Hunt (Liquidator of Ovenden Colbert Printers Ltd) v Hosking & Ors

A claim under sections 238 and 241 of the Insolvency Act 1986 requires an identified transaction which the company itself entered into at the relevant time. The word transaction is broad, but the company must have taken an act of participation so that it can properly be said to have entered into the impugned gift, agreement or arrangement.

A trustee's unilateral misappropriation of company funds is not a dealing or transaction entered into by the company. Nor is a trustee ordinarily the beneficiary's agent. Where a trustee acts under a continuing authority conferred by an earlier agreement, a later withdrawal of funds requires no fresh act by the company. The relevant transaction is the underlying agreement, which must itself be impugned if it falls within the statutory period.

Ovenden Colbert Printers Ltd was entitled to dividends in the liquidation of connected companies. Under agreements with its accountant, Mr Temple, those dividends were paid into his client account. Mr Temple later made payments from that account to or for the benefit of Mr Hosking, a liquidator of the connected companies.

Mr Hunt, Ovenden's subsequently appointed liquidator, alleged that Mr Temple had no entitlement to the funds and that the payments were transactions at an undervalue. He sought relief against Mr Hosking as a third-party recipient under sections 238 and 241 of the Insolvency Act 1986. He did not impugn the 2003 fee agreement or its 2005 variation as the relevant transaction.

Peter Smith J struck out the claim in the High Court: [2013] EWHC 311 (Ch). On appeal, the sole remaining route was whether payments made by the trustee from the client account could themselves be transactions entered into by Ovenden within the two-year statutory period.

1. Appeal dismissed. The claim under sections 238 and 241 of the Insolvency Act 1986 was correctly struck out. A claim for third-party relief under section 241 could succeed only if a transaction at an undervalue under section 238 were first established.

2. Section 238 contains two connected requirements. There must be a transaction, and it must be one which the company has itself entered into. Although “transaction” is widely defined and could include a payment made by a company or by an authorised agent, the expression “entered into” requires some act or participation by the company. The company must itself make the gift, make the arrangement, or otherwise be party to the transaction, within the period prescribed by section 240.

3. On the liquidator's primary case, Mr Temple had misappropriated trust funds. Such an improper withdrawal was not a dealing between Mr Temple and Ovenden and could not be attributed to the company as a transaction it entered into. Mr Temple was a trustee, not Ovenden's agent, and this conclusion was not altered by his holding the funds for Ovenden.

4. On the alternative hypothesis, Mr Temple was authorised or entitled to make the payments under the 2003 agreement or the 2005 variation. The later payments then required no further act by Ovenden. They were neither gifts by Ovenden nor fresh transactions entered into by it. Any relevant transaction was the underlying agreement conferring the authority, but the liquidator expressly did not rely on either agreement as a transaction to be set aside.

5. The court did not decide whether payment in discharge of an actual obligation necessarily prevents a finding of undervalue. That issue was unnecessary once the absence of a relevant company transaction was established. Elias LJ added that the creditor-protection purpose of section 238 could not justify a construction contrary to its language.

• Court of Appeal (Civil Division): Dismissed the liquidator's appeal and upheld the striking out of the claim under sections 238 and 241 of the Insolvency Act 1986.
• High Court of Justice, Chancery Division, Companies Court: Peter Smith J struck out the claim as having no prospect of success: [2013] EWHC 311 (Ch).