Autocal Holdings Ltd v Jeffery

The claimant sought repayment of a £131,000 loan advanced to the defendant, repayment of £14,156 debited to the defendant's director's loan account, and repayment of £37,500.80 withdrawn from the company's account. The central legal questions were the terms of the £131,000 advance in the absence of a written agreement and whether repayment was conditional on a specified "trigger event" or otherwise repayable on demand. The court held that no express or sufficiently certain implied repayment terms were agreed and that the loan was therefore repayable on demand. The court also held that payments from the company to the defendant were not agreed to be non-repayable except out of dividends and that such an arrangement would have been an unlawful distribution in the absence of available reserves. Finally, the defendant's claim to set-off or counter-indemnity based on the transfer of his Topco shares was rejected because the court found the enforced transfer realised no value; the Topco shares were held to be valueless at the date of transfer.

Background and parties:

The claimant Autocal Holdings Ltd (Holdings) sued its former co‑owner and director Neil Barry Jeffery for repayment of a £131,000 loan made in 2009, for repayment of £14,156 debited to his director's loan account and for £37,500.80 withdrawn from the company account. The defendant accepted liability for the last sum but denied liability for the first two amounts, contending that repayment of the £131,000 was conditional on a trigger event (for example a sale of shares) and that he was entitled to a credit or set-off for the value of his shares in Topco which had been enforced and transferred to a related company for a stated price of £1.

Nature of the application and issues:

• The relief sought: judgment for repayment of the three sums with interest and dismissal of the defendant's counterclaims and set-off.
• Key issues framed: (i) whether any express or implied terms governed repayment of the £131,000 loan and whether it was repayable only on a trigger event or on demand; (ii) whether the £14,156 debited as director's loan items were not repayable except out of subsequent dividends; (iii) whether the £37,500.80 withdrawals were recoverable for breach of duty; and (iv) whether the defendant had an entitlement to set-off or counter-indemnity for the value of his Topco shares realised on enforcement of his guarantee.

Court's reasoning and findings:

• Terms of the £131,000 loan: the court examined pre‑completion emails, shareholder and director minutes, the tax clearance correspondence, the conduct of the parties and the way the loan was reflected in company accounts. The court rejected reliance on an informal email phrase referring to repayment on a "trigger event like sale of shares" as creating an enforceable, sufficiently certain contractual condition. There had been no discussion fixing what events would be "like" a sale and no adoption at the completion meeting of any detailed repayment terms. Accordingly no express or detailed implied repayment term was found and the court inferred the ordinary commercial implication that the loan was repayable on demand. The court also noted that the loan was shown in the accounts as a current asset and the parties had not objected to that presentation.
• Director's loan items (£14,156): although the defendant alleged a practice or agreement that cash advances would be treated as loans pending future dividends, there was no corroborative evidence that a term was agreed that the advances were not repayable except upon a future dividend. The court held that an agreement to make payments now non-repayable except out of a future dividend would be an unlawful distribution if no distributable reserves existed; such a term would be unenforceable against the company. The sums were therefore repayable on demand.
• Withdrawals (£37,500.80): the defendant abandoned any defence to the claim for these sums and accepted liability; judgment was entered for the claimant.
• Counterclaim and valuation of Topco shares: the defendant relied on the equitable principle that a guarantor who suffers enforcement of charged property has a right of recovery against the principal debtor to the extent of the value realised. The court accepted the legal principle but, on expert valuation evidence, preferred the claimant's valuation which concluded that the Topco shares were of nil value at the date of transfer. The defendant's expert methodology was rejected as speculative and insufficiently grounded in identifiable transferable rights or realistic assumptions about the business. The counterclaim and set-off therefore failed.

Outcome and orders:

The court entered judgment for the claimant for the loan and director's loan items and for the withdrawals, with interest from demand, and dismissed the defendant's counterclaim for value of the Topco shares.

First instance: The claim was successful. The court held that there was no sufficiently certain express or implied agreement that repayment of the £131,000 loan was conditional on a trigger event; the loan was therefore repayable on demand and judgment was entered for the claimant for that sum with interest from date of demand. The sums of £14,156 debited to the defendant's director's loan account were likewise repayable on demand because no binding agreement that they were only repayable out of dividends was shown and any such agreement would have amounted to an unlawful distribution. The £37,500.80 withdrawals were recoverable and the defendant accepted liability. The defendant's counterclaim and set-off based on the enforced transfer of his Topco shares failed because the court found the shares to have been valueless at the date of transfer.