Manolete Partners Plc v Austin Bell & Ors
[2024] EWHC 1636 (Ch)
Manolete Partners PLC v Norman Freed & Ors
30 August 2024
[2024] EWHC 2242 (Ch)
High Court
A company director secretly moved almost a million pounds from his failing company to other companies he also controlled. The court said he broke the law and must repay the money, and the other companies must pay back what they received.
Key Facts
- •Manolete Partners plc (Manolete), assignee of Just Recruit Group Limited (JRGL)'s joint administrators, brought proceedings against Norman Freed (director of JRGL), Key People Limited (KPL), and Achieva Group Limited (AGL).
- •The claims alleged breaches of directors' duties by Freed, transactions at an undervalue under section 238 IA 1986, preferences under section 239 IA 1986, and knowing receipt.
- •Payments totalling £918,590.18 were made from JRGL to KPL and AGL between October and December 2020, when JRGL was allegedly insolvent.
- •Defendants argued payments were for consideration, representing legitimate liabilities or support for JRGL's creditors, and that any breach of duty was ratified or Freed acted honestly and reasonably.
- •The court considered directors' duties under Chapter 2 of Part 10 CA 2006, knowing receipt, transactions at an undervalue, and preferences under IA 1986.
- •A key issue was whether recovery should be limited to the shortfall in JRGL's administration, considering the decision in Manolete Partners PLC v Hope [2022] EWHC 1801 (Ch).
Legal Principles
General duties of directors under CA 2006, including the duty to promote the success of the company and the duty to consider creditors' interests when insolvency is imminent.
Chapter 2 of Part 10 CA 2006, BTI v Sequana [2022] UKSC 25
Subjective test for directors' duties, with exceptions where creditors' interests are paramount or material factors are unreasonably overlooked.
Regentcrest plc (in liq) v Cohen [2001] BCC 494, HLC Environmental Projects Ltd (in liq.) [2013] EWHC 2876 (Ch)
Ratification of breach of duty by members, limited where insolvency is present or would result.
Re Duomatic [1969] 2 Ch. 365, BTI v Sequana [2022] UK SC 25, Bowthorpe Holdings Ltd v Hills [2003] 1 BCLC 226
Transactions at an undervalue under section 238 IA 1986, with defenses of good faith and reasonable grounds for believing the transaction would benefit the company.
Section 238 IA 1986
Preferences under section 239 IA 1986, requiring showing of influence by a desire to prefer, with presumptions for connected persons.
Section 239 IA 1986
Knowing receipt, requiring disposal of assets in breach of fiduciary duty, beneficial receipt, and knowledge of the breach.
El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685, BCCI v Akindele [2000] EWCA Civ 502, Byers v Saudi National Bank [2023] UKSC 51
Outcomes
Freed liable for equitable compensation of £918,590 for breach of duty.
Payments made without proper consideration of creditors' interests in an insolvent company.
KPL and AGL jointly and severally liable with Freed for £240,000 (KPL payments) and £678,590 (AGL payments) respectively, under sections 238 and 239 IA 1986 or knowing receipt.
Payments made for no consideration or as preferences to connected companies, with Freed's knowledge imputable to the recipient companies.
Recovery not limited to the shortfall in the administration.
Following Manolete Partners PLC v Hope, limiting recovery would prejudice creditors and discourage claim assignments; no 'circularity' present.
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