Phillips & Anor v McGregor-Paterson

Claims by liquidators under the Insolvency Act 1986 should not ordinarily be resolved summarily where the evidence leaves a real issue about insolvency, a director’s involvement, causation, loss or the statutory intention requirement. Section 212 is procedural and does not create independent duties or liabilities. A post-petition disposition is void under section 127, but that provision does not itself create a personal claim against a director who was not the recipient. The statutory presumption concerning preferences to connected persons does not make summary judgment inevitable. A plausible explanation that a payment discharged finance raised for the company’s benefit may also require a trial. Procedural defects in commencing insolvency proceedings may be cured under rule 7.55 where no substantial injustice is caused.

The liquidators of Wilson Properties UK Ltd brought proceedings against a former director, alleging misfeasance, breach of fiduciary duty, wrongful trading, preferences and post-petition dispositions. A Deputy Master granted summary judgment for three sums totalling approximately £260,000.

The defendant appealed and sought permission and an extension of time. The claims concerned payments made after presentation of a winding-up petition, alleged repayments to connected directors, and repayment of a loan formally made to another director but said to have financed the company. The central issues were whether the claims had been properly commenced, whether the evidence justified summary judgment, and whether the statutory requirements for preferences, misfeasance and wrongful trading had been established.

1. Appeal allowed. Permission to appeal and an extension of time were granted. The claims were to proceed to trial, with costs and directions to be dealt with separately.
2. The use of a claim form rather than an ordinary application under Part 7 of the Insolvency Rules 2006 was a formal defect capable of cure under rule 7.55. No substantial injustice had been shown. The proceedings were insolvency proceedings because they were brought under the Insolvency Act 1986.
3. Section 127(1) made post-petition dispositions void unless validated, but did not itself create a cause of action against a director who was not the recipient. The liquidators therefore had to establish misfeasance or breach of duty, causation and loss. Those issues could not be determined summarily where the defendant’s involvement in the payments and the company’s financial position were disputed.
4. Section 212 was procedural only. It did not create new substantive rights or obligations. Any possible relief under section 727 of the Companies Act 1985 also required consideration, including whether the defendant had acted honestly and reasonably and ought fairly to be excused.
5. The preference claims required proof that the company was unable to pay its debts within section 123 when the payments were made. The evidence did not establish that point conclusively. The presumption in section 239(6) reversed the burden concerning intention but did not make rebuttal impossible without a trial.
6. The repayment of the Hall/Mooney loan also required a trial. The defendant had provided a plausible explanation that the loan was indirect finance for the company and that repayment from its account was a convenient method of discharging a company liability. The Master had therefore gone beyond what was permissible on a summary judgment application.

• High Court (Chancery Division): The Deputy Master’s summary judgment was set aside. The defendant was granted permission to appeal and an extension of time. The claims were directed to proceed to trial.