situation where the claiming company is in insolvent liquidation and the liquidator is engaged in the process of recovering what they can in order to make a distribution to creditors,” as per Bresco.
FTH said they were now carrying out work and receiving revenue, but this was not of assistance, as there was no evidence that they were trading profitably. The CVA supervisors had not considered the Varis crossclaim (put at £1.7m). If this succeeded, in whole or in significant part, the CVA would fail and FTH would go into liquidation with very little, if any, recovery for creditors. Finally, the CVA was for 12 months only, and had not been validly extended.
The Judge, therefore, concluded that Varis had shown that here there was a real risk that summary enforcement would deprive them of security for their crossclaim.
Varis had also applied for a stay under the Wimbledon v Vago principles (Dispatch Issue 61). Here, the Judge noted that the Courts expect parties in the position of FTH who wish to avoid a stay to provide detailed and reliable financial information. Here, (see Equitix v Bester, EWHC 177 (TCC)) FTH had been “somewhat economical with information” relating to its financial position. This was a case where, generally, the uncertainties in the information supplied made the Judge more inclined to grant a stay. Further, this was not a case where FTH’s financial position was the same as its financial position when the Contract was made in 2018. FTH’s finances had clearly deteriorated in late 2019, leading to the CVA in May 2020. Finally, FTH’s financial position was not due, wholly or in significant part, to Varis’ failure to pay the adjudication award. Had it been necessary, the Judge would have granted a stay.