“Adjudication Awards Do Not Extinguish Subsequent Creditor Claims in Insolvency Voting”

Introduction

Bhundia v Dhar (Re Five Delta Ltd – Insolvency Act 1986) [2025] EWHC 1227 (Ch) is a Court of Appeal decision addressing how proofs of debt are treated for voting purposes at a creditors’ voluntary liquidation meeting. The case arises out of Five Delta Limited’s collapse following a high-value property renovation contract (the “Project”) between the Applicant creditor (a solicitor active in construction law) and the Company, directed by Mr Dhar. After an adjudication award in favour of the Applicant for liquidated delay damages, the Company entered liquidation. At the creditors’ meeting, chaired by Mr Dhar, the Applicant’s proof was admitted only in part (£104,426.19 of a £393,423.98 claim), while other proofs (including Mr Dhar’s own claim and those of Reliable Housing Ltd and Kajaine Accountants Ltd) were admitted in full. The Applicant appealed under Insolvency Rule 15.35(1), arguing that had his full proof been admitted he would have commanded a majority vote and appointed his chosen liquidators.

Summary of the Judgment

ICC Judge Barber allowed the appeal. He found that:

The Applicant’s aggregate overpayment claim of £110,643.36 was properly made out by bank-statement reconciliation and lack of vouching invoices;
An additional £5,940 paid to Camerich UK Ltd for undelivered furniture and £4,277.71 for undelivered Gaggenau appliances should also have been admitted;
The Applicant’s snagging claim of £6,750.50 failed for want of documentation;
Mr Dhar’s own loan account proof of c.£16,435 was unsustainable and should have been rejected;
Reliable Housing’s proof of £113,760 and Kajaine Accountants’ proof of £11,700 (lodged late but within the chair’s retained discretion) were correctly admitted;
The adjudication award alone did not merge or estop the Applicant’s other claims;
The admission decisions gave rise to material irregularity under Rule 15.35(3) IR 2016 and, once corrected, would have delivered the Applicant a majority vote.

Analysis

Precedents Cited

Re McNally [2013] EWHC 1685 (Ch): burden is on a creditor on appeal to prove debt on a balance of probabilities;
Revenue & Customs Commissioners v Maxwell [2010] EWCA Civ 1379: appellate court forms its own view;
Karapetian v Duffy [2022] EWHC 1053 (Ch): chair admitted or rejected claims based on sufficiency of evidence;
Re Globe Legal Services Ltd [2002] BCC 858: when to expunge or reduce an admitted proof;
Richmondshire DC v Dealmaster Ltd [2021] EWHC 2892 (Ch): unfair prejudice vs material irregularity distinction (procedural defects at meetings);
Henderson v Henderson (1843) 3 Hare 100 and Clark v In Focus Asset Management [2014] EWCA Civ 118: causes of action estoppel and merger principles;
Housing Grants, Construction & Regeneration Act 1996 and Scheme for Construction Contracts 1998: adjudication framework.

Legal Reasoning

The court applied the insolvency voting rules and established that a chair’s decision on proofs is appealable under Rule 15.35. On appeal, the court must form its own view. The Applicant bore the legal burden to prove his debt. By a careful reconciliation of bank statements and invoices, the court identified £110,643.36 of overpayments made by the Applicant which remained unaccounted to the Project. Supplementary claims for undelivered items were similarly supported by bank entries and third-party confirmations. By contrast the Respondent’s loan-account proof lacked documentary support and a proper audit trail and was disallowed.

Crucially, the court held that the adjudicator’s award of £104,426.19 did not extinguish the Applicant’s other heads of claim by merger or collaterally estop their assertion for insolvency voting. Adjudication awards are temporary and binding only until final determination by litigation or arbitration; summary judgment is required to create a final court judgment. The Scheme itself contemplates multiple adjudications on discrete issues under the same contract, and parties often pursue serial referrals. Consequently, the Henderson principle and res judicata do not preclude an unsecured creditor from proving additional heads of debt in liquidation.

On Kajaine Accountants’ late proof, the court held that the chair retained a discretion under the terms of the meeting notice and could admit it for voting in extenuating circumstances. The unaffected admission of Reliable Housing’s proof turned on the consistency between timesheets and bank payments, notwithstanding timing and formal invoice gaps.

Impact

This decision clarifies that:

Creditors may prove multiple heads of claim in insolvency voting, even after obtaining an adjudication award on a narrow issue;
Adjudication awards do not merge into a single cause of action for voting claims and do not estop further proof of related unpaid sums;
Creditor proofs must be supported by contemporaneous documentation or bank-record reconciliation; missing invoices allow a court to draw adverse inferences;
Chairs in creditor meetings preserve a discretion to admit late proofs if the meeting notice so provides;
Appellate courts must reassess proof admissions de novo on a balance-of-probabilities basis.

Future insolvency practitioners and creditors will need to ensure that proofs of debt are fully documented and may confidently bring multiple claims in separate adjudications and in liquidation voting.

Complex Concepts Simplified

Proof of debt: A creditor’s statement of what is owed, submitted to vote in liquidation.
Adjudication award: A fast, interim decision on a discrete contract dispute—binding only until final court determination.
Merger/res judicata: Once a final court judgment is obtained, the original cause of action is extinguished. Interim adjudications alone do not qualify.
Open-book contract: A project contract where costs are billed at cost and supported by invoices, requiring transparent accounting.
Insolvency Rule 15.35: Provides appeal rights against a chair’s vote-admission decisions and empowers courts to order new decision procedures if needed.

Conclusion

Bhundia v Dhar establishes that insolvency voting is not confined by prior interim adjudications: creditors retain the right to prove all unpaid contractual claims in liquidation, provided those claims are documented on a balance of probabilities. Adjudication awards are provisional and do not preclude further proofs; chairs may admit late proofs where notices preserve discretion; and appellate courts conduct de novo reviews of proof admissions. This precedent strengthens creditor protections in insolvency and reinforces the requirement of transparent, contemporaneous record-keeping for open-book contracts.