Henry George Dickinson v Nal Realisations (Staffordshire) Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Newey,Lord Justice Dingemans,Lord Justice Baker |
| Judgment Date | 03 December 2019 |
| Neutral Citation | [2019] EWCA Civ 2146 |
| Date | 03 December 2019 |
| Docket Number | Case No: A3/2017/0654 |
| Court | Court of Appeal (Civil Division) |
[2019] EWCA Civ 2146
Lord Justice Newey
Lord Justice Baker
and
Lord Justice Dingemans
Case No: A3/2017/0654
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
His Honour Judge David Cooke (sitting as a Judge of the High Court)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Stephen Davies QC (instructed by Francis Wilks & Jones) for the Appellants
Mr James Barker (instructed by Gateley plc) for the Respondents
Hearing dates: 22–23 October 2019
Approved Judgment
This appeal concerns the validity of (a) the transfer of a property from the first respondent, NAL Realisations (Staffordshire) Limited (“NAL”), to the first appellant, Mr Henry Dickinson, in 2005 and (b) a share buy-back which NAL undertook in 2010. His Honour Judge David Cooke, sitting as a Judge of the High Court, held both to be invalid. That conclusion is challenged by Mr Dickinson and his wife Mrs Judith Dickinson, the second appellant.
Basic facts
NAL, which was formerly called “Norton Aluminium Limited”, operated an aluminium smelting foundry in Norton Canes in Staffordshire. Mr Dickinson bought the company in 2000, and by the time of the events relevant to this appeal NAL's shares were held as to 50.6% by Mr Dickinson personally, as to 39.2% by the trustees of the H Dickinson Discretionary Settlement 2003 (“the Settlement”), and as to the remaining 10.2% by the trustees of the STB Engineering Ltd Directors SSAS (“the Pension Scheme”). In the course of the trial before Judge Cooke, it was assumed that the trustees of the Settlement were Mr and Mrs Dickinson, but counsel then appearing for the Dickinsons submitted in closing that it had not been established that Mrs Dickinson was a trustee and Mr James Barker, who was appearing for the respondents (as he did before us, too), said that he would accept that Mr Dickinson was able to act on behalf of the Settlement as if he had the authority of any other trustee (see paragraph 6 of the judgment). As regards the Pension Scheme, this was established in 2000 as a “small self-administered scheme” and, as such, was until April 2006 required to have amongst its trustees a “pensioneer trustee” with no connection to any scheme member (see regulation 9 of the Retirement Benefits Schemes (Restriction on Discretion to Approve) (Small Self-administered Schemes) Regulations 1991). Barnett Waddingham Trustees Limited (“BWTL”) had that role until 6 April 2006, continuing thereafter as “professional trustee”. Mr and Mrs Dickinson were the other trustees of the Pension Scheme.
During the relevant period, NAL's board comprised Mr and Mrs Dickinson and also, from 2008, Mr Robert Williamson. In practice, however, there were no formal board meetings. In the course of his oral evidence, Mr Dickinson explained that “Minuted board meetings were usually paper meetings at the instigation of either a financial institution or one of our professional advisers”.
In September 2005, the freehold factory premises from which NAL traded were transferred by it to Mr Dickinson. A minute was produced recording a board meeting attended by Mr and Mrs Dickinson as directors and Mr Lynn Tranter as company secretary at which the directors resolved that NAL should sell the property to Mr Dickinson for £224,000 and take a lease back for a period of four years at a rent of £40,000 per annum, contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954. The minute states that Mr Tranter expressed concern that the purchase price might be below market value, but Mr Dickinson disagreed. At trial, Mr and Mrs Dickinson both accepted that no meeting had in fact taken place. As the Judge explained in paragraph 68 of his judgment, “Mr Dickinson had simply instructed solicitors to produce the sale documents, including the minute, and signed it himself, which he regarded as sufficient”. At some point in 2010, Mr Dickinson transferred the property into the joint names of himself and his wife. In 2011, Mr Dickinson increased the rent payable by NAL to £120,000 per annum with effect from October 2010.
By then, NAL was facing claims for nuisance from local residents in respect of odours, noise, smoke and dust from the foundry. Solicitors acting for potential claimants had sent a letter of claim in 2007 and by the beginning of 2010 they had indicated that they intended to apply for a group litigation order. In the event, a group litigation order was made on 26 May 2010, at that stage with 72 claimants named, and the matter came on for trial before His Honour Judge McKenna on 28 May 2012. In August 2012, Judge McKenna circulated a draft judgment in which he dismissed the claims based on noise, smoke and dust, but upheld 15 of the 16 lead claims in so far as based on odour. Extrapolating to other claimants, the damages were estimated at about £1.2 million, aside from the legal costs that the claimants could be expected to seek. After consulting an insolvency practitioner, NAL went into administration on 18 September 2012, and the administrators sold most of its assets to a company controlled by Mr Dickinson for £425,000. NAL went into liquidation on 29 January 2013. Its liquidators, Mr Kevin Hellard and Mr Gerald Krasner, are respondents.
Returning to events in 2010, NAL sought to buy back most of its issued shares pursuant to contracts dated 10 May 2010 with respectively Mr Dickinson, the Settlement and the Pension Scheme. In all, the company was to acquire 2.5 million shares. Each of the three contracts provided for the consideration for the relevant shares to be “nominal value payable in full upon completion” (in total, therefore, £2.5 million) and for completion to take place on 10 May.
As regards payment for the shares, the Judge said this in paragraph 42 of his judgment:
“The company did not make actual payment of the purchase price of the shares, in the sense of a transfer of funds to bank or similar accounts of the shareholders. Mr Dickinson's intention, as appears from the earlier emails, was that the funds should be left in the company. He did not however immediately execute any document to record the terms on which this was to happen. His evidence was that he gave instructions on that day to Mr Tranter to make appropriate entries in the company's books. Journal entries were made, dated 31 May 2010, recording transfers from share capital account to loan accounts. Mr Tranter's evidence was that the entries were probably actually made in the books during the first week of June, but dated for convenience on the last day of the previous month. Though his witness statement referred to a ‘verbal loan agreement’ he said he had only had a brief conversation with Mr Dickinson when he was told that the buyback would be going ahead and the money would be left in as a loan. At the time the terms had not been agreed so he assumed it would be ‘normal commercial terms’. He recalled being told it would be interest free.”
The Judge went on to say in paragraph 43 that Mr Dickinson “began to explore the process of documenting the intended loans afterwards”. A debenture in favour of Mr Dickinson, the Settlement and the Pension Scheme was subsequently executed by NAL. As to that, the Judge said in paragraph 46:
“After revision the debenture was executed and sent to the solicitor for registration, probably on or about 9 June, as he received it on 10 June. The document then bore the date 20 May 2010, but the solicitor with Mr Dickinson's authority redated it twice before it was eventually successfully registered on 25 June with the date of creation said to be 3 June 2010 ….”
The present proceedings were issued on 24 June 2013 by Mr Dickinson, seeking to recover sums which he said were secured by the debenture. NAL and its liquidators counterclaimed in respect of, among other things, the transfer of the company premises in 2005 and the share buy-back in 2010. Judge Cooke upheld each of these counterclaims. So far as the property transfer is concerned, he concluded that it had been made without authority and declined to grant Mr Dickinson relief under section 1157 of the Companies Act 2006 (“the 2006 Act”). As regards the share buy-back, the Judge concluded that it was void for non-compliance with section 691 of the 2006 Act. He also considered that should be set aside as a transaction defrauding creditors under section 423 of the Insolvency Act 1986 (“the 1986 Act”). He considered that “a payment for purchase of a company's own shares is to be regarded as equivalent to a dividend or distribution to shareholders in return for which the company receives no consideration” (paragraph 99) and so a “transaction at an undervalue” within section 423(1)(a) of the 1986 Act. The Judge further found that Mr Dickinson's dominant purpose was “to ensure that if the worst came to the worst he would be able to retain control of the business and its future profit potential and that little would be available in terms of realisable assets from which an adverse judgment could be satisfied” (paragraph 105) and that Mr Dickinson “wanted to achieve his objective in the most tax efficient way, but that objective was primarily to reduce the net asset value of the company and ensure that his interests (in which I include the interests of the pension scheme and the settlement) ranked ahead of the environmental claimants” (paragraph 106).
By his order, the Judge declared both the purported property sale and the share buy-back to be void and of no effect. He further declared that the Dickinsons held the property on trust for NAL, in which the entirety of...
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