Hunt v Hosking & Ors

For a claim under section 238 of the Insolvency Act 1986, the company must have entered into a transaction with the alleged counterparty at an undervalue. A unilateral and unauthorised misappropriation of company money is not such a transaction, even where the recipient obtained the money from company assets. A third-party claim under section 241(2) likewise depends on an underlying transaction capable of being challenged under section 238. Where payments were authorised as the discharge of another person’s fees, the payments cannot be challenged without challenging the underlying fee arrangements. Summary judgment is appropriate where the claim is bound to fail or has no real prospect of success and there is no compelling reason for trial.

The applicant liquidator sought recovery of payments made from client accounts to or for the benefit of the first respondent, a licensed insolvency practitioner. The claim alleged that the payments were transactions at an undervalue under section 238 of the Insolvency Act 1986, with section 241(2) advanced in the alternative.

The payments had been made from money held by an accountant for the company. The accountant had authority to deduct agreed fees, but no authority to make the challenged payments. The liquidator did not challenge the fee agreements themselves in these proceedings. The central issue was whether the payments constituted transactions entered into by the company with the first respondent, or were instead unauthorised dealings with company property.

1. Application allowed. The liquidator’s claim as presently formulated was bound to fail and had no real prospect of success. No compelling reason justified allowing the matter to proceed to trial.
2. Section 238 requires the company to have entered into a transaction with a person at an undervalue. The statutory language, including the references to entering into a transaction with a person and to its terms, requires a transaction to which the company is a party and which involves mutuality. The removal of company money by an unauthorised person is a misappropriation, not a transaction entered into by the company.
3. The accountant had authority to remove his agreed fees, but not to pay company money to the first respondent. If the payments were authorised fee payments, they represented money to which the accountant was entitled under the fee agreements, subject to any challenge to those agreements. If they were unauthorised, there was no transaction by the company for section 238 purposes. The liquidator could not rely on both alternatives.
4. Ostensible authority required a holding out by the principal. An agent could not create ostensible authority merely by representing himself as authorised. There was no evidence that the company had held the accountant out as authorised to make the payments.
5. Section 241(2) did not assist. It permits orders affecting recipients of the fruits of a transaction, but there must first be a transaction capable of being avoided under section 238. The payments to the first respondent were not such a transaction.
6. The authorities on summary judgment, including Fortress Value Recovery Fund 1 LLC v Blue Skye Special Opportunities Fund LLP [2013] EWHC 14 (Comm), required caution against a mini-trial. That caution did not prevent judgment where the undisputed facts disclosed no legally viable section 238 claim.

The claim was therefore struck out or summarily dismissed, with further directions reserved for hand down.

First-instance decision. No appellate history is stated in the judgment.