Very mixed news for Cyprus company in Isle of Man proof of debt appeal

Acting Deemster Hodge KC has handed down a significant (if lengthy) decision, in Nectrus Ltd v Joint Liquidators of UCP PLC (in liquidation) (CHP 26/0001) (11.09.26).

This decision may become required reading for Manx Bar students on:

• Rule 85 proof of debt challenges;
• insolvency set-off;
• Quistclose trusts; and
• the finality in insolvency proceedings of a final judgment pending appeal.

Background

Nectrus involved an appeal by Nectrus Limited (Nectrus), a Cyprus company, under Rule 85 of The Companies (Winding-Up) Rules 1934, the against decisions by the Joint Liquidators of UCP PLC (UCP), an Isle of Man company, rejecting Nectrus’s proof of debt for costs and interest of around £645,000 (the Costs claim) and some £6.4 million for interest on some £18.2 million, which UCP had been withholding from capital distribution by way of dividend to two indirect nominee companies of Nectrus (the Nominees), since January 2015 (the Interest claim).

Spoiler alert: Nectrus succeeded in the Costs claim (in respect of £344,755.88), but failed in the Interest claim (in respect of the £6.4 million).

Acting Deemster Hodge KC summarised the complex background at §§ 6-7 (as further summarised below):

“6. UCP was incorporated by Unitech Ltd (Unitech),… [an]… Indian… company, to acquire… investment in properties… Through… Mauritian and Indian subsidiaries, UCP owned 60% of these… investments, and Unitech owned 40%. Nectrus, an indirect subsidiary of Unitech, provided… advice under an Investment Management Agreement dated 14 December 2006 (the IMA) with UCP and Candor Ltd (Candor), a Mauritian subsidiary. Nectrus… became the ultimate beneficial owner of a 13.62% shareholding in UCP, held by the nominees. In 2014, UCP sold Candor… The purchase price was reduced by about £26.6m due to difficulties in recovering deposits in India. UCP acquired the right to pursue these ‘stranded deposits’, making… incomplete, recoveries and incurring irrecoverable legal costs. In early 2015, UCP held Nectrus responsible for these losses… and withheld… £18.2m from amounts due to Nectrus as a 13.62% shareholder (through the nominees)… from the sale… of Candor. This withheld sum became the subject of litigation, both in the Isle of Man and in England, where UCP claimed damages for breach of the IMA on the part of Nectrus. This claim succeeded in part before Sir Michael Burton GBE, both in relation to the stranded deposits and the recovery costs.

7. … Sir Michael Burton GBE handed down a [further] judgment on 29 November 2019 [UCP PLC v Nectrus Ltd [2019] EWHC 3274 (Comm)]. This permitted UCP to set off certain sums due to it from Nectrus (including interim [English] costs… and certain of the [Isle of Man] costs…) against the [withheld] dividends… Nectrus… relies upon… [§] 10 of the court’s order, which declares that UCP “is entitled to set-off against monies otherwise due to [Nectrus] through its nominee shareholders in respect of [UCP’s] past or future shareholder distributions” various… costs orders. UCP subsequently accepted that its claim for discount damages was barred… That ultimately led… to the Court of Appeal… making an order on 16 March 2023… that certain of the set-offs made pursuant to Sir Michael Burton GBE’s quantum order against monies otherwise due to Nectrus through its nominee shareholders in respect of UCP’s … distributions were “to be reversed within 14 days”. However, the set-offs ordered in relation to the various costs orders remained undisturbed.”

Earlier related Isle of Man decisions include:

• Nectrus v UCP PLC & others (ORD 17/0027) (18.04.23) (Acting Deemster Christie KC rejecting Nectrus’s application for declarations that it, or the Nominees, were entitled to recover interest on the sums withheld by UCP) (subject to a stayed appeal)
• Cruz City 1 Mauritius Holdings v Unitech Ltd & others (CHP 13/0066) (21.08.23) (Acting Deemster Rosen KC rejecting Cruz’s application for a declaration that Nectrus held its assets on bare trust for Unitech)
• Nectrus Ltd v Joint Liquidators of UCP PLC (in liquidation) (CHP 26/0001) (13.01.26) (Deemster Corlett dismissing Nectrus’s application to injunct the UCP creditors’ meeting).

Summary of Nectrus’s position

Nectrus’s proofs of debt were rejected by the liquidators on 28th November 2025. Proofs of debt submitted by the Nominees were admitted on 9th December 2025, also determining that they were contributory claims, ranking below unsecured creditors. Nectrus filed a claim form on 19th December 2025.

At § 16, Acting Deemster Hodge KC summarised Nectrus’s position on the costs claim:

“UCP has already set-off costs awarded to it from Nectrus against the withheld dividends. The nominees have received cash distributions, and have proved for the withheld dividends, on this basis. It is therefore no longer open to the liquidators to seek to effect a mutual insolvency set-off of such costs under s. 22 [of the Bankruptcy Code 1892] because the costs orders no longer remain unsatisfied…”.

At § 17, he summarised Nectrus’s position on the interest claim:

“Nectrus contends that the liquidators have wrongly rejected its claim for interest on the sums wrongly withheld from distribution by way of dividend since 2015, amounting to some £6.428m.”

Nectrus also challenged (see § 19) the liquidators’ decision:

“… to rank the nominees’ claims as contributory, rather than unsecured creditor, claims, with the consequence that they rank in priority behind unsecured creditor claims”.

Challenging proof of debt decisions

Part of the Court’s complex task was to address the law on challenging liquidators’ proof of debt decisions. Rule 85 provides:

“If a creditor or contributory is dissatisfied with the decision of the liquidator in respect of a proof, the Court may, on the application of the creditor or contributory reverse or vary the decision; but, subject to the power of the court to extend the time, no application to reverse or vary the decision of the liquidator in a winding up by the Court rejecting a proof sent to him by a creditor or person claiming to be a creditor shall be entertained unless notice of the application is given before the expiration of twenty one days from the date of the service of the notice of rejection.”

After reviewing the authorities (§§ 39-41), at § 42, Acting Deemster Hodge KC summarised applicable principles on appeals under Rule 85:

“(1) On an appeal from a decision under rule 85 the function of the court is not merely to decide whether the liquidators were right or wrong in rejecting the proof of debt at the time when they rejected it on the evidence that was then before them.

(2) Rather, the task of the court is simply to examine the evidence placed before it on the matter and come to a conclusion whether, on the balance of probabilities, the claim against the company is established and, if so, in what amount.

(3) … the court is not confined to the evidence that was before the liquidators at the time they made their decision but is entitled to consider whatever admissible evidence on the issue the parties to the appeal choose to place before the court.

(4) The court must approach the question afresh (or de novo) and determine to what extent the appellant ought to be allowed to rank as a proving creditor.

(5) It is not merely the function of the court to say that a decision is right or wrong; it may vary it in any way it thinks necessary in the light of the evidence before the court.

(6) The ordinary rules of evidence and the burden of proof apply; and the appellant is required to establish their claim on the balance of probabilities.

(7) Where the liquidators make a positive allegation in regard to any aspect of the disputed claim, they will bear the burden of proof on that particular issue, subject to the overarching principle that the burden of proof on the appeal rests on the appellant.”

As to point (7), the Court referred to dicta of the Grand Court of the Cayman Islands (Parker J) in Re North Sound Pharmaceuticals Inc (FSD 110 of 2022) (21.02.24) at [56].

Standing

At § 45, the Court set out the following on standing to claim under Rule 85:

“… any person who claims to be a creditor of a company in liquidation has the necessary standing to mount an appeal under rule 85 if they are dissatisfied with a decision of the liquidator in relation to a proof of debt. I accept that such a person must have a sufficient interest in the outcome of any such appeal, either because the  liquidator’s decision relates to their own proof of debt, or because that decision has actual, or potential, implications for their own interests in the liquidation… In the unusual circumstances of the instant case, I consider that Nectrus has a clear financial interest in ensuring that the liquidators’ treatment of the nominees’ claims in UCP’s liquidation is in accordance with the law. Those circumstances are to be found in the judgment of Sir Michael Burton GBE at [53], holding that “the distributions should be treated as owing to Nectrus, and thus appropriate to set-off against the judgment debt and the present and any future costs orders in the Manx Courts”…”. 

Insolvency set-off

The Court was also required to consider insolvency set-off.

Section 22 of the Bankruptcy Code 1892 provides (so far as material):

“Where there have been mutual credits, mutual debts, or other mutual dealings between a debtor against whom an order of adjudication shall be made under this Act, and any other person proving or claiming to prove a debt under such order, an account shall be taken of what is due from the one party to the other in respect of such mutual dealings, and the sum due from the one party shall be set off against any sum due from the other party, and the balance of the account, and no more, shall be claimed or paid on either side respectively …”.

After referring to Simpson v Light House Living Ltd 2011 MLR 524 – against which decision (it may be noted) the JCPC granted PTA – the Court summarised the following principles (at § 49):

“(1) S. 22 is mandatory, automatic, and self-executing on the making of a winding-up (or bankruptcy) order.

(2) The proper construction of s. 22 is answered by considering the precise language used, its context, and the purpose of the Code. Such purpose is to establish whether, on an insolvency, there are debts and credits between the same parties.

(3) Whilst s. 22 begins with a reference to ‘mutual credits, mutual debts or other mutual dealings’, the section is addressed not to those dealings as such, but to the mutuality of the outcome of those dealings, i.e. the debts and credits which are the product of those dealings.

(4) The task of the court is not to seek to do substantial justice between the parties to mutual dealings upon the insolvency of either of them.

(5) Rather, the proper approach is: (a) to look at the mutuality of the outcome of the dealings between the parties; and (b) then to ascertain whether there were mutual credits and debits between the same parties, rather than taking a wider view and looking at the overall parties to the dealings and their interest in the transactions.

(6) S. 22 operates only where, on the making of a winding-up order, a sum is due from the insolvent to one person, and a sum is due from that same person to the insolvent. The court is required to look at the debts which were the outcome of the transactions between the parties, and then to decide whether they are mutual debts within the meaning of s. 22.

(7) Thus, where a sum is due from a trustee, and not their beneficiary, s. 22 will effect a set-off between that sum and any sum owed to the trustee, but not a sum owed to the beneficiary.”

The Court reached the following conclusion on Nectrus’s costs claim:

“72… the consistent theme that clearly emerges from UCP’s annual reports and financial statements… since 2019 is that UCP had acted so as to implement, and execute, the right of set-off declared by the quantum order, and had thereby effectively extinguished Nectrus’s outstanding liability under the outstanding costs orders in favour of UCP. Since there was no remaining costs liability on the part of Nectrus in favour of UCP, there was no longer any countervailing sum against which the liquidator could seek to set-off Nectrus’s costs claim. Therefore insolvency set-off did not, and does not, enter into the equation. … [A]s at the liquidation date, Nectrus was a creditor of UCP; and… its costs claim should be admitted to proof in the amount of the liquidators’ ‘just estimate’ of the balance of the sums due to Nectrus. I therefore allow Nectrus’s rule 85 appeal in relation to the costs claim.

73. Had I found… that insolvency set-off was engaged, because Nectrus’s liabilities to UCP had not been extinguished, I would have held that no interest should be allowed to UCP when calculating the amount due from Nectrus to UCP… UCP has never been out of pocket because it has been withholding sums due to the nominees by way of declared dividends, and has been (or should have been) earning interest on those moneys”.

The Court reached the following summary conclusion in dismissing Nectrus’s interest claim:

“76. … I am satisfied that this court is bound by Acting Deemster Christie KC’s judgment. The arguments advanced… were all squarely raised, and were in issue, at the hearing before the Acting Deemster…

83. If I am wrong in that conclusion, I would hold that the interest claim falls to be dismissed for all the reasons given in the judgment of the Acting Deemster…”.

Quistclose trust

As part of Nectrus’s interest claim, Nectrus had argued that UCP held the withheld sums on trust for Nectrus (or the Nominees), either by way of a resulting or Quistclose-type trust or a constructive trust.

At § 87, the Court went back to basics on Quistclose trusts:

“The authoritative summary of the law governing Quistclose trusts is now to be found in the leading judgment of Patten LJ in Bieber v Teathers Ltd [2012] EWCA Civ 1466, [2013] 1 BCLC 248 at [14]-[16]. The first two of these paragraphs are cited in the judgment of the Acting Deemster at [56]-[57]. … [T]he critical question in every case is whether the common intention of the payer and the recipient is that the money that passes between them is to be at the free disposal of the recipient. The whole foundation of a Quistclose-type trust is premised on the transfer of money from one person to another, on terms which do not exhaust the entire beneficial interest of the payer.”

At § 92, the Court concluded:

“… Acting Deemster Christie was right to reject Nectrus’s Quistclose-type resulting trust analysis for the reasons he gave at [59]-[66] of his judgment. For such a trust to arise, it must be demonstrated that one person has transferred the legal title to another without exhausting the beneficial interest. That is not what happened here…”.

Finality (in insolvency proceedings) of judgment pending appeal

Also as part of Nectrus’s interest claim, the Court considered the finality, specifically in insolvency proceedings, of Deemster Christie’s judgment pending appeal.

The Court identified the following principles (at § 81):

“(1) The normal rule is that a judgment is final and binding, and may give rise to a plea of res judicata, even though it is the subject of a pending appeal, or application for a stay.

(2) Because the insolvency court is not only concerned with the interests of the judgment creditor and debtor, but also with the interests of the judgment debtor’s other creditors, the grounds on which the insolvency court may go behind a judgment that has been entered against the insolvent are more extensive than those on which an ordinary civil court might seek to set it aside.

(3) In particular, an insolvency court may go behind a judgment that has been entered against the insolvent if it is satisfied that the judgment creditor manifestly had no  claim on which the judgment could properly have been founded.

(4) What is required before the court will be prepared to investigate a judgment that has been entered against an insolvent is some fraud, collusion, or other miscarriage of justice.

(5) There is some authority that the insolvency court will also be prepared to do so if there is an outstanding appeal against the judgment, or an application to set it aside. But there is also authority the other way.

(6) In deciding whether to go behind the judgment, and, if so, in appraising the validity of the creditor’s claim, neither the court nor the liquidator or trustee in bankruptcy is limited to the evidence that was before the original court when it entered its original judgment.

(7) However, this limited exception to the principle of public policy that a final judgment is indeed final does not apply in the reverse situation, where a claim has been dismissed, and a money judgment refused, against the insolvent, as the successful party, so as to permit the dissatisfied, unsuccessful claimant to assert, as against the defendant’s insolvency office-holder, that he or she is entitled to re-litigate the matter.”

The Court concluded (at § 82) that it was: “not open to Nectrus to seek to challenge the Acting Deemster’s judgment. There is no suggestion, still less any evidence, that that judgment was procured by fraud, collusion or some other miscarriage of justice. On that short ground, alone, I hold that the interest claim appeal falls to be dismissed”.

Costs

Finally, the Court expressed (at § 113) its preliminary view on costs, subject to further argument:

“… the court has no power to relegate, or postpone, the payment of the liquidators’ costs and disbursements, or any part thereof, until after all the company’s creditors have been paid in full in circumstances where the company’s assets are insufficient to satisfy all of its liabilities, including such costs and expenses. To do so would infringe the prohibition in rule 95 of the Winding-up Rules that effectively provides that a liquidator “shall in no case be personally liable for costs in relation to an appeal from his decision rejecting any proof wholly or in part”. If I am wrong… then I would provisionally hold that it would be wrong to exercise any power to make such an order in all the circumstances of the present case…”.

Note for practitioners: The recent bumper crop of important Isle of Man insolvency decisions continues. The recent decision in Nectrus provides guidance on Rule 85 proof of debt appeals, insolvency set-off, Quistclose trusts, and the finality, specifically in insolvency proceedings, of a judgment pending appeal. 

Disclaimer: professional advice should be sought before applying any information in a given case.

For advice on litigation relating to Isle of Man insolvency and trusts, contact Coren Law.

See also Coren Law’s Isle of Man civil procedure portal: Click On | Coren Law.

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