Officeserve Technologies Ltd & Anor v Anthony-Mike

A settlement agreement releasing claims by a company against a former director is construed by reference to its language, context and commercial purpose. A release limited to claims arising from employment does not ordinarily release claims arising from the holding of a directorship where the agreement distinguishes those relationships.

For the purposes of section 127 of the Insolvency Act 1986, a disposition may include the release of a company’s debt or contractual rights where identifiable property ceases to belong to the company and value accrues to another person. The court may consider subsequent events when deciding retrospectively whether to validate such a disposition. Validation requires special circumstances showing benefit to the general body of unsecured creditors.

The applicants, the company’s liquidators, sought declarations and repayment from the respondent, its founder, former shareholder, director and executive chairman. The application arose after a winding-up petition had been presented and the company had entered into a settlement agreement with the respondent on 23 December 2016.

Four preliminary issues concerned the construction of the agreement, the effect of section 127 of the Insolvency Act 1986, possible validation, and whether the agreement barred the company’s claims. The central questions were whether the agreement released claims arising from the respondent’s directorship and whether any such release was void as a post-petition disposition.

1. The settlement agreement did not release claims against the respondent arising from his holding of office as a director. Clause 7.7 referred to claims connected with or arising from employment, whereas clause 7.1 separately referred to termination of employment, holding or loss of office, and related matters. Those differences had to be given meaning.

2. The phrases “arising from” and “in connection with” expressed different degrees of connection. A claim arising from employment was one foreseen by the employment relationship. A claim in connection with employment was wider, but neither phrase extended clause 7.7 to claims arising from the respondent’s directorship.

3. If the agreement had extended to the company’s claims against the respondent as director, the release, and an enforceable promise not to sue on those claims, would have been dispositions of company property under section 127. A disposition may occur where identifiable property ceases, by an act having legal consequences, to belong to the company and its value accrues to another person. It is unnecessary for the same identifiable asset to become owned by that person.

4. The court declined to adopt an unduly formalistic approach. A surrender of a lease, release of a debt, and cancellation of a charge may in principle fall within section 127. The mechanism used to destroy the company’s obligation, including promissory estoppel, did not alter the substantive effect.

5. On retrospective validation, the court could consider what had happened after the transaction. Validation required special circumstances showing that the transaction benefited the general body of unsecured creditors. The settlement had not saved the company, and permanently depriving it of potentially valuable claims was not justified. The releases would therefore not be validated.