Hampton Capital Ltd, Re

A recipient of money misappropriated from a company may be personally liable in restitution, even where the payment was made by an authorised bank transfer and the recipient was unaware of the impropriety. Liability remains subject to a defence of good-faith change of position.

That defence requires a causal connection between the receipt and the defendant’s subsequent payment or other change of position. Knowledge amounting to reasonable grounds for suspecting that the money was stolen may make retention unconscionable and defeat the defence. A company’s good-faith recipient cannot rely solely on Companies Act 2006, section 40.

A mere transfer of money, without engagement or communication between the company and recipient, is not necessarily a transaction entered into with that person for the purposes of section 238 of the Insolvency Act 1986.

The joint administrators of Hampton Capital Ltd applied under section 238 of the Insolvency Act 1986. The company also brought personal restitution claims against Elite Performance Cars Ltd and Oswald Kanzira for payments made from its bank account.

The company had received approximately £1.4 million from Tolent Construction Ltd. The judge found that the relevant payments were made from money lent to the company, while the company was insolvent, and were gratuitous misappropriations made for the benefit of Alick Mayweather.

Elite received £335,000. Mr Kanzira received £282,000 and paid corresponding sums to casinos for Mr Mayweather. The central issues were whether the recipients were liable in restitution, whether Mr Kanzira had changed his position in good faith, and whether the payments were transactions at an undervalue under section 238.

1. The company obtained judgment against Elite for £335,000. The payments were not void in the sense of being nullities: the company’s director had authority to instruct the bank. They were nevertheless stolen money, because they were paid away for Mr Mayweather’s benefit and not for the company.

2. Under Criterion Properties v Stratford UK Properties [2004] UKHL 28; [2004] 1 WLR 1846, a recipient of benefits under an avoided contract may be personally liable for unjust enrichment, subject to change of position. The present case did not depend on contractual authority or avoidance.

3. Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 established the relevant restitutionary principles. A recipient of stolen money is personally liable unless protected by a recognised defence, including good-faith change of position. Elite established no such defence.

4. Mr Kanzira’s payments to casinos were causally linked to the payments received from the company. His payment of the first £125,000 occurred before he knew that the money came from the company, and he was not liable for that sum. In relation to the later payments, he knew the source of the money and had reasonable grounds for suspecting that it was stolen. It was therefore not unconscionable to require repayment, and his change of position defence failed. The company obtained judgment against him for £157,000.

5. The test stated in Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437, namely whether the recipient’s knowledge made it unconscionable to retain the benefit, was applied by analogy to the restitution claim.

6. The section 238 claims failed. The court found no gift and no transaction entered into between the company and either recipient. A mere transmission of money, without engagement or communication between the parties, did not satisfy section 238(4)(a). An alternative argument concerning the valuation of consideration under section 238(4)(b) was left undecided.

7. Section 40 of the Companies Act 2006 did not make the payments binding on the company or provide a complete defence to unjust enrichment. Good faith was potentially necessary to a defence, but was not sufficient by itself.