Hunt (Liquidator of Ovenden Colbert Printers Ltd) v Hosking

The Court of Appeal dismissed the liquidator's appeal against a strike-out order. The court held that claims under sections 238 and 241 of the Insolvency Act 1986 require that the company itself must have "entered into" the impugned transaction within the relevant period. Unilateral misappropriation by a trustee or fiduciary does not amount to a transaction entered into by the company, and a trustee is not the company's agent for these purposes. Because the payments made from the accountant's client account were not transactions entered into by Ovenden, the requirements of s.238 could not be satisfied and no order under s.241 could be made against the recipient.

This is an appeal from Peter Smith J's order of 22 February 2013 striking out a liquidator's claim. The claimant, Mr Hunt (liquidator of Ovenden Colbert Printers Ltd), sought relief under ss.238 and 241 of the Insolvency Act 1986 to set aside or recover payments said to be transactions at an undervalue within the two years before insolvency.

The factual background was that Ovenden had a fee agreement dated 17 December 2003 with its accountant (Scott Temple Wilshire & Co) and a purported variation dated 28 January 2005. Dividends were paid into the accountant's client account in late 2004 and 2005 amounting to about £1.275 million. The accountant paid sums out of that client account, including payments totalling £224,951.11 to or for the benefit of Mr Hosking. Mr Hunt alleged that the agreements were without consideration, that the 2005 signature was forged, that the payments were therefore made at an undervalue, and that Mr Hosking had received and benefited from those payments.

The liquidator advanced two routes below: (1) that the payments were transactions between Ovenden and Mr Hosking; and (2) that the payments were transactions between Ovenden and the accountant and that orders could be made against Mr Hosking as a third party beneficiary under s.241. At first instance the judge struck out the claim as having no prospect of success. On appeal Mr Hunt pursued only the second route.

The Court of Appeal framed the legal issues as: (i) whether the impugned payments constituted transactions which Ovenden had itself "entered into" within the meaning of s.238; (ii) if so, whether the payments were at an undervalue; and (iii) whether an order could be made under s.241 against a recipient who had received benefits and was not acting in good faith. The court examined authorities (notably Re Brabon, Manson v Smith, Stone & Rolls and Ingram) and emphasised that a company must have taken a step or act of participation so that it can properly be said to have "entered into" the transaction.

The court concluded that the accountant's unilateral withdrawal and payment of funds did not amount to a transaction entered into by Ovenden. A misappropriation by a trustee is not a dealing by the company; nor is a trustee in English law the agent of the beneficiary such that the trustee's acts could be treated as acts of the company. Because the payments were not transactions entered into by Ovenden, s.238 was not engaged and there could be no order against Mr Hosking under s.241. The appeal was therefore dismissed.

The court also noted that the claimant had been invited to plead other causes such as breach of trust or dishonest assistance but had chosen not to amend; the decision turned on the statutory requirements of s.238 and s.241 as pleaded.

Appeal dismissed. The Court of Appeal held that sections 238 and 241 require the company itself to have "entered into" the impugned transaction; unilateral misappropriation by a trustee or fiduciary does not constitute a transaction entered into by the company, and a trustee is not the company's agent. Because the payments from the accountant's client account were not transactions entered into by Ovenden within the relevant period, s.238 could not be satisfied and no order under s.241 could be made against Mr Hosking.

Appeal from the High Court of Justice, Chancery Division, Companies Court (Peter Smith J) [2013] EWHC 311 (Ch); strike-out order made 22 February 2013. Appeal heard in the Court of Appeal (Civil Division), judgment given 15 November 2013 ([2013] EWCA Civ 1408).