Montgold Capital LLP v Ilska

The court granted permission under section 263 of the Companies Act 2006 for Montgold Capital LLP (the claimant and 50% shareholder) to continue a derivative claim on behalf of Agushia Limited. The threshold under section 261 was satisfied because a prima facie case had been found on the papers and the matters pleaded were the sort of case a properly advised company might pursue. The judge applied the statutory gateway in section 263(2) and the non-exhaustive factors in section 263(3), considering the claimant's good faith, the importance to the company of continuing the claim, the absence of other disinterested members, the strength and potential size of the claim (including an unlawful means conspiracy and allegations of an undervalue pre-pack sale), and the company’s financial position.

The court found the evidence on Agushia's insolvency to be incomplete and rejected the submission that the company was unquestionably insolvent when administrators were appointed. The derivative form of action was held to be the appropriate procedure for pursuing outsiders to the company (notably the alleged purchaser and adviser) and for the relief sought. The judge also made orders preserving the company's cash in administration (about 190,000) subject to limited administrator draws and a requirement to give advance notice to the claimant.

Background and parties: Agushia Limited traded a restaurant business. The claimant, Montgold Capital LLP, owned 50% of the issued shares. The first defendant, Ms Agnieszka Ilska, was the sole director and owned 5% of the shares; the second defendant, Mr Jad Youssef, owned 45% and was a former director and alleged de facto director. Other defendants included the finance director and his service company, an accountant/insolvency practitioner, Comptoir Group PLC (the alleged purchaser), its chief executive, and the administrators.

Nature of the application: The claimant applied under section 261 of the Companies Act 2006 for permission to continue a derivative claim on behalf of Agushia and initially sought an indemnity from the company's assets for the costs of the derivative action (the indemnity was not ultimately pressed at hearing).

Primary allegations: The claimant pleaded that, in the context of ongoing sale negotiations (including a purported offer of , alleged contemporaneous offers exceeding ), the first and second defendants arranged for Agushia to be put into administration and for a near-immediate sale (a pre-pack) to Comptoir at an undervalue, aided by conspiratorial assistance from other defendants.

Issues for decision: (i) whether the section 261/263 statutory gateway required mandatory refusal of permission because no director acting under section 171 would continue the claim; (ii) whether the claimant acted in good faith; (iii) the importance a director acting under section 172 would attach to continuation; (iv) the strength and potential value of the claim; (v) whether relief could and should be pursued in alternative proceedings (notably section 994 unfair prejudice proceedings); and (vi) the appropriate preservation of company assets pending litigation.

Court's reasoning: The judge treated the threshold enquiry as a commercial exercise, applying authorities on how to weigh size, strength, cost, funding and impact on the company. The prima facie threshold had already been met on the papers. The judge found the claimant's pleaded unlawful means conspiracy to be realistic and carrying conviction, and the potential value of the claim to be materially greater than a narrow cap posited by defendants. Expert evidence on solvency was regarded as incomplete and insufficient to show unquestionable insolvency at the time of administration. The derivative route was held to be the appropriate procedural vehicle for pursuing outsiders to the company and the relief sought, notwithstanding that some relief might also be available via unfair prejudice proceedings. The claimant was acting in good faith and a director acting under section 172 would likely attach considerable importance to continuing the claim. The court therefore exercised its discretion to grant permission.

Relief granted: Permission to continue the derivative claim against defendants one to nine; orders to preserve the cash in Agushia's administration subject to limited necessary administrator draws and a regime requiring advance notice to the claimant for further draws. The claimant did not press its indemnity claim against the company's assets.

This was a first instance application for permission to continue a derivative claim. The court granted permission under section 263 of the Companies Act 2006 for the claimant to continue the derivative claim on behalf of Agushia Limited against defendants one to nine. The judge concluded the statutory gateway for refusal did not apply because a properly advised director might pursue the claim, the claimant acted in good faith, the claim was of real substance (including a realistic unlawful means conspiracy and potentially significant value), and the evidence did not establish unquestionable insolvency. The court also made orders preserving most of the company's cash in administration and subjecting further administrator drawings to advance notice to the claimant.