What are good grounds for appeal in insolvency applications?

Applying for permission to advance fresh evidence on appeal is a tricky application, which has had varying degrees of success in the courts. Zheng Yougxiong v Gate Ventures Plc(1) is a useful example of the application of the criteria, albeit in the context of insolvency proceedings.

Background

Mr Zheng was a shareholder in, and creditor of, Gate Ventures plc.  He sought and failed to obtain an administration order against Gate Ventures plc on the basis of a £2.5 million debt (the First Application).

Gate Ventures plc told the court that it would be receiving quarterly payments of £50,000 from another company, Ginger & Moss Limited. Those payments were shown in its cash flow forecast which formed part of a plan  to pay off its creditors. When asked at the hearing why the first payment had not yet been received, Gate Ventures plc said that it was because of the fact of the First Application having been made.

At the hearing of the First Application, Judge Prentis concluded that Gate Ventures plc was insolvent on a cash flow basis, but not on a balance sheet basis, and although there was a reasonable prospect of the purpose of administration being achieved, as a matter of discretion he refused to make the administration order. Gate Ventures plc had a better prospect of being able to trade out of its cash flow difficulties if it remained outside a formal insolvency process. That was based on evidence presented by Gate Ventures plc which included its plans for trading out of its difficulties and incorporated the cash flow forecast which demonstrated its ability to do so. Permission to appeal the decision of Judge Prentis was refused on the papers by Roth J on 2 December 2019; Mr Zheng therefore pursued an application for permission before Zacaroli J which was refused on the grounds of appeal then relied on.

New evidence was uncovered showing that the quarterly payments of £50,000 from Gate Ventures plc were not obligation but a payment plan that had merely been discussed, Mr Zheng applied to amend his grounds of appeal/seek permission to appeal on that basis and on the basis that Gate Ventures plc deliberately misled the court. 

Decision

The criteria that must be satisfied for an appeal⁽²⁾ are:

1. The evidence could not have been obtained with reasonable diligence for use at trial.
2. The evidence is such that it would probably have an important influence on the result of the case, although it may not be decisive.
3. The evidence must be such as is presumably to be believed.

Zacaroli J was satisfied that there was a real prospect of successfully establishing that, had the new evidence been available to the judge at the time of the hearing, it would probably have had an important influence on him when weighing up the reliability of both parties evidence.

As to Mr Zheng's allegation that Gate Ventures plc had deliberately misled the court, Zacaroli J decided that it was not something he could determine without cross-examination.  However, he thought there is a real prospect of establishing on appeal at least a prima facie case that the court was misled.

On that basis Zacaroli J granted permission to appeal on both grounds of the application.

Comment

Applying for permission to advance fresh evidence on appeal is a tricky application, which has had varying degrees of success in the courts. This case is a useful example of the application of the criteria. Zacaroli J granted permission to appeal as he was satisfied that the evidence could not have been obtained with reasonable diligence for use at a hearing and that there was a real prospect of showing that if the fresh evidence had been available to the first instance judge the decision may have been different.

This case makes it clear that if unreliable evidence is put before the court, decisions based on that unreliable evidence can be challenged on appeal, or by a fresh action being brought. Here, in the case of insolvency proceedings, the company is left in a state of limbo as it continues to fend off applications for administration.

⁽¹⁾ [2020] EWHC 645 (Ch)