Payroller Ltd & Ors v Little Panda Consultants Ltd & Ors

On an application for summary judgment under Insolvency Act 1986, the court must ask whether the opposing case has a realistic prospect of success. A defence need not be probable to justify a trial, provided it is more than fanciful.

Whether payments made by a company to discharge obligations owed by third parties constitute transactions entered into by the company for the purposes of section 423 is fact-sensitive and may involve unresolved questions of statutory construction. The court’s power to grant relief under section 423(2) also involves consideration of all relevant circumstances, potentially including the recipient’s knowledge, involvement and provision of value to a third party. Those issues were unsuitable for summary determination.

The liquidators of Payroller Limited sought summary judgment against Little Panda Consultants Limited and Christian Paul Burton under section 423 of the Insolvency Act 1986.

Payroller had been used in a large-scale VAT fraud. Payments were made from its accounts to Little Panda and Mr Burton. The defendants contended that the payments discharged bona fide commercial obligations owed by third parties and raised issues concerning whether the payments were transactions entered into by Payroller and whether relief should be granted against recipients lacking knowledge of the fraudulent purpose.

The central questions were whether the payments fell within section 423 and whether the court could properly determine the scope of any section 423(2) relief summarily.

1. Application dismissed. The defendants had arguable defences with a realistic and more than merely fanciful prospect of success. The summary judgment test could not be altered by the risk that the funds might be consumed in legal costs.
2. The question whether the payments themselves were transactions entered into by Payroller within section 423 was not suitable for summary determination. One issue was whether a payment by a debtor to discharge a bona fide obligation owed by a third party could constitute a relevant transaction. That issue was left open in Re Hampton Capital Ltd and was intertwined with the scope of the court’s discretion to grant relief.
3. A further triable issue concerned whether a simple payment, without dealing or communication between payer and recipient, satisfied the requirement that the company had entered into a transaction. The passage in Hunt (as liquidator of Ovenden Colbert Printers Ltd) v Hosking concerning the breadth of the word transaction was obiter because that issue was unnecessary to the Court of Appeal’s decision. The present court considered that the question required resolution at trial.
4. The range of matters relevant to relief under section 423(2) had not been authoritatively determined. It was arguable with some degree of conviction that, where a recipient lacked knowledge of the payer’s intention, was uninvolved in the underlying fraud and had provided consideration to a third party, the court might decline to make an order. The recipient’s state of mind and degree of involvement could therefore be relevant, and the issue should be decided after the facts had been established.