Manolete Partners Plc v Austin Bell & Ors
[2024] EWHC 1636 (Ch)
SIMON JAMES BONNEY v GRAHAM LEWIS BARKER
10 March 2023
[2023] EWHC 496 (Ch)
High Court
A company paid a related company a large sum of money just before going bankrupt. The judge said this was wrong because it cheated other creditors. The related company has to pay the money back, and the director who made it happen might have to too.
Key Facts
- •Fastfit Station Limited (the Company) entered administration on April 15, 2014.
- •Its business and assets were sold to Fastfit Station MK Ltd (Fastfit MK) under a sale and purchase agreement (SPA).
- •Between April 1st and April 15th, 2014, £110,345.09 was paid from the Company to Fastfit MK (the April Payments).
- •The Liquidators claimed the April Payments were transactions at an undervalue under section 238 of the Insolvency Act 1986 and that Mr. Barker breached his directors' duties under the Companies Act 2006.
- •Respondents argued the payments were made with the knowledge and approval of the administrator to keep the business running and preserve its value, and were accounted for in the SPA.
- •The respondents also argued that Mr. Barker acted honestly and reasonably and should be excused from liability under section 1157 CA 2006.
Legal Principles
Transactions at an undervalue
Insolvency Act 1986, section 238
Directors' duties
Companies Act 2006, sections 171-175
Pari passu principle in insolvency
Goode on Principles of Corporate Insolvency Law (5th edition), paragraph 3-07
Directors' duty to act in good faith to promote company success (subjective and objective tests)
Regentcrest plc (in liq.) v Cohen [2001] 2 BCLC 80 and Re HLC Environmental Projects Limited [2013] EWHC 2876 Ch
Relief for directors from liability
Companies Act 2006, section 1157
Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)
TUPE Regulations 2006, Regulations 4, 8
Transactions 'entered into' by a company
Hunt (Liquidator of Ovenden Colbert Printers Ltd) v Hosking [2013] EWCA Civ 1408
Outcomes
The April Payments were transactions at an undervalue under section 238 IA 1986.
The Company received no value in exchange for the payments; they were gratuitous and benefited Fastfit MK, not the Company or its creditors.
Mr. Barker breached his directors' duties under sections 171-175 CA 2006.
He did not consider the interests of the Company or its creditors, prioritizing the benefit of Fastfit MK and himself.
Fastfit MK must repay the April Payments and will be treated as an unsecured creditor for the same amount.
To restore the position to what it would have been if the payments had not been made and uphold the pari passu principle.
Mr. Barker is liable to repay the misapplied monies to the extent that Fastfit MK does not.
Secondary liability to ensure the fund is reconstituted.
Mr. Barker's defense under section 1157 CA 2006 failed.
His reliance on CBW's advice was unreasonable given the circumstances and his failure to seek further clarification.
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