Pantiles Investments Ltd & Anor v Winckler (Rev 1)

A director who knowingly participates in the use of a company to defraud creditors may be liable under section 213 of the Insolvency Act 1986. Knowledge includes deliberately shutting one’s eyes to obvious fraud, but requires a firmly grounded and targeted suspicion. For section 172 of the Companies Act 2006, where there is no evidence that the director actually considered the company’s interests, the court applies an objective test. A director cannot use the company’s assets to secure or repay another person’s debt where the company receives no benefit. Directors must also exercise independent judgment. Deliberate concealment of a breach may postpone limitation under section 32 of the Limitation Act 1980. Relief under section 1157 of the 2006 Act requires both honesty and objective reasonableness.

The liquidator of Pantiles Investments Ltd applied against its former director, Sabine Winckler. The company had acquired and later sold a property using short-term finance. Its former director and shareholder, Peter Goldbart, was subsequently found to have retained the beneficial interest in the company’s shares and property. The liquidator alleged that Ms Winckler knowingly participated in a scheme to conceal the property and sale proceeds from Mr Goldbart’s creditors.

The application concerned fraudulent trading under section 213 of the Insolvency Act 1986 and misfeasance and breach of directors’ duties under section 212. Issues also arose concerning limitation and statutory relief from liability.

1. Fraudulent trading. The court found that Ms Winckler was knowingly a party to the use of Pantiles to defraud Mr Goldbart’s creditors. Her account of the transaction was inherently improbable. She permitted the company to enter into commercially ruinous arrangements, allowed its affairs to be directed by Mr Goldbart, knew of his bankruptcy, obstructed his trustee and authorised distributions which left the company unable to meet its liabilities.
2. The applicable test under section 213 was actual knowledge of the fraudulent purpose, including blind-eye knowledge. A failure to recognise fraud, however negligent, was insufficient. The court adopted the approach in Morris v Bank of India and the requirement that any suspicion must be firmly grounded and targeted on specific facts, as explained in Manifest Shipping Co Ltd v Uni-Polaris Co Ltd.
3. Directors’ duties. Independently of dishonesty, Ms Winckler breached section 172 of the Companies Act 2006 by securing and repaying a loan made for Ms Iwamoto’s benefit. The company received no benefit and an intelligent and honest director could not reasonably have believed that the transaction promoted the company’s success. Paying an unsecured creditor from the sale proceeds, when insolvency was inevitable and creditors’ interests had not been considered, was also a breach.
4. Ms Winckler breached section 173 by abrogating her decision-making to Mr Goldbart. She did not merely obtain advice; she followed his directions without exercising independent judgment.
5. The claim concerning the second Steckelmacher loan was not time-barred. Sections 21 and 32 of the Limitation Act 1980 applied because the claim involved fraudulent breach of trust and deliberate concealment of the breach.
6. Relief under section 1157 of the Companies Act 2006 was unavailable. Ms Winckler had acted dishonestly. Even if she had been merely inadvertent, continuing to follow Mr Goldbart’s directions after the warnings given by the trustee and solicitors was objectively unreasonable.
7. The parties were invited to agree an order providing for a further hearing on the appropriate relief.

First-instance decision. The court determined liability and directed that a further hearing be arranged to consider the appropriate relief.