Hampton Capital Ltd, Re

The administrators of Hampton Capital Limited sought orders under section 238 of the Insolvency Act 1986 and the company pursued personal restitution claims for sums paid from the company bank account. The court found that the company was controlled by a third party, Mr Mayweather, and was insolvent when substantial sums provided by Tolent were misapplied.

The judge held that payments made by the company to Elite Performance Cars were money misappropriated from the company and that Elite, an innocent recipient, was unjustly enriched and liable in personal restitution for £335,000; no change of position defence was made out. The claim under section 238 against Elite failed because there was no evidence that the company had entered into any transaction with Elite on terms providing no consideration.

The claim against Oswald Kanzira succeeded in part. The court held that the first payment of £125,000 to him was dealt with in good faith and could not be recovered, but subsequent payments were made with knowledge of their source and he was disqualified from a change of position defence; judgment was given for £157,000 against him. The administrators’ section 238 claims against Kanzira also failed for lack of a transaction with the company.

This is a first-instance trial of (a) an application by the joint administrators for orders under section 238 of the Insolvency Act 1986 in respect of payments made by Hampton Capital Limited, and (b) a company action claiming amounts equal to those sums in restitution.

Background and parties

• The company, incorporated in January 2012, fell under the effective control of a Mr Alick Mayweather who engaged with Tolent Construction Ltd. Tolent advanced approximately £1.4 million to the company purportedly as loan funds for an acquisition and development project. The anticipated funding did not materialise and Tolent caused administrators to be appointed.
• The claims concerned transfers from the company bank account to third parties: Elite Performance Cars Ltd (total £335,000) and Mr Oswald Kanzira (total £282,000). The company alleged the sums were misapplied and sought restitution; the administrators separately advanced claims under section 238 (transactions at undervalue).

Nature of relief sought

• Personal restitution (unjust enrichment) claims by the company against recipients of transfers.
• Orders under section 238 of the Insolvency Act 1986 to restore the company to the position it would have been in but for undervalue transactions.

Issues framed

• Whether the payments were misappropriations of company funds and therefore recoverable in restitution against the payees.
• Whether recipients could rely on a change of position defence or other defences (ministerial receipt, bona fide dealing) to bar restitution.
• Whether payments fell within section 238 as transactions at an undervalue requiring a restoration order.

Decision and reasoning

• The judge found on the facts that the company was insolvent when the payments were made and that the payments were misappropriated for Mr Mayweather’s benefit. Bank transfers to third parties therefore constituted receipt of the company’s money by those payees.
• Against Elite the company established unjust enrichment at its expense; Elite did not establish any change of position defence and was ordered to repay £335,000. The section 238 claim against Elite failed because the judge concluded there was no evidence of a transaction entered into between the company and Elite on terms providing no consideration.
• Against Mr Kanzira the court accepted that (i) the first payment of £125,000 had been paid out in good faith before he knew of its company origin and was not recoverable, but (ii) subsequent payments were made by him with knowledge (or reasonable grounds for suspicion) that the funds came from the company and were required for Mr Mayweather’s gambling; on that basis his change of position defence failed and he was ordered to account for £157,000. The section 238 claim against him failed for the same reasons as in relation to Elite.
• The court considered authorities on unjust enrichment, change of position and transactions at undervalue (including Lipkin Gorman; Criterion Properties; Akindele; Re MC Bacon) in reaching its conclusions and commented on the difficulty of the section 238 analysis where there had been no dealing between the company and the payee.

First instance: the company’s personal restitution claims succeeded in part. Judgment was entered against Elite Performance Cars Ltd for £335,000 in restitution (no change of position established). Judgment was entered against Oswald Kanzira for £157,000 (the first receipt of £125,000 was held to have been spent in good faith and not recoverable; subsequent receipts were recoverable). The administrators’ claims under section 238 of the Insolvency Act 1986 against Elite and against Mr Kanzira were dismissed because the court found no evidence that the company had entered into transactions with those payees on terms giving no consideration.