The Court of Appeal (CoA) was faced with the question of whether administrators can use Section 234 of the Insolvency Act (IA) 1986 to obtain an order for possession of a residential property occupied by a company director as a trespasser, when the property is already subject to a legal mortgage and receivers have been appointed under the Law of Property Act (LPA) 1925.
Background:
Rose Cottage Farm Ltd., a special purpose vehicle (SPV) set up by Mr. Reading, the appellant, purchased a property in Orpington with loans obtained from a company, TFG Capital No 2 (TGF2) Ltd. These loans were secured by a legal charge over the property and a floating charge over any other assets and the undertaking of the company.
Despite entering into a covenant not to permit occupation by related persons, Mr. Reading and his family occupied the property in early 2023 without a formal agreement. The company defaulted, and TFG2 appointed LPA receivers in August of 2023. TFG2 also issued possession proceedings in the County Court against Mr. Reading and the company under Civil Procedure Rule (CPR) 55, seeking an order for possession of the property. Mr. Reading contested these proceedings and took steps to frustrate TFG2's claim, including falsely stating that the charges had been satisfied.
In November 2023, TFG2 appointed the respondents, FRP Advisory as the joint administrators of the company. Instead of engaging with the ongoing Bromley proceedings, the administrators, with TFG2's consent, issued their own application in the Business and Property Courts in Leeds in March 2024, seeking declarations of the Company's ownership and the validity of the charges, in addition to orders for the sale of the land with vacant possession and delivery of possession by Mr. Reading and other occupiers. Later, a Section 234 of the IA 1986 was granted to the administrators. Mr. Reading appealed this decision.
Decision:
The CoA allowed the appeal. Lord Justice Snowden concluded that administrators cannot use Section 234 of the IA 1986 to obtain a possession order for a mortgaged residential property, particularly where LPA receivers have already been appointed and the mortgagee has initiated possession proceedings.
The Court agreed with the County Court that, under Section 436 of the IA 1986, the term “property”, for the purposes of Section 234, could include land and any interest in land. While the term "property" is wide enough to include land, Section 234 is not intended to apply where the only "possession or control of property" by a person is their occupation of land as a trespasser. In this context, the trespasser is not conveying or transferring an interest in the property itself, but merely ceasing occupation.
Lord Justice Snowden relied on Gosling v Gaskell and noted “the appointment of a liquidator did not give the company rights that it did not previously have, and there is no basis for any argument that the appointment of an administrator to manage the company's affairs, business and property could give the company in administration any rights to property that it did not have prior to the administration.” In this case, the company remained in possession, although the effect of the Bromley proceedings terminated any right that the company had as mortgagor. Mr. Reading and the other occupiers remained in possession, paying a monthly amount into court pending the appeal's outcome.
Regarding the abuse of process, the Court noted, “It is self-evident that the commencement of duplicative proceedings so as to subject a defendant to more than one set of proceedings on the same subject matter at the same time is capable of amounting to an abuse of process.”
Implications:
This case clarifies that Section 234 does not permit a possession order, meaning the administrators cannot try to circumvent other proceedings to obtain a possession order under that section. It emphasises that Section 234 is a summary procedure to assist in getting in company property, not a tool to create new rights or override existing proprietary interests, especially those of a mortgagee. This means administrators cannot simply use it to evict occupiers from mortgaged land if the company itself does not have a clear entitlement to possession.
The judgement is also clear that the presence of pre-existing LPA receivers (per the Law of Property Act 1925) significantly impacts an administrator's ability to seek possession under Section 234.