Power & Ors v Hodges & Ors

The court considered a summary judgment application by the joint liquidators of Nixon & Hope Limited to recover sums paid and assets transferred after the company became insolvent. The principal legal bases were misfeasance under section 212 of the Insolvency Act 1986 and transactions at an undervalue under section 238 of that Act, applied against directors and connected corporate transferees. The court applied the summary judgment test (CPR 24) and found that some respondent defences had no real prospect of success.

Key outcomes were: admission and agreed judgments for salary paid to each director after 29 May 2014; summary judgment against R.A. Hodges (RAH) in the sum of about £339,034.51 for unexplained payments in the period 12 September 2012 to 28 May 2014; judgment restoring N&H's intellectual property rights which had been assigned to N & H IP Limited (NHIP); an order that the directors, jointly and severally, pay £250,000 on account for misfeasance in relation to the transfer of tangible assets and stock and that there be an enquiry as to the full amount due; and an order that Bencher Limited pay an interim £150,000 and that there be an enquiry as to the open market value of tangible assets transferred to it. No summary judgment was granted against F2G Retail Sales Limited as to the stock transfer.

Background and parties. Nixon & Hope Limited (N&H) was incorporated in August 2011 to acquire the business and intellectual property of a failed flooring business. By 2014 N&H was insolvent; it entered administration in July 2014 and was wound up, with the applicants appointed as joint liquidators. The respondents comprised four former directors of N&H (RJH, RAH, PSS and DV, collectively the Directors) and several connected corporate entities (Bencher, F2G Retail Sales Limited (F2GRS), N & H IP Limited (NHIP), and Cleat Amalgamated Holdings Limited (Amalgamated)).

Nature of the application. The liquidators applied for summary judgment on four aspects: (1) recovery of salary paid to directors after 29 May 2014; (2) recovery of unexplained and allegedly excessive payments to RAH between 12 September 2012 and 28 May 2014; (3) restoration of N&H's intellectual property rights assigned to NHIP; and (4) recovery in respect of transfers of tangible assets to Bencher and stock to F2GRS.

Issues framed.

• Whether the directors' post-insolvency salary payments were recoverable as misfeasance under section 212 IA 1986 and whether any admissions had been made.
• Whether RAH had a real prospect of establishing entitlement to the payments taken by him in the relevant period.
• Whether the assignment of trade marks and related goodwill to NHIP (and the subsequent share transfer to Amalgamated) could be set aside as a transaction at an undervalue under section 238 IA 1986.
• Whether transfers of tangible assets and stock to related companies were misfeasant or transactions at an undervalue and whether summary relief was appropriate against the directors and against Bencher.

Court's reasoning and findings. The court restated the summary judgment standard under CPR 24 and emphasised that the applicant bears the overall burden but that respondents must identify a defence with a real prospect of success. On the post-29 May 2014 salary claim the directors conceded liability (subject to interest) and agreed terms for judgment, which the court recorded. On the RAH payments from 12 September 2012 to 28 May 2014 the court examined RAH's evidential material (a payment schedule, an accountant's letter and an assertion of entitlement arising from sums received into N&H's bank account) and concluded that the explanation was fanciful and had no real prospect of success; summary judgment was entered for the applicants in the sum claimed (rounded to £339,034.51).

On the IP transfer, the court reviewed N&H's financial statements, the original pre-pack acquisition documentation, the assignment executed by DV transferring registered trade marks to NHIP and the contemporaneous term sheet for the proposed corporate restructuring. The court concluded that the contention that N&H had only been a licensee (and not the owner) of the UK trade mark was unarguable and granted summary judgment to restore the rights to N&H (by restoration of share ownership or transfer of the IP rights).

As to the transfers of tangible assets and stock, the court found that the documented series of agreements effected in April–June 2014 had the effect of divesting N&H of assets while leaving it with substantial creditor liabilities, and that no realistic defence had been identified. The court ordered the directors, jointly and severally, to pay £250,000 on account as compensation for misfeasance and directed an enquiry as to the full amount due. The court also ordered Bencher to make an interim payment of £150,000 and directed an enquiry into the open market value of the tangible assets it received. The court declined to make summary orders against F2GRS on the stock transfer because of late disclosure issues and the need for further investigation.

Wider context noted by the court. The court observed that CPR 24 is aimed at clear-cut issues and that conditional orders or enquiries may be used where appropriate, but found no other compelling reason to refuse summary relief on the issues decided.

This was a first-instance summary judgment application in which the court granted relief in part. The court recorded agreed judgments for post-insolvency salary payments to the directors. It entered summary judgment against R.A. Hodges for £339,034.51 in respect of unexplained payments in the period 12 September 2012 to 28 May 2014, concluded that N&H's registered trade marks and related intellectual property should be restored to N&H (setting aside the assignment to NHIP/Amalgamated), ordered the directors jointly and severally to pay £250,000 on account for misfeasance in relation to the transfer of tangible assets and stock and directed an enquiry as to the full amount payable, and ordered Bencher Limited to pay an interim £150,000 with an enquiry as to the open market value of the tangible assets. The court refused summary judgment against F2G Retail Sales Limited in respect of stock transfers for reasons of disclosure and need for further examination.