Global Corporate Ltd v Hale

The court considered an application by an assignee of a liquidator's claim to recover £23,511 paid to a director/shareholder. Key issues were whether the payments were unlawful dividends under ss 830, 836 and 847 Companies Act 2006, whether they gave rise to claims for misfeasance under s 212 Insolvency Act 1986, and whether they were transactions at an undervalue or unlawful preferences under ss 238–239 Insolvency Act 1986. The judge found that, on the facts, the director did not make definitive declarations of dividends at the time of the payments but acted under a tax-driven arrangement which in substance resulted in remuneration for services. As a consequence the payments were not recoverable as unlawful dividends and did not found a misfeasance claim; they were payments in respect of services for which the director had a restitutionary/unjust enrichment (quantum meruit) claim. The assignment did not purport to include misfeasance or preference claims and the liquidators were not parties; accordingly relief under the preference or misfeasance heads could not be granted. The application was therefore dismissed.

Background and parties. Powerstation UK Ltd went into creditors' voluntary liquidation in November 2015. The applicant, Global Corporate Limited, purchased from the joint liquidators an assignment of the company's claim to recover alleged unlawful dividends and/or transactions at an undervalue totalling £23,511 paid to Mr Dirk Hale, a director and shareholder. The joint liquidators themselves were not parties to the application.

Nature of the claim and procedural posture. The applicant sought a declaration that payments to the respondent were unlawful dividends and/or transactions at an undervalue and/or evidence of misapplication or misfeasance, together with an order for repayment. The application was heard at first instance before HHJ Paul Matthews following transfer to Bristol.

Facts. The respondent and a co-director were paid small salaries and regular monthly payments described and treated by them and their accountant as dividends from June 2014 to October 2015. The last filed annual accounts (to 30 April 2014) showed a negative balance sheet. The respondent said the payments were made subject to the accountant's year-end review as to distributable reserves and were intended as a tax-efficient mechanism to remunerate him for full-time services.

Issues framed by the court.

• Whether the payments were unlawful distributions recoverable under s 847 Companies Act 2006;
• Whether the payments amounted to misfeasance or breach of fiduciary duty justifying relief under s 212 Insolvency Act 1986;
• Whether the payments were transactions at an undervalue or unlawful preferences under ss 238–239 Insolvency Act 1986;
• Whether the applicant had title to sue in respect of misfeasance or preferences given the terms of the deed of assignment.

Court’s reasoning and findings. The judge found on the evidence that the respondent did not make definitive decisions to declare dividends when payments were made but rather acted on an accountant-advised process which left the formal determination to the year-end accounts; consequently there was no legally effective declaration of dividends at the payment dates and ss 830/836/847 did not apply to require repayment as unlawful dividends. The court accepted the respondent had provided full-time services and that, as a matter of unjust enrichment/quantum meruit, the payments were in substance remuneration for those services; that restitutionary claim provided a legal justification for the sums received and defeated a misfeasance claim in the circumstances. The deed of assignment expressly covered only claims under s 847 Companies Act 2006 and/or s 238 Insolvency Act 1986 and did not extend to director misfeasance or s 239 preference claims; the claimant therefore lacked title to pursue those heads and, further, the liquidators (who retained any preference claim) were not before the court so no effective order could be made on preferences. The application was dismissed.

The application is dismissed. The court held that the payments were not lawfully declared dividends at the time and so were not recoverable under s 847 Companies Act 2006; in substance the payments represented remuneration for services and gave rise to restitutionary/unjust enrichment considerations which prevented misfeasance relief under s 212; and the deed of assignment did not convey any claim for misfeasance or unlawful preference, so those heads could not be pursued by the applicant (and the liquidators were not parties).