Manolete Partners Plc v Hayward and Barrett Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | Briggs |
| Judgment Date | 02 June 2021 |
| Neutral Citation | [2021] EWHC 1481 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2020-004267 |
| Date | 02 June 2021 |
[2021] EWHC 1481 (Ch)
CHIEF INSOLVENCY AND COMPANIES COURT JUDGE Briggs
Case No: CR-2020-004267
IN THE BUSINESS AND PROPERTY OF COURTS ENGLAND AND WALES
HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Rolls Building
London
EC4A 1NL
Joseph Curl QC (instructed by EMW LAW LLP) for the Applicant
Hugo Groves (instructed by KARAM, MISSICK & TRAUBE LLP) for the Respondents
Hearing dates: 21 May 2021I
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.
CHIEF INSOLVENCY AND COMPANIES COURT JUDGE Briggs
CHIEF ICC JUDGE
Introduction
There are three applications before the court. The first is made by the Applicant. It is to extend time to admit a witness statement. The purpose of the witness statement is to exhibit a document to bolster resistance to the second application. The second application is made by the fourth Respondent. He seeks to strike out (or give summary judgment on) a pleaded allegation that he acted as a de facto director of Blackwater Plant Limited.
I gave an extempore judgment on 21 May 2021 dismissing the second application. I found that there were reasonable grounds for bringing the claim. Taking account of the evidence before the court, and evidence that may reasonably be expected to be available at trial a fuller investigation as to the fourth Respondent's role is required. The question of de facto directorship is one of fact. A trial where the evidence may be tested may affect the outcome. Accordingly, there was no need to consider the first application.
It became apparent, during submissions made by Mr Groves, that the third application has implications beyond this case. The third and fourth Respondents seek an unless order requiring the Applicant to pay the issue fee that would have been payable had the claim been commenced by way of a Part 7 claim form. This is the reserved judgment on the third application.
Liquidation
Blackwater Plant Limited (“Blackwater”) entered a creditors' voluntary liquidation on 17 August 2018. A connected company known as Hayward & Barrett Ltd (“H&B”) entered a creditors' voluntary liquidation on the same day. H&B was the main customer of Blackwater. The third and fourth Respondents were de jure directors of H&B. It is alleged that they were directors of Blackwater: the third Respondent a de jure director, and the fourth a de facto director. For completeness, the third and fourth Respondents are de jure directors of Hayward & Barrett Holdings Ltd (“Holdings”). Mr Clark was appointed liquidator of Blackwater at the creditors' meeting convened to wind it up. Mr Renshaw was appointed joint liquidator shortly after. Mr Clark is the liquidator of H&B.
Insolvency process and available causes of action
An insolvency process may start in court or out of court. Many insolvency procedures are available. As an example, creditors may resolve to wind up a company or the court may make an order for compulsory winding up. Likewise, a company or its directors may make an out of court appointment of administrators or the court may order that it enter administration. When a company is placed into a formal insolvency process an insolvency practitioner (an “office-holder”) is appointed and the interests of creditors intervene between the company's shareholders and its assets.
In most insolvency processes an office-holder will be concerned to act in the interests of creditors, to get in and distribute the assets of the debtor company. There are exceptions. Insolvent schemes of arrangement and restructuring plans do not involve the appointment of an office-holder. A supervisor controls and monitors a creditors' voluntary arrangement where creditors agree a compromise of their debts.
The Insolvency Act 1986 (the “Act”) provides an office-holder with a menu of actions, peculiar to her position, designed to recover assets. Such provisions have formed a part of the debt enforcement and insolvency laws of England and Wales since 1376: Transaction Avoidance in Insolvencies by Parry and others (Oxford). The transaction avoidance provisions enable office-holders to bring specific claims provided by statute: the Act.
7.1. Section 213 (fraudulent trading);
7.2. Section 214 (wrongful trading);
7.3. Section 238 (transactions at an undervalue);
7.4. Section 239 (preferences); and
7.5. Section 244 (extortionate credit transactions).
I shall refer to these causes of action as the “transaction avoidance” provisions. It could be argued that section 245 of the Act is a transaction avoidance provision. No action however, need be brought. The provision automatically renders void any floating charge that is created within a specified period of the onset of insolvency where the security secures existing debt.
Prior to the introduction of the Small Business, Enterprise and Employment Act 2015 (the “2015 Act”) (inserting section 246ZD into the Act), it was thought that although office-holders could assign rights of action which vested in and formed part of the assets of the company (such as misfeasance claims or breach of duty) at the time the company enters liquidation, an office-holder could not assign “property” within the meaning of paragraph 6 of Schedule 4 of the Act if it arose after the commencement of liquidation: Re Oasis Merchandising Services Ltd [1998] Ch 170.
The explanatory notes to the 2015 Act in relation to section 246ZD read as follows:
“Section 118: Power for liquidator or administrator to assign causes of action
712. This section amends the Insolvency Act 1986 to allow a liquidator or administrator (“the officer-holder”) to assign causes of action that arise on a company going into liquidation or administration.
713. The causes of action to which the section relates are actions which already exist within insolvency law … whereby liquidators and administrators can take action on behalf of the body of creditors to recover monies or reverse certain transactions where the directors and others have acted in a way that has caused harm to creditors.
714. The section allows the office-holder to assign not only the right to bring the action itself but also the proceeds of such an action.”
As Snowden J recently observed in Cage Consultants Limited [2020] EWHC 2917 the policy behind the introduction of section 246ZD is to permit claims arising on insolvency and vested in liquidators or administrators to be sold or assigned thereby providing a return to the insolvent estate, to benefit society by increasing the likelihood that miscreant directors will be held to account and to create a new market for such actions [13]:
“The legislative policy behind s. 246ZD is also clear from the Economic Impact Assessment ( IA No. BIS INSS007) produced by the Insolvency Service on behalf of the Department for Business Innovation and Skills on 16 April 2014, which accompanied the proposals for what became s. 118 of the 2015 Act”
There is a notable exception to the transaction avoidance provisions capable of assignment pursuant to section 246ZD. Section 423 of the Act bears more than a passing resemblance to section 238 of the Act but requires an extra element. The transaction must have been entered into for the purpose of prejudicing the interests of creditors. It therefore has legitimate reasons to consider itself part of the transaction avoidance family. It provides:
“This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if—
(a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration;
(b) he enters into a transaction with the other in consideration of marriage or the formation of a civil partnership; or
(c) he enters into a transaction with the other for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by himself.
(2) Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for—
(a) restoring the position to what it would have been if the transaction had not been entered into, and
(b) protecting the interests of persons who are victims of the transaction.
(3) In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose—
(a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or
(b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.”
Like section 212 of the Act, the identity of a person able to avail herself of section 423 is prescribed by section 424 of the Act:
“An application for an order under section 423 shall not be made in relation to a transaction except—
(a) in a case where the debtor has been made bankrupt or is a body corporate which is being wound up or is in administration, by the official receiver, by the trustee of the bankrupt's estate or the liquidator or administrator of the body corporate or (with the leave of the court) by a victim of the transaction;
(b) in a case where a victim of the transaction...
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