Marini Ltd, (The Liquidator of) v Dickenson & Ors

A distribution made in excess of available distributable profits is unlawful only to the extent of the deficiency, rather than in its entirety. A director may satisfy the honesty and reasonableness conditions for relief under the Companies Act 1985, section 727, but relief should ordinarily be refused where it would leave the director benefiting at the expense of creditors.

Disclosure of an interest under section 317 need not occur at a formal or minuted board meeting. A failure to disclose makes the relevant transaction voidable, not void, and rescission must be clearly and promptly communicated; it may become impossible after complete performance.

For wrongful trading, the relevant loss is the net increase in the company’s deficiency caused by continuing to trade.

The liquidator of Marini Limited applied for orders against three family members who had been directors or shareholders. The claims concerned an allegedly unlawful dividend of £120,000, consultancy payments made through Earlstar Management Limited, the sale of a Rolls-Royce to Gerald Dickenson, and alleged wrongful trading under section 214 of the Insolvency Act 1986.

The court had to determine the extent to which the dividend was unlawful, whether relief was available to the directors, whether Gerald Dickenson had failed to declare an interest, whether the car was sold at an undervalue, and whether continued trading caused a compensable increase in the company’s net deficiency.

1. Dividend. Sections 263 and 270 of the Companies Act 1985 prohibit distributions except out of available distributable profits, assessed by reference to the relevant accounts. The statutory scheme makes only the excess over available profits unlawful. The dividend was therefore unlawful to the extent of £68,228, allocated among the respondents in proportion to their receipts.
2. Relief. The respondents had acted honestly and reasonably on their accountant’s advice, satisfying the threshold conditions in section 727. Nevertheless, it would not be fair to excuse liability where the result would be that directors retained benefits obtained through the default while creditors suffered. No relief was granted.
3. Interest in Earlstar. Section 317 did not require a formal or minuted board meeting. The practical discussions about how remuneration and consultancy payments were to be divided necessarily disclosed Gerald Dickenson’s interest. The claim accordingly failed on the facts.
4. If disclosure had been absent, the arrangements would have been voidable rather than void. Each arrangement had been fully performed, rescission was no longer possible, and no clear and prompt election to rescind had been communicated.
5. Wrongful trading. The proper comparison under section 214 was between the company’s net deficiency when trading ought to have ceased and its net deficiency on liquidation. Evidence of trade debts incurred after the proposed cessation date was insufficient without proof that the company was worse off on a net basis. The claim failed.
6. The undervalue claim under section 238 also failed for want of reliable evidence establishing the car’s true market value.

Orders were made requiring Gary Dickenson to pay £26,608.92, Gerald Dickenson £6,822.80, and Pauline Dickenson £34,796.28, each with interest. The rate and period of interest were to be determined after further submissions.