Sean Bucknall Mark Peter George Roach (as Joint Trustees in Bankruptcy of Peter Herbert Fowlds) v Gina Louise Wilson
| Jurisdiction | England & Wales |
| Judge | Jones |
| Judgment Date | 22 May 2020 |
| Neutral Citation | [2020] EWHC 1200 (Ch) |
| Docket Number | Case No: BR-2016-00080 |
| Date | 22 May 2020 |
| Court | Chancery Division |
[2020] EWHC 1200 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST
In The Matter Of PETER HERBERT FOWLDS (A BANKRUPT)
And In The Matter of THE INSOLVENCY ACT 1986
A Skype Business Hearing
The Rolls Building, 7 Fetter Lane, London
I.C.C. JUDGE Jones
Case No: BR-2016-00080
Mr Andrew Brown (instructed by Coffin Mew LLP) for the Applicants
Ms Gina Wilson appeared in person
Hearing dates: 7 April 2020
Further Written Submissions from the Applicants by 4 May 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
………….CHJ 22/05/20…………….
I.C.C. JUDGE Jones
A) An Overview
This application claims under section 340 of the Insolvency Act 1986 (“ the Act”) that a payment (“the Payment”) given by Mr Fowlds on 4 September 2014 to Ms Wilson, his stepdaughter, was a preference. If his trustees in bankruptcy (“the Trustees”) establish that claim, two matters of complexity will arise to justify its retention in the High Court notwithstanding that it concerns a sum of £47,675.51. Namely, (i) whether the court should exercise its “out of the norm” discretion not to grant relief or (ii) apply the principle of ex parte James. Embedded within those matters is an additional feature unearthed in detail for the first time during the examination of Ms Wilson. Namely, whether she can rely upon a “change of position” as a result of the Payment no longer being available to her as a source of repayment.
Mr Fowlds's bankruptcy under an order made on 22 March 2017 emanates from litigation brought by his son (“Mr Mark Fowlds”) concerning their business connections. According to a 10 May 2019 estimated outcome statement for the bankruptcy, Mr Mark Fowlds is the only significant creditor with a judgment debt of £715,876. The estimated return is only £6.30p in the £ even assuming the success of this claim both in terms of result and recovery. Although there are also claims against others which it does not value, the estimate does not include Ms Wilson as a creditor. It should if the claim is successful and because she is owed more than she received.
This is a dismal outcome for Mr Mark Fowlds from his successful litigation. It is also tragic that a father and son dispute has led to a claim against a stepdaughter particularly when it is brought for the benefit of the son, subject to any judgment recovery having to be used to pay the bankruptcy's costs and expenses. This most unfortunate scenario occurs in circumstances of no-one suggesting Ms Wilson played any active role in procuring the Payment other than by invoicing for a sum of just under £100,000 owed to her for professional, forensic accountancy services duly and properly rendered. It is pursued in circumstances of her continuing to have to struggle financially. She has a low income and her and her childrens' home is at risk as the only asset available for execution should a preference be established.
Ms Wilson was not the only creditor paid by Mr Fowlds after Mr Mark Fowlds was awarded judgment (“the Judgment”) on 15 July 2014 by District Judge Langley. All his other creditors with debts due and owing appear to have been paid in full. Ms Wilson, however, was the only one whose debt was paid in part. She received about 48% of the total debt. She is also the only one of those creditors against whom a claim of preference could be made. Any claims against the others would always be time barred because of the length of the period between the payments and presentation of the bankruptcy petition. The claim is made against her applying a two-year time limit, not the normal six months', because she is a stepdaughter.
The matter is made more difficult because both sides ask the Court to decide this case without Mr Fowlds being a witness and without there having been an interview to provide hearsay evidence concerning Mr Fowlds's mind-set when he made the Payment. This appears to have arisen in the context of Mr Fowlds failing to cooperate with the Trustees. That being so, Mr Fowlds' misguided approach in breach of his statutory obligations has further impacted badly on his close relatives.
B) The Claim and Law
The claim requires the Trustees to establish:
a) Mr Fowlds was made bankrupt. This is not in issue. The bankruptcy order was made on 22 March 2017.
b) Ms Wilson is an “associate” of Mr Fowlds (other than by reason of being an employee). This too is satisfied because “Associate” is defined in section 435 of the Act to include a relative. “Relative” is defined in section 435(8) of the Act as including a lineal descendent treating a stepchild. Ms Wilson is a stepdaughter and, therefore, an associate.
c) The Payment, not being a transaction at an undervalue, was made within the period of 2 years ending on the day the petition resulting in his bankruptcy was presented, 19 January 2016. This “relevant time” requirement (see section 341(1)(b) of the Act) is satisfied. The payment was on 4 September 2014.
d) Mr Fowlds was insolvent at the time or became insolvent in consequence of the Payment. Insolvent means unable to pay his debts as they fall due or the value of his assets is less than the amount of his liabilities including contingent and prospective liabilities (“the Insolvency Test”). This additional, “relevant time” requirement (see section 341(2) of the Act) will need to be considered below.
e) Ms Wilson was a creditor of Mr Fowlds. This is not in issue. Her evidence is that the Payment was for sums due to her for forensic accountancy services.
f) The Payment put Ms Wilson into a position which, in the event of Mr Fowlds' bankruptcy, will be better than the position she would have been in if the Payment had not been made (“the Preference”). That is the case. She received payment rather than being an unsecured creditor proving in the bankruptcy for the amount
g) Mr Fowlds was influenced when deciding to make the Payment by a desire to produce the Preference. This is established unless the contrary is shown by Ms Wilson (“the Desire Rebuttal Test”). She needs to do so because section 340(5) of the Act creates a presumption of a desire to produce a preference in the case of an “associates”. The presumption may be rebutted by Ms Wilson but the burden is upon her to do so. “Desire” is to be construed by its normal meaning and applied to the facts.
That analysis means the only extant issues for the purpose of deciding whether there was a preference are the Insolvency Test and the Desire Rebuttal Test.
The Insolvency Test is a cash flow or balance sheet test. The decision of the Supreme Court in BNY Corporate trustee Services Ltd v Eurosail-UK 2007-3BL Plc [2013] 1 W.L.R. 1408 concerning the application of those tests within sections 123(1)(e) and 123(2) of the Act applies. For reasons which will become apparent from the findings of fact, it is unnecessary to repeat its holding within this judgment.
When considering the Desire Rebuttal Test, the best description of the desire to prefer test is still to be found in the decision of Mr Justice Millett, as he then was, in Re MC Bacon Ltd (No.1) [1990] B.C.L.C. 324 at 335e–336d, when considering the equivalent provision for companies. It reads as follows and Ms Wilson must establish there was no such desire:
“It is sufficient that the decision was influenced by the requisite desire …
… desire is subjective. A man can choose the lesser of two evils, without desiring either …
There must have been a desire to produce the effect mentioned in the subsection, that is to say, to improve the creditor's position in the event of an insolvent liquidation. A man is not to be taken as desiring all the necessary consequences of his actions … only that the desire should have influenced the decision. That requirement is satisfied if it was one of the factors which operated on the minds of those who made the decision. It need not have been the only factor, or even the decisive one …
Some consequences may be of advantage to him and be desired by him; others may not affect him and be matters of indifference to him; while still others may be positively disadvantageous to him and not be desired by him, but be regarded as the unavoidable price of obtaining the desired advantages. It will still be possible to provide assistance to a company in financial difficulties provided that the company is actuated only by proper commercial considerations … a transaction will not be set aside as a voidable preference unless the company positively wished to improve the creditor's position in the event of its own insolvent liquidation.
There is, of course, no need for there to be direct evidence of the requisite desire. Its existence may be inferred from the circumstances of the case … But the mere presence of the requisite desire will not be sufficient in itself. It must have influenced the decision to enter into the transaction …”.
( see also, amongst other cases, Re DKG Contractors Ltd [1990] B.C.C. 903, Re Ledingham Smith [1993] BCLC 635; Re Agriplant Services Ltd (In Liquidation) [1997] 2 B.C.L.C. 598; and Abdulali v Finnegan [2018] EWHC 1806 (Ch); [2018] B.P.I.R. 1547)
If a preference is established, section 340(2) of the Act provides that the court “shall make such order as it thinks fit for restoring the position to what it would have been if the Payment had not been made”. An inexhaustive list of orders the court may make is contained in section 342 of the Act. The Trustees propose that the Payment be repaid with interest and costs.
The phrase “shall make...
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