Insolvency: When is a creditor not a creditor?

Rule 7.19 of the Insolvency (Scotland) (Receivership and Winding Up) Rules 2018/347 states that “any creditor” may appeal to the court in relation to the acceptance or rejection of “any claim” not later than 14 days before the end of the accounting period. In Spex Group Holdings Ltd, Noter [2022] CSOH 74 the court was called upon to consider how widely the term “any creditor” should be construed. In doing so, the court may have diverged the Scottish law on this point from the law of England & Wales.

Appeal

The noter was a creditor and contributory of two companies and sought directions on a number of issues. By the time of the hearing before the Lord Ordinary, agreement had been reached on the majority of the matters on which directions were sought. The remaining issue was reasonably narrow, concerning the right of a creditor whose claim has been rejected by the liquidator to appeal against the adjudication of another creditor’s claim.

As set out above, the rule in Scotland states that “any” creditor may appeal in relation to “any claim”. The noter argued that this allowed them, even in a case where their own claim had been rejected, to appeal against the liquidator’s adjudication of another creditor’s claim.

The respondent argued that where a creditor’s claim, following adjudication, had been rejected by the liquidator, the creditor no longer had a locus to appeal against any adjudication except their own. In effect the rejection of the claim meant that they were no longer a creditor and therefore had no right of appeal. It was argued that Parliament could not have intended a rejected creditor to be allowed to appeal, or to put other creditors to the expense of such an appeal.

Support for the respondent’s view appeared to be found in English authorities, encapsulated in McPherson & Keay’s Law of Company Liquidation as follows: “A creditor has the right to apply under rule 14.8(3) [of the equivalent English rules] unless and until the liquidator had rejected his or her proof.”

This was in turn based on a judgment of the Chancery Court at first instance.

Single meaning

The court found in favour of the noter’s interpretation of the rule. It was accordingly held that a creditor whose claim was rejected retained a right to appeal against the adjudication of other creditors’ claims and not merely their own.

In reaching this view, the Lord Ordinary noted that the Scottish rule was intended to cover all appeals against adjudication. Therefore, the words “any creditor” must be construed accordingly. Logically, a creditor could not be a creditor for the purpose of appealing against their own adjudication, but not a creditor when appealing against another party’s adjudication. “Creditor” within the rule ought to have a single meaning. 

The Lord Ordinary found that elsewhere in the rules the term “creditor” was used to include a person whose claim had been rejected. Therefore, this interpretation was consistent with the rules as a whole.

With regard to the referenced English authorities, the Lord Ordinary noted that the English rule was in two parts. The first dealt with appeals against one’s own adjudication and the second with appeals against another creditor’s adjudication. By contrast, the Scottish rule dealt with all forms of appeal in a single paragraph using the words “any creditor”.

This distinction aside, it was found that the English position was based on a first instance decision of a judge in the Chancery Division. That judgment is not binding in Scotland; furthermore, the comments upon which the textbook statement was based were obiter and had not been fully argued before the court. The Lord Ordinary was therefore not persuaded that the English authority should be followed in Scotland. Nothing put before the court suggested that the policy intention of the Scottish Parliament was contrary to the conclusion reached, and the decision accorded with the plain wording of the rule.

Comment

A creditor whose claim is rejected will usually be appealing against that rejection. It is rare for such a creditor to be appealing solely against the adjudication of a third party’s claim. Nevertheless, this judgment makes clear that a creditor whose claim is rejected will remain a creditor for the purposes of appeal regardless of that rejection.

While the Lord Ordinary identified that the English position is perhaps not based on solid ground, it does appear that the law of Scotland differs in this regard.