Manolete Partners PLC v Norman Freed & Ors
[2024] EWHC 2242 (Ch)
James Court Limited (in liquidation) v Hindsight Contractors Limited
9 May 2023
[2023] EWHC 1101 (Ch)
High Court
Two companies, run by the same person, had a financial disagreement after one went bankrupt. A judge already ruled against one company's claim. The judge said that because of that ruling and the actions of the second company, the second company had to repay money.
Key Facts
- •James Court Limited (JCL), in liquidation, sought a declaration that £37,000 paid to Hindsight Contractors Limited (HCL) was void under section 127 of the Insolvency Act 1986.
- •Both JCL and HCL were directed by the same individual, Paul Fava.
- •Payments were made after a winding-up petition was served on JCL.
- •HCL argued a change of position defence.
- •A prior application for a validation order by HCL was dismissed by HHJ Kelly.
- •The payments involved inter-company loans and a purported tripartite arrangement with Proactive Payroll Services (PPL).
Legal Principles
Section 127(1) of the Insolvency Act 1986: Dispositions of company property after commencement of winding up are void unless the court orders otherwise.
Insolvency Act 1986, Section 127(1)
Change of position defence is available in restitutionary claims, but its success is constrained in insolvency cases to circumstances where a validation order might be made.
MKG Convenience, Changtel Solutions UK Limited, Express Electrical Distributors Ltd v Beavis
Issue estoppel prevents relitigation of issues already decided in previous proceedings between the same parties, unless special circumstances exist.
Mills v Cooper, Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd
Abuse of process prevents misuse of court procedure, including relitigation of issues, if manifestly unfair or detrimental to the administration of justice.
Tinkler v Ferguson, Hunter v Chief Constable of West Midlands Police
Restitutionary claims for void payments under section 127 are based on unjust enrichment.
Hollicourt (Contracts) Ltd v Bank of Ireland, Ahmed v Ingram, Officeserve Technologies Ltd v Annabel’s (Berkeley Square) Ltd
Validation orders under section 127 should only be made in exceptional circumstances, usually where the disposition benefits the general body of unsecured creditors.
Express Electrical Distributors Ltd v Beavis
Outcomes
HCL's change of position defence failed.
Issue estoppel prevented HCL from relitigating the validation issue; HCL's actions were not in good faith given knowledge of JCL's insolvency; no exceptional circumstances existed to justify the defence.
Judgment for JCL for the remaining £26,500.
HCL failed to establish its change of position defence due to issue estoppel and lack of good faith; the injustice to JCL outweighed any injustice to HCL.
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