Claughton v Mitchell & Anor

Section 212 of the Insolvency Act 1986 may be invoked against a person who was not an officer if that person was concerned in or took part in the company's management and committed the specified misfeasance or breach of duty. An argument that the person acted professionally, and so was not a shadow director, does not answer an alternative claim under that management limb. The Court of Appeal will rarely interfere with trial findings of fact absent a perverse conclusion. Fresh evidence that could have been obtained at trial will not ordinarily justify a rehearing. A liquidator's funding arrangement is not champertous merely because litigation proceeds are sold, provided the funder cannot influence or interfere with the conduct of the litigation.

The liquidator of George Anderton (Sales) Ltd sought relief under section 212 of the Insolvency Act 1986 against Mr Michael after settlement proceeds from the company's claim against Asda were distributed to Mr Mitchell and Crown Financial Consultants Ltd. At trial, Mr Anthony Elleray QC found Mr Michael concerned in the company's management and liable for misfeasance, ordering him to pay £37,553.04 and interest. Mr Michael applied for permission to appeal, challenging the finding that he had no agreement giving his fees priority, seeking to adduce fresh evidence, disputing the statutory basis of liability, and alleging champerty in the litigation funding. The central issue was whether any ground had a realistic prospect of establishing that the trial decision should be set aside.

1. Permission to appeal refused. The decisive issue was whether Mr Michael had proved an agreement giving him an outright assignment of part of the settlement proceeds, rather than merely a charge, so that his fees ranked ahead of unsecured creditors. The letter relied on was not itself an agreement and contained no sufficient particulars of any prior agreement. The trial judge was entitled to prefer Mr Morgan's evidence. The burden of proof lay on Mr Michael, and any unresolved doubt defeated his claim to priority.
2. The Court of Appeal rarely interferes with findings of fact. There was no basis for contending that the judge's conclusion was perverse or otherwise open to appellate intervention.
3. Fresh evidence from Mr Mitchell or Mr Parry could have been obtained for the trial. Mr Michael had not sought an adjournment. It was therefore too late to seek a rehearing on that evidence.
4. Even if there were an arguable case that Mr Michael acted in a professional capacity and was not a shadow director, that did not answer the claim under section 212(1)(c) of the Insolvency Act 1986. The judge had found liability on the alternative basis that Mr Michael was concerned in the management of the company. The pleading therefore disclosed no separate ground of appeal.
5. The funding agreement was not champertous because it gave Mr Claughton and Mr Morgan no right to influence the liquidator's exercise of judgment or the conduct of the proceedings. This was consistent with the approach in Re Oasis Merchandising Services Limited [1998] Ch 170. Potential claims against the funders, or a challenge to the liquidator's failure to pursue them, would require separate proceedings.

• Court of Appeal (Civil Division): Lady Justice Arden refused permission to appeal. [2005] EWCA Civ 993.
• Leeds District Registry: Mr Anthony Elleray QC ordered Mr Michael to pay £37,553.04 under section 212 of the Insolvency Act 1986, together with interest, by order dated 31 December 2004.