Barry John Ward (acting as liquidator of Brady Property Developments Ltd) v (1) Nicholas Hutt

JurisdictionEngland & Wales
JudgePaul Matthews,HHJ
Judgment Date24 January 2018
Neutral Citation[2018] EWHC 77 (Ch)
CourtChancery Division
Docket NumberCase No: 187 of 2017
Date24 January 2018
Between:
Barry John Ward (acting as liquidator of Brady Property Developments Ltd)
Applicant
and
(1) Nicholas Hutt
(2) David Loughlin
(3) John O'Boyle
Respondents

[2018] EWHC 77 (Ch)

Before:

HHJ Paul Matthews

(Sitting as a Judge of the High Court)

Case No: 187 of 2017

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

BRISTOLDISTRICT REGISTRY

Bristol Civil Justice Centre

2 Redcliff Street, Bristol, BS1 6GR

James Couser (instructed by Gardner Leader LLP) for the First and Second Respondents

Stuart Cutting (instructed by Moore & Tibbits Solicitors) for the Applicant

Hearing date: 11 January 2018

Judgment Approved

Paul Matthews HHJ

Introduction

1

This is an application by notice dated 9 November 2017 by Nicholas Hutt and David Loughlin, the first and second respondents to a claim (formally an ‘application’) made against them in the liquidation of Brady Property Developments Ltd (“the company”) by the applicant acting as liquidator of that company. By that application, the first and second respondents seek an order that the claim against them be struck out and/or that summary judgment be entered in their favour and that the applicant pay their costs.

2

The application is supported by two witness statements of Andrew James Shipp (dated 9 November 2017 and 21 December 2017) and exhibits, and opposed by a witness statement of the applicant dated 4 January 2018. The solicitor to the third respondent, Deanne Marie Hamilton, has also made a witness statement, dated 3 January 2018, taking a neutral position. The application was argued before me on 11 January 2018, by Mr James Couser for the first and second respondents and Mr Stuart Cutting for the applicant. Mr Crispin Hayhoe held a watching brief for the third respondent, who was not a party to this application. He addressed me on a few small points of detail, but Mr Couser objected to my hearing him on any substantive matters in dispute, and I did not do so.

The present claim

3

The claim itself, within which this application is made, was begun by an application notice in Form IAA issued on 10 May 2017 in the Birmingham district registry of the High Court, Chancery Division. It made a claim against all three respondents for a declaration that a payment of £160,000 to them on or about 2 June 2012 was void as a preference, and an order that the respondents repay that sum to the applicant. On 22 August 2017 District Judge Kelly, sitting in the Birmingham District Registry, ordered that the claim be transferred to the County Court at Bristol, and gave various directions. Particulars of claim were served and filed, dated 20 September 2017. As I have said, the first and second respondents on 9 November 2017 issued the present application in this claim. When the matter came before me I ordered that it be transferred from the County Court to the High Court District Registry, as it seemed to me to raise important matters of principle and practice, especially in relation to the effects of discontinuance.

4

The particulars of claim plead that the company purchased a property at 15 Garnet Street, Bristol, on 22 July 2008 for £138,000 (see at [10]). They further plead that the company sold a ground floor flat at 92 The Nursery, Bristol, on 8 February 2011, and the first and second respondents instructed that the proceeds of sale be paid to a company called Diamond Partners Investments UK Ltd (“Diamond”), of which they were two of the three shareholders, and the sole directors. Out of those proceeds £39,000 were paid to the second respondent and £63,000 to the first respondent, in each case in satisfaction or partial satisfaction of the company's liability to each of them ([11]).

5

In March 2011 the company agreed to sell 15 Garnet Street to Diamond. The price was subsequently reduced to £170,000 ([12]). The sale completed on 13 May 2011, and the net proceeds of £169,521.97 were transferred to the company's account with RBS, £96,954.51 being used to discharge RBS's mortgage over Garnet Street ([14]). On 20 May 2011 £4557.77 were transferred to the first respondent to satisfy the balance of the company's liability to him. On 27 May 2011 £93,875 were transferred to the company by its solicitors acting on the sale of a top floor flat at 92 The Nursery ([15]). On 2 June 2011 the company transferred £160,000 to HLM Properties (“HLM”) ([16]). This is the payment complained of as a preference.

6

The company and HLM had the same bankers, RBS ([17]). The company and HLM owned properties over which RBS held mortgages. RBS was putting increasing pressure on the company, primarily in relation to the properties owned by HLM ([18]). HLM was the company's largest unsecured creditor, being owed £180,414. The other unsecured creditors were the first respondent (£67,558), the second respondent (£39,000), and the third respondent (£30,000). The debts of the first and second respondents were paid off from the proceeds of sale of the ground floor flat at 92 The Nursery and of Garnet Street ([19]). HLM was under significant pressure from RBS, and the partnership's liability was that of the partners personally ([20]). When the sum of £160,000 was paid to HLM on 2 June 2011, the company's only creditors were HLM (£179,810) and the third respondent (£30,000), and it had no further assets ([21]).

The application to strike out

7

In very brief terms, the application to strike out and/or for summary judgment is based on (1) an alleged failure to comply with CPR rule 38.7, (2) the rule in Henderson v Henderson (1843) 3 Hare 100, (3) abuse of process more generally, and (4) the alleged weakness of the claim. The background and procedural history are very important. The applicant brought an earlier claim against the first and second respondents in their capacity as directors of the company, essentially in respect of misfeasance allegations. This claim came for trial before me in May 2017. However, the claim was discontinued on the second day of the trial, in circumstances which I must shortly relate.

The original claim

8

The original claim was one for a declaration that the respondents as company directors had breached certain provisions in the Insolvency Act 1986 and the Companies Act 2006, and for orders that the respondents pay certain sums to the company in respect of their breach of fiduciary duty. It arose out of transactions with the properties already mentioned, 15 Garnet Street and 92 The Nursery. The company itself was ordered to be wound up on the petition of the third respondent, John O'Boyle, by order of the High Court, Birmingham District Registry, dated 15 May 2013. On 5 June 2013 the court ordered that the matter be transferred to the County Court at Bath. Mr Ward was appointed liquidator of the company on 25 October 2013.

9

The origins of the first claim were these. The three present respondents and a Mr Brady were the four equal shareholders in, and also directors of, the company. In a nutshell, the present third respondent complained that although all four of the shareholders and directors were owed money by the company in the run-up to its going into liquidation, the other three had so arranged matters that they were paid off, but that he was not. The liquidator investigated the position, and eventually brought the first claim.

10

District Judge Goddard ordered the transfer of the matter to the County Court at Bristol on 21 June 2016. On 20 July 2016 Mr Ward filed a second witness statement. In this statement he explained that, following the service of the second statement of the second respondent, the focus of the application was now changed. A preference claim that had previously been advanced by the liquidator against the first and second respondents was withdrawn (by simply deleting the relevant passage in the particulars of claim), and the focus shifted to the property known as 92 The Nursery. I shall have to return to that.

11

In summary form, the applicant liquidator's case in the first claim was as follows. The first two respondents knew or ought to have concluded by 31 March 2010 that there was no reasonable prospect of the company avoiding insolvent liquidation. The sale of 15 Garnet Street to Diamond was a “substantial property transaction” requiring the approval of the majority of shareholders, but in breach of section 190 of the Companies Act 2006 that approval was not given. The so-called Duomatic principle did not apply, because at the time the company was insolvent. The respondents caused £160,000 of the proceeds of sale to be paid to another entity, a partnership between the three respondents, known as “HLM Properties”, in breach of their various duties to the company. They also caused the company to make payments of £4558 to the second respondent and £7154 to Mr Brady in breach of their various duties to the company. In February 2011 the respondents caused the proceeds of sale of 92 The Nursery to be paid to Diamond in breach of their various duties to the company. Finally, the respondents failed to cooperate with the applicant by not complying with his request to deliver up the company's books and records, in breach of section 235 of the Insolvency Act 1986.

12

Again in summary form, the respondents' defence was as follows. The sale of 15 Garnet Street was authorised by a majority of the shareholders of the company, namely the respondents and Mr Brady, holding 75% of the shares. They relied on section 195 of the Companies Act 2006. The proceeds of sale were used to satisfy a debt owed by the company to HLM Properties. The balance of proceeds of sale of 92 The Nursery was used to discharge the company's loan account with Diamond. Finally, the respondents did cooperate with the liquidation process, providing all relevant information to the applicant, and offering him access to 2 boxes of company records and accounts. But in any event section 235 of the Insolvency Act 1986...

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    ...in respect of the same cause of action. Mr White drew my attention to the distinction made by HH Mathews at [46] in Ward v Hutt [2018] EWHC 77 (Ch) between a party seeking to amend and thereby bolster their claim in an existing claim and a party repeating the same claim as had formerly bee......
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    ...made as to why it was not an abuse. Indeed, at the time when the proceedings were commenced, there was a prior decision ( Ward v Hutt [2018] 1 WLR 1789 (HHJ Matthews)), later held to have been wrongly decided, which indicated that abuse of proceedings could not apply where the prior procee......
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1 firm's commentaries
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    • Mondaq UK
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