Re DCL Hire Limited

The Court of Appeal (Mann J, sitting in the High Court) considered an appeal by the joint liquidators of DCL Hire Limited against findings of Deputy Insolvency and Companies Court Judge Schaffer in misfeasance proceedings under section 212 of the Insolvency Act 1986 and potential relief under section 1157 of the Companies Act 2006. The judge below had dismissed one misfeasance claim relating to a £250,000 payment to O'Hara Bros Surfacing Ltd on the basis that it was a part repayment of an earlier £535,000 loan treated as from the O'Hara Pension Scheme, and had allowed the vehicles-related misfeasance claim but reduced the director's contribution to 75% (or abated 25% under section 1157), awarding interest only from the date of the liquidation.

The appellate court rejected the challenge to the factual finding about the £250,000 payment, holding the deputy judge's documentary-based conclusion was rational and open to him. The appeal succeeded on the quantum and relief aspects: the appellate judge held that, on the findings of breach, the director should be liable for 100% of the loss arising from the vehicles transactions and was not entitled to any relief under section 1157. Finally, the court allowed the appeal on interest, directing that interest be charged from the date of the last vehicle purchase on the gross cost of the cars with credit for recoveries.

Background and parties. DCL Hire Limited, a vehicle hire business, entered creditors' voluntary liquidation on 15 January 2016. The joint liquidators (Dumville and Clunie) sued Mr Graham Rich, the company's effective director, under section 212 Insolvency Act 1986 for misfeasance arising from (i) a £250,000 payment to O'Hara Bros Surfacing Ltd (the "Surfacing" payment) and (ii) a series of transactions by which DCL purchased eight cars which were immediately passed to associates of a non-director shareholder, Mr Charles Brown (the "Vehicles" claim). The proceedings below were before Deputy ICC Judge Schaffer; this judgment records the appeal to the High Court (Mann J).

Nature of the claim/application. The claim was for misfeasance and for compensation under section 212. The liquidators also challenged the deputy judge's partial allowance of section 1157 Companies Act 2006 relief and his decision as to the appropriate date for the award of interest.

Issues framed by the court.

• Whether the £250,000 payment was a misfeasance or a part repayment of a prior £535,000 loan properly characterised as from the O'Hara Pension Scheme;
• Whether the vehicles transactions amounted to misfeasance by Mr Rich, and if so the correct quantum of compensation under section 212 and whether any reduction under section 1157 was appropriate;
• From what date interest should run on any sums awarded.

Court's findings and reasoning. On the Surfacing payment the appellate judge declined to disturb the deputy judge's factual conclusion that the earlier £535,000 receipt was properly treated as a loan linked to the O'Hara Pension Scheme and that the £250,000 was a part repayment; the judge's documentary evaluation (notably the cheque stub) was rational and within the permissible appellate scope. On the Vehicles claim the deputy judge's findings of serious breaches by Mr Rich were upheld, but Mann J held that the deputy judge erred in principle and outcome by limiting liability to 75% and would not have granted the 25% abatement under section 1157. Mann J concluded that on the judge's own findings Mr Rich acted unreasonably and was not entitled to relief under section 1157, so he should be liable for 100% of the loss. On interest Mann J held the loss crystallised at transfer of the vehicles and therefore allowed interest from the date of the last vehicle purchase on the gross cost, subject to credit for recoveries; the previously awarded start date (date of liquidation) was replaced.

Procedural posture. Appeal from the decision of Deputy ICC Judge Schaffer (25 January 2019). This was a first appeal to the High Court on both fact and law within the appellate standards summarised in the judgment.

Appeal allowed in part. The court dismissed the appeal against the deputy judge's finding that the £250,000 paid to Surfacing was, on the available documentary evidence, a part repayment of an earlier loan and therefore not misfeasance. The court allowed the appeal in relation to the vehicles misfeasance quantum, holding that on the deputy judge's own findings Mr Rich should be liable for 100% of the loss and was not entitled to relief under section 1157 Companies Act 2006. The court also allowed the appeal on interest and directed interest to run from the date of the last vehicle purchase with credit for recoveries.

Appeal from the decision of Deputy Insolvency and Companies Court Judge Schaffer given on 25 January 2019. The appeal was heard before Mann J in the High Court, Business and Property Courts (Insolvency and Companies List).