Manolete Partners Plc v Austin Bell & Ors
[2024] EWHC 1636 (Ch)
Katherine Merry and Ben Dyer & Anor v Sabir Esa
31 July 2023
[2023] EWHC 2011 (Ch)
High Court
A company boss secretly moved the company's good stuff to another company he owned when the first one was failing. The court said that was wrong and made him pay back the money he took.
Key Facts
- •Safe Depot Limited (the Company) went into liquidation on 24 July 2017.
- •Sabir Esa was the sole director and shareholder from 1 March 2015.
- •The Liquidators alleged breaches of duty by Mr. Esa, including transactions at an undervalue, preferences, transactions defrauding creditors (Insolvency Act 1986, sections 238, 239, 423), and wrongful trading (section 214).
- •Mr. Esa did not appear at trial, citing mental health issues.
- •The Liquidators alleged that Mr. Esa transferred assets to Stone Key Limited (a company he controlled) for no consideration.
- •Assets transferred included customer lists, business operations from two sites (Bury and Blackburn), and trade debtors.
- •The Company experienced significant financial difficulties from 2014 onwards, becoming cash-flow insolvent by April 2016 and balance sheet insolvent by September 2016.
- •Mr. Esa claimed Stone Key provided consideration by paying creditors and collecting debts; the Liquidators found no evidence of this.
Legal Principles
Liquidators can bring claims under section 212 IA 1986 for misapplication of company property or breach of duty.
Insolvency Act 1986, section 212
Directors have general duties under Chapter 2 of Part 10 of the Companies Act 2006 (CA 2006), including acting within powers (section 171), promoting company success (section 172), exercising reasonable care, skill and diligence (section 174), and avoiding conflicts of interest (section 175).
Companies Act 2006, sections 171, 172, 174, 175
The duty to promote company success is generally subjective but becomes objective when insolvency is imminent or probable, and material interests are unreasonably overlooked.
Regentcrest plc v Cohen, HLC Environmental Projects Ltd, BTI v Sequana
Transactions at an undervalue (section 238 IA 1986) and preferences (section 239 IA 1986) can be challenged by liquidators.
Insolvency Act 1986, sections 238, 239, 240, 249, 435
Transactions defrauding creditors (section 423 IA 1986) can be challenged if entered into to put assets beyond reach of creditors or prejudice their interests.
Insolvency Act 1986, section 423
Wrongful trading (section 214 IA 1986) occurs when a director knew or ought to have known there was no reasonable prospect of avoiding insolvent liquidation and failed to take steps to minimise losses to creditors.
Insolvency Act 1986, section 214; Brooks v Armstrong; Re Produce Marketing Consortium
The court may grant relief under section 1157 CA 2006 if a director acted honestly and reasonably.
Companies Act 2006, section 1157; Re Marini
Once a Liquidator shows that a fiduciary received company property, it is for the fiduciary to show the propriety of that receipt.
GHLM Trading Limited v Maroo [2012] EWHC 61
A director cannot escape liability by claiming that the lack of books and papers prevented them from showing they were not liable.
Re Mumtaz Properties [2011] EWCA Civ 610
Outcomes
Mr. Esa was found liable for breach of duty and wrongful trading.
He transferred company assets to Stone Key for no consideration, knowing the company was insolvent. He failed to take steps to minimize losses to creditors after it became clear that insolvency was inevitable.
Mr. Esa was ordered to compensate the company for the undervalue of the transferred assets (£46,345.79) and the increased creditor deficiency due to wrongful trading (£90,513.10).
The court assessed the value of assets transferred to Stone Key and the losses incurred due to continued trading after the point where insolvency was inevitable.
Relief under section 1157 CA 2006 was refused.
Mr. Esa did not act reasonably and provided no evidence to support his claim that he followed professional advice. Granting relief would leave him with benefits at the expense of creditors.
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