Wilson & Anor v Masters International Ltd.& Anor

For the purposes of a preference, the benefit must be received by a creditor, surety or guarantor in that capacity. A person is not preferred merely because the payment incidentally improves that person’s position in another capacity.

The statutory desire requirement is subjective. The desire to improve a creditor’s position need only influence the decision; it need not be dominant or decisive. Where the parties are connected, the presumption must be rebutted on the balance of probabilities.

A preference does not, without more, establish directors’ misfeasance. Positive proof of breach of fiduciary duty is required. Payments made after a winding-up petition are void unless validated, and both the recipient and a director who caused the payments may be liable under the Insolvency Act 1986.

The liquidator of Oxford Pharmaceuticals Ltd sought recovery from Masters International Ltd and Dr Masters of payments made by Oxford Pharmaceuticals to Masters International. The claims concerned three payments totalling £700,000 said to be preferences under section 239 of the Insolvency Act 1986, and four later payments totalling £115,000 said to be void under section 127.

The liquidator also alleged that Dr Masters had breached his fiduciary duties and was liable for misfeasance. The court had to determine whether the payments preferred Masters International, whether the statutory desire requirement was satisfied, whether Dr Masters himself had been preferred, and what remedies followed.

1. The payments of £200,000 on 6 April 2001 and £250,000 on 26 April 2001 were preferences of Masters International under section 239 of the Insolvency Act 1986. The earlier payment of £250,000 on 28 December 2000 was not a preference because the presumption of a desire to prefer was rebutted.

2. The court held that section 239(4) was concerned with improving a creditor’s, surety’s or guarantor’s position in that capacity. Dr Masters was not preferred as guarantor of Oxford Pharmaceuticals merely because reducing Masters International’s bank debt incidentally reduced his wider exposure. The bank was fully secured in any event.

3. Applying the approach in Re MC Bacon, the relevant desire was a subjective wish to improve the creditor’s position in an insolvent liquidation. It need only have influenced the decision and need not have been the dominant or decisive factor. The connected-party presumption was rebutted for the December payment but not for the April payments, when the Curaderm claim posed a more serious threat to Oxford Pharmaceuticals.

4. The appropriate primary remedy under sections 239(3) and 241 was repayment by the recipient, Masters International. No order was made against Dr Masters under those provisions because he had not received the money and any benefit as shareholder was incidental. Credit was given for £36,000 paid by Masters International towards Oxford Pharmaceuticals’ bank debt. Further deductions remained to be argued.

5. The preference findings did not themselves establish misfeasance. Positive proof of breach of fiduciary duty was required. The April payments were made in the belief that continued trading could benefit Oxford Pharmaceuticals and its creditors, so the misfeasance claim concerning those payments failed.

6. The October and November payments, made while a winding-up petition was pending and without validation, were void under section 127. Masters International was ordered to repay £115,000. Dr Masters had caused the payments in circumstances where he could not reasonably have believed that they served the company or its creditors. He was therefore liable under section 212 to contribute £115,000 to Oxford Pharmaceuticals’ assets.

7. The court also indicated that relief under section 1157 of the Companies Act 2006 would not have been available for the relevant breach, and that limitation and laches would not have defeated the claim.