Carvill-Biggs & Anor v Reading

Factual and Procedural Background

This appeal concerns whether administrators can obtain an order under section 234 of the Insolvency Act 1986 for delivery of possession of a residential property occupied as a trespasser by a director of the company. The property was charged by way of legal mortgage to a lender who enforced its security by appointing receivers and commencing possession proceedings in the County Court pursuant to CPR 55.

The freehold land, comprising a large house on a gated estate, was owned by Company A, a special purpose vehicle established by the Appellant to acquire the property in 2022. Company A borrowed £2.85 million from Company B, secured by a legal mortgage over the land and a floating charge over other assets. The loan agreement prohibited occupation of the land by persons related to Company A, but the Appellant and family members occupied it without any formal agreement.

After defaulting on the loans in April 2023, Company B appointed joint receivers under the Law of Property Act 1925 and initiated possession proceedings against the Appellant and Company A in the County Court (the "County Court Proceedings"). The Appellant contested these proceedings and took steps to challenge Company B's security.

In November 2023, insolvency practitioners were appointed as administrators of Company A by Company B as holder of the floating charge. The administrators sought to obtain possession of the land by way of an application under the Insolvency Act, rather than through the ongoing County Court Proceedings. The administrators' application sought declarations of ownership and orders for possession and sale of the land, naming the Appellant and other occupiers as respondents. Company B was not a party to this application.

The County Court judge made an order under section 234 requiring the Appellant to deliver possession to the administrators. The Appellant appealed this order.

Legal Issues Presented

1. Whether section 234 of the Insolvency Act 1986 permits administrators to obtain an order for delivery of possession of mortgaged land occupied by a trespasser when receivers have been appointed by the mortgagee.
2. Whether CPR 55 (the possession claim procedure) applies to an application made under section 234 for possession of land.
3. Whether it was an abuse of process for the administrators to commence possession proceedings under section 234 in the High Court while County Court possession proceedings by the mortgagee were ongoing.

Arguments of the Parties

Appellant's Arguments

• The Company had no entitlement to possession of the land that could justify an application under section 234, as the mortgagee's appointment of receivers divested the Company of such rights under section 87 of the Law of Property Act 1925.
• The application under section 234 did not comply with CPR 55 procedures, which should govern possession claims, and thus any possession order should have been made in the ongoing County Court Proceedings.
• The administrators' application was an abuse of process as it sought to bypass existing possession proceedings brought by the mortgagee, subjecting the respondents to duplicative litigation.

Respondents' (Administrators') Position

• Relied on the Company's registered title to establish entitlement to possession under section 234, arguing that none of the respondents had a better title.
• Asserted that the application was an insolvency application under section 234, not a possession claim under CPR 55, and thus the Insolvency Rules applied.
• Contended that possession by the administrators would further the purpose of the administration by enabling realisation of the Company's only substantial asset.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Leyland DAF Limited [1994] 2 BCLC 106	Section 234 does not create new property rights; office-holder has no better rights than the company.	Supported the principle that administrators cannot claim rights to property beyond those of the company.
Smith v Bridgend CBC [2001] UKHL 58	Confirmation that office-holders have no greater rights than the company.	Reinforced that section 234 orders depend on company's entitlement to property.
Ezair v Conn [2020] EWCA Civ 687	Same principle regarding office-holder's rights compared to the company.	Supported the court's interpretation of section 234.
Four-Maids Ltd v Dudley Marshall (Properties) [1957] Ch 317	A mortgagee's right to possession arises immediately upon execution of the mortgage.	Explained mortgagee's powers to take possession "before the ink is dry".
re B Johnson & Co (Builders) Ltd [1955] Ch 634	Receivers act primarily for mortgagee's benefit, not the mortgagor.	Clarified the role and powers of receivers appointed by mortgagees.
Downsview Nominees v First City Corp [1993] AC 295	Receivers exercise powers for mortgagee's benefit.	Supported the understanding of receivership powers.
Medforth v Blake [2000] Ch 86	Receiver's duties and powers explained.	Confirmed receiver's role as agent for mortgagee in possession and sale.
Silven v Royal Bank of Scotland [2004] 1 WLR 997	Receiver's powers and duties.	Further elucidated receiver's authority.
Gosling v Gaskell [1896] 1 QB 669; [1897] AC 575	Appointment of receiver precludes mortgagor from revoking receiver's powers.	Confirmed receivers' exclusive control over charged property despite winding-up.
Sowman v David Samuel Trust [1978] 1 WLR 22	Winding up affects receiver's agency but not powers over mortgaged property.	Clarified receiver's continuing powers post winding-up.
Buchler v Talbot [2004] 2 AC 298	Winding up creates separate funds for secured and unsecured creditors; mortgagee's proprietary interest unaffected.	Explained proprietary interests during liquidation relevant to property entitlement.
Ayerst v C&K (Construction) Ltd [1976] AC 167	Liquidation creates a trust for assets for creditors, affecting proprietary interests.	Supported the principle that liquidation affects company's beneficial interest.
O'Connell v Rollings [2014] EWCA Civ 639	Court's power under Schedule B1 to order sale of charged property as if unencumbered.	Referenced for the limited power to sell fixed charge property in administration.
Kitchen's Trustee v Madders [1950] 1 Ch 134	Mortgagor's right to possession ceases upon mortgagee's notice to take possession.	Confirmed mortgagor cannot assert possession rights against mortgagee after notice.
Hunter v Chief Constable of the West Midlands Police [1982] AC 529	Definition and principles of abuse of process.	Used to consider whether duplicative proceedings constitute abuse of process.

Court's Reasoning and Analysis

The court began by examining the scope and purpose of section 234 of the Insolvency Act 1986. It clarified that section 234 is a summary procedure enabling an insolvency office-holder to recover company property but does not create new property rights beyond those of the company itself. The court confirmed that "property" under section 234 includes land and interests in land.

The court then analysed the nature of the mortgage and the rights of the mortgagee and mortgagor. It explained that a legal mortgage confers on the mortgagee a statutory right to possession and to appoint receivers who hold the property as agents primarily for the mortgagee's benefit. The mortgagor retains the legal estate subject to the mortgage but loses the right to possession against the mortgagee upon the mortgagee's exercise of possession rights.

Importantly, once receivers were appointed by the mortgagee prior to administration, the mortgagor (and thus the company) had no entitlement to possession or control of the property that could be enforced against the mortgagee or the receivers. The mortgagor's interest was limited to the equity of redemption, which does not include a right to possession in these circumstances.

The court found that section 234 could not be used by administrators to obtain possession of property subject to a fixed charge with receivers appointed, as the company was not entitled to possession. The administrators stood in no better position than the company and could not invoke section 234 to oust the mortgagee's receivers.

Regarding procedural issues, the court acknowledged that CPR 55 governs possession claims but held that insolvency proceedings under section 234 are governed primarily by the Insolvency Rules, which incorporate CPR with modifications. The court found no automatic invalidity for failure to comply strictly with CPR 55, especially where the respondents had adequate opportunity to respond and defend.

On the abuse of process ground, the court observed that commencing duplicative possession proceedings in the High Court while possession proceedings were ongoing in the County Court could amount to abuse of process. The administrators' application appeared to serve the private interests of the mortgagee, Company B, by circumventing the existing possession claim.

Holding and Implications

The appeal was allowed on the primary ground that section 234 does not permit administrators to obtain an order for possession of mortgaged land subject to receivership where the company is not entitled to possession.

The court set aside the possession order made in favour of the administrators. The decision leaves the ongoing County Court possession proceedings unaffected and does not alter the rights of the mortgagee or the receivers. No new precedent was established beyond the application of established principles concerning mortgagee rights, insolvency procedures, and abuse of process.