Hickling v Doshi Financial Services Ltd

On a second appeal, permission requires both a reasonable prospect of success and a point of principle. Under Insolvency Act 1986, the court has a discretion whether to make an order restoring the position after a voidable preference, but, once an order is made, the discretion under section 239(3) is controlled by the statutory purpose. A recipient or party to the transaction cannot avoid repayment because it acted innocently, obtained no ultimate benefit, passed the money or assets to another company, or because the liquidator might recover elsewhere. Section 241 permits orders against persons other than the preferred creditor, subject to its limited good-faith protection. A void payment under section 127 is recoverable from its recipient. Permission was granted only on a discrete interest issue.

The liquidator brought claims concerning payments made by a company before and after the commencement of its winding-up. The claims included voidable preferences under sections 239 and 241 of the Insolvency Act 1986, and payments void under section 127.

Following a decision by a district judge, Evans-Lombe J allowed parts of the liquidator’s appeal and ordered Revti Doshi and Doshi Financial Services Ltd to repay specified sums, with interest. The proposed appellants sought permission for a second appeal. They argued that the assets and money had ultimately passed to Cliftonrise, that they had obtained no benefit, that other recoveries should reduce liability, and that the first appeal should have been reopened. The central questions were whether those matters affected liability or the exercise of the statutory discretion, and whether the interest order could properly be altered against only one respondent.

1. Permission and appellate restraint. The application concerned a second appeal governed by the earlier practice direction. Permission required a reasonable prospect of success and a point of principle. The judge’s discretionary case-management decision could be challenged only if it was unreasonable, unprincipled, affected by an error of law, or failed to take account of a relevant consideration. The proposed appeals on valuation, reopening the withdrawn appeals, liability and repayment had no reasonable prospect of success.
2. Voidable preferences. Re Paramount Airways Ltd (In Administration) [1993] Ch 223 established that the court retains a discretion whether to make an order at all under section 239(3). That discretion is controlled by the statutory purpose of restoring the company’s position. Once the court decides to make an order, the question is not governed by an entirely open discretion as to amount.
3. The recipient’s innocence, absence of personal wrongdoing, or subsequent transfer of the benefit to Cliftonrise did not justify refusing or reducing an order. Revti had received assets and payments in reduction of her debt, and legal consequences followed from those transactions. Section 241 permitted an order against a person other than the preferred creditor. Its good-faith protection did not assist a party to the transaction. Doshi Financial Services Ltd could also be ordered to repay money it received on Revti’s behalf.
4. Payments made after commencement of winding-up were void under section 127. The recipient was liable to repay them. Questions of control, subsequent use of the money, or possible recoveries from Cliftonrise did not reduce that liability or require the liquidator to undertake an unravelling exercise.
5. The challenge to interest raised a point of principle. The first appellate judge had altered the interest position against Revti although the liquidator had not appealed against the corresponding order concerning Doshi Financial Services Ltd. Permission was therefore granted on the interest issue only. The remainder of the application was dismissed. The proceedings were stayed subject to payment of at least £10,000, provision of security, and further directions.

• Court of Appeal (Civil Division): permission to appeal granted only on the interest issue; the remaining proposed grounds were dismissed.
• Chancery Division (Companies Court): Evans-Lombe J, by order dated 13 March 2000, allowed the liquidator’s appeal in relevant respects and ordered repayment of sums with interest.
• District judge: made the original orders concerning repayment and interest, following the liquidator’s claims.