Burnden Holdings (UK) Ltd & Anor v Fielding & Anor

Summary judgment requires an absence of reality in the defence, not an assessment of probability. Where a company is insolvent, precarious or of doubtful solvency, directors must consider the interests of creditors. Whether that duty arose, and whether it was breached honestly or dishonestly, will usually depend on the facts. Interim accounts relied on to justify a distribution under the Companies Act 1985 must be accounts of the company and must have been considered by the directors. Questions about their accuracy and whether they enabled a reasonable judgment generally require trial evidence. Relief under section 1157 of the Companies Act 2006 is fact-specific and is not subject to an invariable rule excluding relief where creditors may suffer. Security for costs may be ordered where the statutory condition is met and the order is just.

The claimants alleged that the defendants, former directors and principal shareholders, procured an unlawful distribution in specie of shares in Vital Energi Utilities Limited and granted themselves security in breach of duty. Claims were also brought under section 423 of the Insolvency Act 1986. The first claimant applied for summary judgment and an interim payment, alleging doubtful solvency, breach of the duty to consider creditors’ interests, and failure to comply with the interim-accounts requirements of the Companies Act 1985.

The defendants resisted the application and sought security for costs. The central issues were whether the defences had no real prospect of success and whether security should be ordered against a company in insolvent liquidation.

1. Summary judgment. The application was dismissed. Under CPR Part 24, the question was whether the defendants had no real prospect of successfully defending the relevant issues. The test concerned absence of reality, not probability. The claimants had to show that the defences lacked reality.
2. The court accepted that the creditor-interest duty arises where a company is insolvent or of doubtful solvency, including where it is on the verge of insolvency or in a precarious or parlous financial state. The evidence left a real issue as to whether that threshold existed in August to October 2007. It also left a real issue as to whether the directors ought to have anticipated insolvency. Deliberate decision-making was not equivalent to dishonesty. Dishonesty required knowledge that the directors were acting contrary to creditors’ interests or reckless indifference to those interests.
3. If the creditor-interest duty arose, it was arguable that the directors needed to consider whether a more beneficial and realistically achievable alternative existed to the proposed distribution and associated loan. That issue, and the defendants’ explanation of the transaction, required trial determination.
4. For section 270 of the Companies Act 1985, interim accounts had to be accounts of the company and had to be considered by the directors so that a reasonable judgment could be made about the statutory items. The evidence supported an arguable case that the management accounts satisfied those requirements. Whether entries concerning SGI Tooling, contingent liabilities and other matters were accurate or sufficiently informative was fact-sensitive and required factual and expert evidence.
5. Section 1157 of the Companies Act 2006 did not impose an invariable rule excluding relief whenever creditors might be disadvantaged. Relief was fact-specific. Inn Spirit Ltd v Burns [2002] EWHC 1731 (Ch) was distinguished because there were no qualifying accounts in that case.
6. Security for costs. Security was ordered. The first claimant was in insolvent liquidation and, absent suitable insurance or an indemnity, could not pay the defendants’ costs. The application was just in the circumstances, would not stifle the litigation, and was supported by material changes since the earlier application. The claimants were directed to offer security of at least £790,000 plus VAT by suitable insurance, indemnity or equivalent arrangement, with alternative security if the provider’s reliability was not established. The claimants were also ordered to pay the costs of both applications, with an interim payment on account of £175,000.

The judgment records that an earlier summary judgment order had been set aside by the Court of Appeal in [2016] EWCA Civ 557, reported at [2017] 1 WLR 39. The defendants had permission to appeal that decision to the Supreme Court. Those decisions concerned the same litigation and are not treated as cited authorities in this record.