Wilson & Anor v Masters International Ltd.& Anor

The court applied the statutory test for preferences under section 239 of the Insolvency Act 1986 and the "desire to prefer" principle as explained in Re MC Bacon. Two payments made by Oxford Pharmaceuticals Limited (6 April 2001 and 26 April 2001) were held to be voidable preferences in favour of Masters International Limited and MIL was ordered to make restitution, subject to a deduction/credit of £36,000 and potential further deductions to avoid producing a windfall to unsecured creditors. A third earlier payment (28 December 2000) was not treated as a preference. Four later payments made while a winding-up petition was on foot (October–November 2001) were void under section 127 and MIL must repay £115,000. The court dismissed the claim under section 239 (and associated misfeasance claim) against Dr Zulfikar Masters in respect of the April 2001 payments but found Dr Masters liable under section 212 for the October–November 2001 payments. Issues of limitation, laches and S1157 relief were considered and rejected where relevant.

Background and parties: The liquidator of Oxford Pharmaceuticals Limited (OPL) and OPL itself applied against Masters International Limited (MIL) and Dr Zulfikar Masters for recovery of payments paid by OPL to MIL between December 2000 and November 2001. The applicants sought declarations that certain payments were voidable preferences under section 239 Insolvency Act 1986, orders for repayment, orders under section 212 for misfeasance and declarations that later payments were void under section 127. The proceedings were heard at first instance in the Companies Court.

Relief sought: (i) declarations that three payments totalling £700,000 were preferences and repayment orders; (ii) alternatively relief against Dr Masters personally under s212, s239(3) and s241; (iii) declarations that four payments totalling £115,000 were void under s127 and repayment orders; (iv) orders against Dr Masters in respect of the s127 payments.

Issues framed:

• Whether the specified payments were preferences under s239 and whether OPL (through its directing mind) was influenced by a desire to improve MIL's (or Dr Masters') position in the event of insolvency.
• Whether the payments while a winding-up petition was on foot were void under s127 and, if so, whether they could be validated.
• Whether Dr Masters was personally liable under s239/s241 or for misfeasance under s212 for any payments made.
• Subsidiary issues included the onus and statutory presumption for connected persons, appropriate remedies and deductions when restoring positions, and the availability of defences including limitation, laches and s1157 Companies Act 2006 relief.

Court's reasoning and findings: The judge analysed the payments in their factual and commercial context including bank facilities, the sale/option of assets relating to a product called the "Cream", and the emerging Curaderm claim. Applying the subjective "desire to prefer" test, the court held that the December 2000 payment was made to regularise bank facilities and stabilise the two companies and that the statutory presumption of desire to prefer was rebutted in respect of that payment. By contrast, by April 2001 the Curaderm dispute had become a grave risk to OPL and the court was satisfied that a desire to improve MIL's (and indirectly Dr Masters') position in the event of OPL's insolvency was at least an influencing factor for the two April payments; those two payments were therefore voidable preferences under s239. The appropriate remedial order was repayment by MIL, but credit was to be given for certain inter-company adjustments (notably £36,000) and the judge indicated further argument on additional deductions to avoid over-restoring OPL to the benefit of unsecured creditors. The four October–November 2001 payments were made while the winding-up petition was live and no validation application had been made; they were void under s127 and MIL ordered to repay £115,000. The court refused to make orders against Dr Masters under s239/s241 in respect of the April preferential payments, finding no sufficient direct personal benefit in his capacity as guarantor or otherwise; the misfeasance claim in respect of those April payments failed. However, the court found that Dr Masters had breached his fiduciary duties in causing the October–November 2001 payments and was personally liable under s212 for £115,000. Defences under s1157, limitation and laches were considered and rejected on the facts where liability was established.

The court allowed the application in part. It held that the payments of 6 April 2001 (£200,000) and 26 April 2001 (£250,000) were voidable preferences under section 239 Insolvency Act 1986 and ordered MIL to repay subject to credit for £36,000 and possible further deductions to prevent an unsecured creditors' windfall. The payment of 28 December 2000 was not a preference. Four payments made in October–November 2001 totaling £115,000 were void under section 127 and MIL must repay; Dr Masters was held liable under section 212 for that £115,000. Claims against Dr Masters under s239 and for misfeasance relating to the April 2001 payments were dismissed. The court gave reasons based on the statutory tests for preference, the evidence of bank pressure and the Curaderm dispute, and the differing commercial contexts at the relevant dates.