Sonatacus Ltd sub nom CI Ltd v Joint Liquidators of Sonatacus Ltd
| Jurisdiction | England & Wales |
| Judge | Sir Martin Nourse,Lord Justice Hooper,Lady Justice Smith |
| Judgment Date | 25 January 2007 |
| Neutral Citation | [2007] EWCA Civ 31 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A2/2006/1455 |
| Date | 25 January 2007 |
[2007] EWCA Civ 31
GMM
Lady Justice Smith
Lord Justice Hooper and
Sir Martin Nourse
Case No: A2/2006/1455
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE MANCHESTER COUNTY COURT
CHANCERY DIVISION
HIS HONOUR JUDGE HODGE QC
M5X158
Royal Courts of Justice
Strand, London, WC2A 2LL
Mark Cooper (instructed by Messrs Jolliffe & Co) for the Appellant
Jeremy Cousins QC & Justin Kitson (instructed by Messrs Andrew Jay & Co) for the Respondent
This appeal raises questions under Part VI of the Insolvency Act 1986 ( Miscellaneous provisions applying to companies which are insolvent or in liquidation), sections 238 (Transactions at an undervalue) and 239 (Preferences).
The material facts can be taken from the judgment in the court below of His Honour Judge Hodge QC, sitting as a judge of the Chancery Division in Manchester. They can be stated mainly in his own words, though it is now unnecessary to state them as fully as he did.
Sonatacus Ltd (“the Company”) was incorporated on 19 November 1997 under the Companies Act 1985 as a company limited by shares. It began trading shortly thereafter, its principal activity being the sale and distribution of mobile telephones and accessories. The sole director of the Company was Paul Santo Susca.
Mr Susca was a friend, though not a close one, of Rahail Aslam, who was a director and the effective controller of the appellant, CI Ltd (“CIL”). By a deed described as a loan agreement dated 18 September 2000 and expressed to be made between Mr Susca (both as borrower and surety) and CIL (as lender), it was provided that, in consideration of the sum of £65,000 lent to Mr Susca by CIL, Mr Susca covenanted with CIL to repay the said sum to it on written demand, together with interest, Mr Susca and CIL agreeing that “the loan to be the subject of a fixed term arrangement the full amount together with all costs interest and charges to be paid by 18 February 2001.” At that time, CIL had insufficient funds to advance the sum of £65,000 to Mr Susca directly. It therefore procured an associated company, Proweb Ltd, to advance the funds on its behalf. The judge said that he need say no more about the involvement of Proweb Ltd, since it was merely a source of funds to enable CIL to advance monies to Mr Susca.
At Mr Susca's request the sum of £65,000 was paid direct to the Company by Proweb. However, as the judge observed, the obligation to repay that sum remained, pursuant to the written loan agreement, an obligation of Mr Susca personally. He said that there was no evidence as to what happened to the £65,000 after it had been received by the Company, but that the moneys had been advanced to the Company in a commercial transaction which, in cross-examination, Mr Henry (see below) had agreed had led to an obligation upon the Company to repay them to Mr Susca.
On 29 January 2001 (some three weeks before the fixed term expired), a sum of £50,000 was paid into CIL's bank account by way of a CHAPS transfer made by the Company at the direction of Mr Susca. It was accepted before Judge Hodge that the Company was insolvent at that time, or that it became insolvent as a result of that transfer. It is unnecessary to deal with the fate of the remaining £15,000.
On 2 March 2001, the Company ceased trading, and a formal resolution was passed placing it into creditors' voluntary liquidation on 29 March 2001. On the same day, joint liquidators of the Company were appointed and Mr Susca swore an estimated statement of affairs indicating that the Company had assets estimated to realise £20,140, preferential creditors totalling £7,474 and non-preferential creditors totalling £54,318.77.
On 11 March 2005, after a delay of nearly four years, for reasons, which, as the judge observed, had not been explained in evidence, the joint liquidators issued an application against CIL in the Manchester County Court (“the first application”) pursuant to sections 239 and 240 of the 1986 Act claiming a declaration that the payment of £50,000 made by the Company to CIL on 29 January 2001 constituted a preference and was void or voidable accordingly. The application was supported by a witness statement of Neil Henry, one of the joint liquidators, dated 9 March 2005, in which it was alleged that, on or about 20 September 2000, the Company had received a loan from CIL in the sum of £65,000 thus making CIL a creditor of the Company. Mr Henry went on to allege that, in receiving the repayment of £50,000 on 29 January 2001, CIL had been treated preferentially as compared to other non-secured creditors of the Company. Evidence in answer to the first application was put in by Mr Aslam in the form of an undated witness statement, which it is agreed was made before 25 July 2005. It will be necessary to refer to Mr Aslam's statement in greater detail in due course. At present it is only necessary to say that his evidence was to the effect that the loan of £65,000 had been made to Mr Susca personally, and that CIL was therefore a creditor of his and not of the Company.
As the judge said, Mr Aslam's witness statement provoked the issue of a further (in substance an alternative) application by the joint liquidators in the County Court on 25 July 2005 (“the second application”), claiming a declaration that the payment of £50,000 made by the Company to CIL on 29 January 2001 constituted a transaction at an undervalue pursuant to the provisions of sections 238 and 240 of the 1986 Act and was void or voidable accordingly. The second application was supported by a witness statement of Timothy James Foreman, an assistant solicitor in the employment of the solicitors acting for the joint liquidators, in which he claimed that CIL provided no consideration to the Company for receiving the payment of £50,000. In answer to the second application, Mr Aslam put in a further witness statement dated 13 November 2005, in which he contended that the allegation that the Company had received no consideration for the payment of the £50,000 was fallacious.
On 29 November 2005, the proceedings having been transferred to the Chancery Division, both applications came before District Judge Needham, who dismissed the first and acceded to the second by making a declaration that the payment of £50,000 made by the Company to CIL on or about 29 January 2001 constituted a transaction at an undervalue pursuant to the provisions of sections 238 and 240 of the 1986 Act. Since that declaration was made on a ground that the joint liquidators have not relied on, it is unnecessary to examine the district judge's reasoning. He made an order for payment by CIL to the joint liquidators of £50,000 plus interest of £15,300.
CIL appealed to the judge against the declaration and order made by the district judge. The appeal came before Judge Hodge on 8 June 2006. At the outset of the hearing, he gave the joint liquidators permission to put in a late respondents' notice relying on the preference claim that had been dismissed by the district judge. However, he refused an application by the joint liquidators to adduce fresh evidence at that stage. After hearing argument on the substantive appeal, the judge dismissed it, affirming the district judge's decision on the transaction at an undervalue, though for different reasons. That made it unnecessary for him to consider the preference claim under the respondents' notice, and he did not do so.
On 25 July 2006 Lord Justice Jonathan Parker gave CIL permission to bring a second appeal to this court. Again, the joint liquidators have put in a late respondents' notice (for which we have given permission) seeking, in the alternative, a declaration in relation to the preference claim.
So far as material, section 238 of the 1986 Act provides:
“(1) This section applies in the case of a company where–
(a) the company enters administration, or
(b) the company goes into liquidation;
and 'the office-holder' means the administrator or the liquidator, as the case may be.
(2) Where the company has at a relevant time (defined in section 240) entered into a transaction with any person at an undervalue, the office-holder may apply to the court for an order under this section.
(3) Subject as follows, the court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction.
(4) For the purposes of this section and section 241, a company enters into a transaction with a person at an undervalue if–
(a) the company makes a gift to that person or otherwise enters into a transaction with that person on terms that provide for the company to receive no consideration, or
(b) the company enters into a transaction with that person 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 the company. …”
So far as material, section 239 of the 1986 Act provides:
“(1) This section applies as does section 238.
(2) Where the company has at a relevant time (defined in the next section) given a preference to any person, the office-holder may apply to the court for an order under this section.
(3) Subject as follows, the court shall, on such an application make such order as it thinks fit for restoring the position to what it would have been if the company had not given that preference.
(4) For the purposes of this section and section 241, a...
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