Hellard & Anor (As Joint Liquidators of Guardian Care Homes (West) Ltd) v Graiseley Investments Ltd & Anor

The appeal concerned a claim under section 238 of the Insolvency Act 1986 for a transaction at an undervalue and related wrongdoing claims under section 212. The High Court confirmed that the pleaded case was defective because it relied on journal entries alone to define the relevant "transaction" and did not identify the necessary particulars of a transfer or the consideration exchanged. The judge found, on the balance of probabilities, that the journal entries were errors made by an accountant, were not authorised by the director Mr Hartland, and did not record any actual transfer of fixtures and fittings to Graiseley Investments Ltd (GIL) or any corresponding debt which was released.

Because the section 238 claim failed for lack of a properly pleaded or proved transaction, the section 212 claims (derivative on the same factual foundation) also failed. The judge's decision on fact was held not to be irrational or insupportable on the record. The indemnity costs order made below was upheld as within the judge's wide discretion on costs given the nature and conduct of the claim.

Background and parties.

• West (Guardian Care Homes (West) Limited) entered creditors' voluntary liquidation in April 2010. The appellants are the joint liquidators who sued on behalf of West.
• The first respondent, Graiseley Investments Limited (GIL), was part of the same group. The second and third respondents were directors of West; Mr Hartland was also a director of GIL.

Nature of the claim and relief sought.

• The appellants sought to recover an alleged transaction at an undervalue under section 238 Insolvency Act 1986 and to bring misfeasance claims against the directors under section 212.
• The pleaded case alleged that journal entries in the companies' accounting system recorded a transfer of fixtures and fittings from West to GIL for £3.551m and a later reversal that released GIL from that obligation, leaving West with assets worth a fraction of that sum.

Procedural posture.

• The application was dismissed by ICCJ Barber on 12 October 2018 ([2018] EWHC 2664 (Ch)) and indemnity costs were ordered against the appellants. Permission to appeal was initially refused on paper, then granted in part by Mann J (permission limited to the claim against GIL and Mr Hartland).

Issues framed by the court.

1. Whether the appellants had pleaded and particularised a transaction for the purposes of section 238 such that their case could proceed.
2. Whether, on the balance of probabilities, a transaction occurred in which West transferred fixtures and fittings to GIL and GIL assumed and was later released from an obligation to pay £3.551m.
3. Whether the respondents had abandoned or altered their pleaded defence so that liability should be found against them.
4. Whether the judge's factual findings were ones which an appellate court could properly overturn.
5. Whether the indemnity costs order was an unreasonable exercise of discretion.

Court’s reasoning and conclusions.

• The judge was right to hold the pleading was defective where it relied on journal entries as if they effected legal transactions: journal entries alone cannot constitute the legal steps required to transfer title or create debts without further particulars or corroborating documentation.
• Even addressing the substance of the case, the judge concluded on the evidence that the entries were mistakes made by the financial controller (Mr Spruce), not authorised by Mr Hartland, and did not record an actual transfer of fixtures and fittings to GIL; the claimed release of a £3.551m debt therefore did not occur. The appellate court applied the established principle that it will only overturn findings of primary fact if they are irrational or plainly wrong; that threshold was not met.
• The section 212 claims failed because they depended on the existence of the impugned transaction under section 238.
• The indemnity costs order was a lawful exercise of the trial judge's discretion given the judge's view that the claim was misconceived, pursued in an aggressive manner, and lacked meaningful evidential support beyond journal entries and provisional documents.

The appeal is dismissed. The judge correctly held that the pleaded section 238 case was deficient in particulars and that, on the balance of probabilities, the purported transfer to GIL and the consequent release of a large intercompany debt did not occur; the associated section 212 claims accordingly failed. The indemnity costs order was a proper exercise of discretion.

The proceedings below were before Insolvency and Companies Court Judge Barber, whose order of 12 October 2018 dismissed the appellants' claims and awarded indemnity costs (see [2018] EWHC 2664 (Ch)). Permission to appeal was refused on the papers by Fancourt J on 21 December 2018. Mann J granted permission on 8 February 2019 limited to the claim against Mr Hartland and GIL; this appeal was heard in the High Court (Zacaroli J) and dismissed on 7 November 2019.