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Wednesday 5 February 2020

In the matter of Comet Group Limited (in Liquidation) [2018] EWHC 1378 (Ch)

This judgment is an important one. It concerned an application by the joint liquidators of Comet (formerly joint administrators) for directions permitting them not to carry out any further investigation into the validity of the fixed and floating charge held by a single purpose vehicle (“HAL”) that had been granted by Comet under a year before it collapsed into administration. The joint liquidators also sought a direction that they be permitted to transfer a further tranche of funds to HAL that had been realised in the administration.

The joint liquidators joined the Institute of Chartered Accountants of England and Wales (“ICAEW”) as a respondent to the application on the ground that the ICAEW had threatened to report the joint liquidators to their licensing body if they transferred further funds to HAL. The joint liquidators were already subject to disciplinary proceedings that had been commenced by ICAEW in 2014 with complaints, inter alia, that when the joint liquidators accepted their appointment originally as joint administrators they had not put in place sufficient safeguards to address conflicts of interest that they had as a result of their prior relationship with HAL and its ultimate owners.

The joint liquidators’ position on the application was that they had obtained two opinions from Freshfields and one opinion from David Allison QC to the effect that the security held by HAL was valid and that, therefore, the joint liquidators were entitled to act pursuant to that advice. In response, the ICAEW obtained an opinion from Lexa Hilliard QC that had concluded that there were a number of issues surrounding the grant of the security to HAL which cried out for investigation and that, in the absence of such investigation, it was well arguable that the security was invalid.

Sir Nicholas Warren held in a judgment handed down on 7 June 2018 that, contrary to the advice that the joint liquidators had received, there were a number of issues surrounding the grant of the security to HAL that deserved investigation and that the joint liquidators, by reason of their perceived lack of independence as a consequence of their prior relationship with HAL, should not carry out those investigations. The Judge went on to hold that the investigations should be carried out by an independent additional liquidator, which the Judge appointed at a subsequent hearing.

In a later judgment handed down on 21 June 2018, the Judge imposed reporting restrictions on the publication of the main judgment in order not to prejudice any investigation that might be carried out by an independent additional liquidator, once appointed. Costs were awarded to ICAEW on the indemnity basis.

This case has been widely reported including by The Times. It also featured in the Financial Times here and here.

The 2018 judgments can be viewed here and here.

By an order dated 7 January 2020, Deputy ICC Judge Frith lifted the reporting restrictions on publication of both judgments.

Terence Mowschenson QC and Lexa Hilliard QC acted for the ICAEW.


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