The bank had been put into administrative receivership, and the court was now asked as to how distributions were to be made, and in particular as to the application of the equitable rule in Cherry v Boultbee in the rule against double proof as it applies in situations involving guarantees and other sureties.
Held: The appeal was allowed. The rule in Cherry was excluded in this instance by the rule against double proof. The Trustee was to be paid in full before there could be any proof against Funding as the principle debtor by KSF as guarantor. The rule against double proof was intended to prevent a multiple of claims against the same insolvent estate, which might lead to the payment of a double dividend. The equitable rule in Cherry v Boultbee fills a gap left by the disapplication of set-off, but it should not work in opposition to it. It creates a similar netting-off effect except where some cogent principle of law requires one claim to be given strict priority to another. The rule against double proof is one such principle.
Lord Hope, Deputy President, Lord Walker, Lady Hale, Lord Clarke , Lord Collins
[2011] UKSC 48, UKSC 2010/0018
Bailii, Bailii Summary, SC Summary, SC
Insolvency Act 1986
England and Wales
Citing:
Cited – Stein v Blake HL 18-May-1995
Where A and B each have claims against each other and A is insolvent, the common amount is set off, and the net difference remains as a debt due.
Hoffmann L said: ‘It is a matter of common occurrence for an individual to become insolvent while . .
Cited – Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd and Another SC 27-Jul-2011
Complex financial instruments insured the indebtedness of Lehman Brothers. On that company’s insolvency a claim was made. It was said that provisions in the documents offended the rule against the anti-deprivation rule. The courts below had upheld . .
Cited – In re Glen Express Ltd ChD 2000
The rule against double proof is implicit in the Insolvency Act 1986, and ‘remains good law. It is an overarching principle which still applies to insolvency, and nothing in Stein v Blake [1996] AC 243 calls it into question.’ . .
Appeal from – In re Kaupthing Singer and Friedlander Ltd ChD 18-Dec-2009
The bank went into adminstration under special arrangements. The administrators of KSF applied to the Chancery Division for directions as to the applicability of the rule in Cherry v Boultbee.
Held: The rule was not excluded. The . .
Cited – Cherry v Boultbee CA 6-Apr-1838
TB was indebted to CB, his sister, in the sum of andpound;1878. He became bankrupt, and shortly after his bankruptcy C B made her will, giving legacies of andpound;500 and andpound;2,000 to her executors, in trust to pay the interest thereof (as to . .
Cited – In re SSSL Realisations (2002) Ltd and Another; Squires and others v AIG Europe (UK) Ltd and Another CA 18-Jan-2006
A creditor claiming an equity in a debt but who himself owed money to the debtor, could not pursue his claim without first contributing the sum due. A person could not take an aliquot share out of a fund without first contributing what he owed to . .
See Also – In re Kaupthing Singer and Friedlander Ltd CA 11-May-2010
The court was asked as to the set-off, in a company administration, of future debts owed by the company to its creditors and by those creditors to the company, and whether the effect of those provisions was that, after the future debts were . .
See Also – In re Kaupthing Singer and Friedlander Ltd ChD 2-Oct-2009
. .
Cited – In re Melton, Milk v Towers CA 1918
In 1901 Richard Melton and another guaranteed to a Bank his son Arthur’s debts up to andpound;500. Richard died survived by his widow, Arthur and three daughters, giving his real estate to his widow for her life, with remainder to his four children . .
Cited – Secretary of State for Trade and Industry v Frid HL 13-May-2004
The company went into insolvent liquidation. The secretary of state was to make payments to employees and there were other state preferential creditors. At the same time a refund of VAT was due from the Commissioners of customs and Excise.
Cited – In re Oriental Commercial Bank 1871
The court considered the rule against double proof. Mellish LJ said: ‘This rule against double proof applies in the Court of Chancery as well as in the Court of Bankruptcy, and therefore would apply equally where companies are being wound up.’
Cited – Jeffs v Wood and others CA 1723
Jeffs senior had made a will appointing his son Jeffs junior as his executor and leaving a legacy of pounds 500 to his nephew Wood, who was indebted to the testator in a smaller sum. Wood was made bankrupt after the testator’s death, but before the . .
Cited – Willes v Greenhill CA 16-Nov-1860
The testator had in 1830 backed a bill for his son Henry. It was dishonoured, and after the testator’s death in 1832 his executors met the liability. Henry had a one-sixth interest, subject to his mother’s life interest, in the residuary trust fund. . .
Cited – In re Akerman ChD 2-Jul-1891
The court was asked whether in the division of the testator’s residuary estate three of the testator’s seven children had to bring into account statute-barred debts due to the estate.
Held: They were bound to bring them into account. Kekewich . .
Cited – Barclays Bank Ltd v TOSG Trust Fund Ltd CA 1984
Oliver LJ acceded to a submission that the rule better be called the rule against double dividends, for its object was to absolve the liquidator from paying out two dividends on what was essentially the same debt. Because overlapping liabilities . .
Cited – In re Fenton CA 1931
A surety under a pre-insolvency guarantee, had not actually paid, and could not pay, being bankrupt with his assets vested in the trustee. The creditor was still owed the money and entitled to prove in the liquidation.
Held: One could not have . .
Cited – In re Overend Gurney and Co (Grissell’s case) 1866
On the insolvency of a company, no cross claim may be set off against the company member’s liability for unpaid capital, for debt. Lord Cheldmsford LC said: ‘If the amount of an unpaid call cannot be satisfied by a set-off of an equivalent portion . .
Cited – In Re Peruvian Railway Construction Co Ltd 1915
William Alt died insolvent in 1908. His estate included shares in the company, which went into voluntary liquidation in 1914. Alt owed the company andpound;2,633.
Held: In the distribution of the company’s surplus assets the liquidator could . .
Cited – In re Auriferous Properties Ltd (No 2) 1898
A claim was made in the liquidations by a creditor, but the creditor also held shares in the company which were not fully paid up.
Held: The creditor plaintiff could recover nothing as a creditor until all his liability as a contributory had . .
Cited – In Re Rhodesia Goldfields Ltd ChD 1910
Partridge, a director of the company who held some of its debenture stock, was facing a serious misfeasance claim which had not yet been resolved. Set-off was therefore not available.
Held: Payment of what was due to Partridge and his . .
Cited – In re Binns 1896
Two sons were made bankrupt after the death of their father who was surety under a loan. . .
Cited – In re West Coast Gold Fields Ltd 1905
The shareholder was bankrupt, but the company, in which he owned shares on which the capital remined unpaid, was solvent and in voluntary liquidation.
Held: The payment-up of the shares in full was a condition precedent to any participation in . .
Cited – In re Melton, Milk v Towers CA 1918
In 1901 Richard Melton and another guaranteed to a Bank his son Arthur’s debts up to andpound;500. Richard died survived by his widow, Arthur and three daughters, giving his real estate to his widow for her life, with remainder to his four children . .
Cited – In re Polly Peck International plc ChD 1996
It was argued, unsuccessfully, that a special purpose company incorporated in the Cayman Islands should be regarded as a single economic unit with the holding company, so as to eliminate ‘double dip’ as well as double dividend.
Held: There . .
Cited by:
Cited – LB Holdings Intermediate 2 Ltd, The Joint Administrators of v Lehman Brothers International (Europe), The Joint Administrators of and Others SC 17-May-2017
In the course of the insolvent administration of the bank, substantial additional sums were received. Parties appealed against some orders made on the application to court for directions as to what was to be done with the surplus.
Held: The . .
Lists of cited by and citing cases may be incomplete.
Insolvency, Equity
Updated: 01 November 2021; Ref: scu.447487
