Northampton Borough Council v Cardoza & Ors

The claimant, Northampton Borough Council, as assignee of Northampton Town Football Club Limited, sought summary judgment against two former directors, Anthony and David Cardoza, for recovery of £180,000 paid to David by the Club in 2015. The Council alleged those payments were made when the Club was insolvent or on the verge of insolvency and that the directors breached their duties by preferring a particular creditor. The judge analysed the applicable principles on directors' duties when creditors' interests "intrude", the summary judgment threshold (absence of real prospect of defence), and the available remedies where a director has caused a preference.

The court concluded that summary judgment should be refused because (i) there were realistic and substantive disputes of fact and law as to whether the payments could be challenged and, in particular, whether the claimant would obtain a practical remedy that would not result in circuity of action; (ii) there was scope for argument as to the effect of the share purchase agreement (clause 9.1) on any right of David to reassert the £180,000 indebtedness; and (iii) there was a real prospect that the directors could seek relief under section 1157 of the Companies Act 2006, such that the issues were appropriately resolved at trial.

This was an application for summary judgment brought by Northampton Borough Council (as assignee of the football club) to recover monies paid by the club to one director, David Cardoza, in early 2015. The Council alleged the Club was insolvent or on the verge of insolvency from January 2015, that the directors therefore owed duties to creditors, and that payments totalling £180,000 to David were a breach of those duties because they favoured him as a creditor.

Background and parties:

• The first and second defendants, Anthony and David Cardoza, were former directors; the third defendant was Mrs Christina Cardoza (wife of David).
• The Club had substantial net liabilities and had been funded by director loans from the Cardozas; the Council had itself lent substantial sums and had agreed development funding and land transactions with companies connected to the parties.
• In 2015 a settlement and later a share sale agreement were concluded under which most director claims against the Club were waived except a retained claim of £195,000; the Club assigned causes of action to the Council by deed of assignment on 10 December 2015.

Relief sought and issues:

• Nature of application: summary judgment that David and Anthony had no real prospect of defending the Council's claim in respect of the £180,000 paid to David.
• Key issues framed by the court: whether the Club was insolvent or on the verge of insolvency when payments were made; whether the payments breached directors' duties by preferring a creditor; what remedies would follow if breach established; whether contractual documents (notably clause 9.1 of the SPA) precluded David from reviving any indebtedness; and whether relief under s1157 Companies Act 2006 could be available to the directors.

Court's reasoning and conclusion:

• The judge reiterated the proper tests for summary judgment (absence of a real prospect of defence) and for directors' duties when creditors' interests intrude, drawing on authority including GHLM Trading Ltd v Maroo, West Mercia, Re HLC and others.
• The remedies analysis showed that, even if payments were recoverable from David, the effect would often be to recreate the indebtedness of the company to him (raising potential circuity of action) and to permit the payee to resurrect any claim against the company; these considerations meant the practical effect of any declaration or repayment order was complex.
• The SPA's clause 9.1 (waiver/release of claims) raised real and arguable issues of contractual interpretation and commercial context about whether David could reassert a right to the £180,000; this could not be resolved summarily.
• Finally, the possibility that the directors could be relieved, wholly or in part, under section 1157 of the Companies Act 2006 meant it was not appropriate to decide the matter without full trial assessment of facts and credibility.

The judge dismissed the application for summary judgment so that the contested issues could properly be tried.

The application for summary judgment was dismissed. The judge held there were realistic and substantial disputes of fact and law — including over insolvency, the contractual effect of the share purchase agreement (clause 9.1) on any right to resurrect the £180,000 indebtedness, the practical effect of remedies (risk of circuity of action) and the prospect of relief under section 1157 Companies Act 2006 — such that the matters should be determined at trial rather than summarily.