Northampton Borough Council v Cardoza & Ors

The court found that the defendants, Mr Anthony Cardoza and Mr David Cardoza, breached fiduciary duties owed to Northampton Town Football Club Limited (NTFC) in relation to sums advanced under loans taken out to develop the Sixfields stadium and adjoining land. The judge applied the statutory and common-law duties of directors (ss.171–177 Companies Act 2006) and considered insolvency principles (s.123 Insolvency Act 1986) when assessing whether creditor interests were engaged. The court held that substantial payments (£2.05m and further sums) were diverted to Mr Cardoza senior and not properly recorded in NTFC’s books, such diversions amounted to breaches of fiduciary duty and justified restorative relief in favour of the assignee, Northampton Borough Council (NBC).

Separately, the transfer by Mr David Cardoza of his beneficial interest in the family home (Cheriton) to his wife was held to be a transaction at an undervalue for the purpose of putting assets beyond the reach of potential claimants and therefore actionable under s.423 Insolvency Act 1986. Relief was ordered appropriate to that finding. The defendants’ applications for relief under s.1157 Companies Act 2006 were refused.

Background and parties: NBC, as assignee of NTFC’s causes of action by a deed of assignment dated 10 December 2015, sued the Cardoza family (Anthony, David and Christina) alleging misapplication of monies drawn under three loan facilities provided by NBC to NTFC to fund stadium and adjoining land development. NBC alleged that (a) payments were received by the Cardozas in breach of their duties as NTFC directors and (b) David Cardoza’s gift of his interest in the family home to his wife on 3 July 2015 was a transaction at an undervalue under s.423 IA 1986.

Relief sought: NBC sought inquiries and an account, declarations that sums were held on trust, equitable compensation or damages, restitution and, in relation to the home transfer, re-vesting/charging orders under s.423.

Procedural posture: First instance High Court (Chancery). The Assignment challenges were abandoned. The court examined contested factual and legal issues at trial.

Issues framed: (i) construction and scope of a prior multi‑party deed of settlement (13.1.15 Deed) and whether it barred NTFC’s claims; (ii) whether NTFC was insolvent or on the verge of insolvency (engaging creditors’ interests); (iii) whether specified payments (£2.05m, £600k, £140k and other drawings) were misapplied or appropriated and whether directors had to justify receipts; (iv) remedies available (account, equitable compensation, restitution, tracing); (v) relief under s.1157 CA 2006; (vi) whether the Transfer of Cheriton was an undervalue transaction under s.423 IA 1986.

Reasoning and findings: The judge adopted orthodox approaches to witness evaluation, documentary primacy and the burden on a director to justify receipt of company monies. The 13.1.15 Deed was construed by reference to its text and factual matrix and did not extinguish NTFC’s claims against its directors. On insolvency, the court concluded NTFC was, at least by April–June 2013 and thereafter, on the verge of if not actually insolvent; the Loans and drawdowns worsened NTFC’s position. The judge found that £2.05m paid to Mr Anthony Cardoza had been routed through third-party companies to avoid NTFC accounting and was not entered properly in NTFC’s books; those sums were received in breach of fiduciary duty. Further unauthorised payments (£600k, £140k and other withdrawals) were either misapplied or were authorised by Mr David Cardoza in breach of duty. The court accepted NBC’s submission that restoration to the company (now NBC as assignee) was the appropriate equitable remedy in respect of monies misapplied, subject to adjustments and credits for any repayments. By contrast, certain drawings by Mr David Cardoza processed through his loan account did not, in the judge’s view, attract a remedy from NBC in these particular circumstances. The court refused relief under s.1157 CA 2006 for both Cardozas because the requisite honesty and reasonableness were not established. Finally, the court held that the 2015 Transfer of Cheriton to Mrs Cardoza was a transaction at an undervalue with the purpose (in part) of placing assets beyond the reach of persons who might make claims; s.423 relief was available.

First instance judgment: The court held that both Mr Anthony Cardoza and Mr David Cardoza breached their fiduciary duties to NTFC. NBC, as assignee, was entitled to restorative relief in respect of monies misapplied: Mr Anthony Cardoza was held liable to account and to pay compensation (the judgment identified liability in the sum of £2.79million subject to credits for any sums actually repaid). The court also held that Mr David Cardoza’s transfer of his interest in Cheriton to Mrs Cardoza on 3 July 2015 was a transaction at an undervalue under s.423 Insolvency Act 1986 and appropriate relief was available. The court refused relief under s.1157 Companies Act 2006 to the defendants. The conclusions rested on findings as to documentary records, reliability of witnesses and the proper construction of the 13.1.15 Deed and loan documentation.