• In the case of Re Polly Peck International Plc (In Administration) (No. 2) [1998] 3 All E.R. 812, that for leave to be granted to commence proceedings against an insolvent company in administration, an applicant had to establish that the court had jurisdiction to entertain the claim and that there was a seriously arguable case.

Facts of the Case

  • Each applicant making up C claimed to own and be entitled to immediate possession of certain immovable property in Northern Cyprus. This property has been expropriated following the Turkish invasion and occupation of the territory.
  • Under purported legislation of the Turkish Federated States of Cyprus all immovable property belonging, inter alia, to Greek Cypriots, was transferred into the control and ownership of the Turkish Federated State.
  • Under further purported law in 1985, immovable property and land was declared to be the immovable property of the Turkish state,, who were entitled to lease it and make grants for long periods.
  • C contended that their property was illegally occupied and exploited without their authority by direct or indirect subsidiaries of D. The properties were occupied under leases and contracts for leases entered by ministries of the Turkish State and the relevant subsidiary of D.
  • It is alleged that by this means D derived substantial financial advantages from the commission of illegal acts. This situation continued until the sale of the shares in the subsidiaries for a substantial (but undisclosed) sum by D on 24 March 1995.

Issues

  • Could C claim that the sum D sold its shares for was held on a ‘remedial constructive trust’ for C’s benefit?

Held by the Court of Appeal (Civil Division)

  • C’s sought declaration could not be granted because it would confer a priority which the statutory scheme sought to prevent.

Mummery L.J.

  • Parliament has sanctioned a scheme for pari passu distribution of assets designed to achieve a fair distribution of D’s property among the unsecured creditors. This scheme, now contained in the Insolvency Act 1986, was described in Re Paramount Airways Ltd [1992] 3 All ER 1 as a ‘coherent, modernised and expanded’ code.
  • The provisions of that code apply both to an insolvent company in formal liquidation and to one subject to an administration order. The essential characteristic of the scheme is that the liquidator/administrator is bound to deal with the company’s assets as directed by statute for the benefit of all creditors who come to prove a valid claim.
  • If the asset is the absolute beneficial property of the company there is no general power in the liquidator, the administrators or the court to amend or modify the statutory scheme so as to transfer that asset or to declare it to be held for the benefit of another person. To do that would be to give a preference to another person who enjoys no preference under the statutory scheme.
  • “The position is that there is no prospect of the court in this case granting a remedial constructive trust to the applicants in respect of the proceeds of sale of the shares held by PPI in its subsidiaries, since the effect of the statutory scheme applicable on insolvency is to shut out a remedy which would, if available, have the effect of conferring a priority not accorded by the provisions of the statutory insolvency scheme. In her eloquent address, Miss Dohmann submitted that ‘the law moves.’ That is true. But it cannot be legitimately moved by judicial decision down a road signed “No Entry” by Parliament.”

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