Skandinaviska Enskilda Banken AB v Conway and another

A redemption price crystallises as a debt on the redemption day where the articles so provide. A later period for remittance is supplementary and does not postpone insolvency. A dominant intention to prefer may be inferred from selective payments and the company’s payment policy. Internal fraud by the company’s controlling mind may prevent a dishonest net asset valuation from binding under the articles, although avoidance requires proceedings. A statutory preference provision making payments invalid renders them voidable, not void ab initio. Where the statute is silent on recovery, the general law applies, but public policy and pari passu distribution exclude a change-of-position defence to recovery of a voidable preference.

The appeal concerned three share-redemption payments made by an investment company to a registered shareholder before the company entered liquidation. The liquidators sought recovery under section 145(1) of the Companies Law (2013 Revision), alleging that the payments were preferences made while the company was unable to pay its debts.

The Grand Court, presided over by Clifford J, held that the payments were invalid preferences and ordered repayment. The Court of Appeal of the Cayman Islands upheld that decision. The Privy Council considered whether the company’s fraud affected the binding nature of its published net asset value, when the redemption debts became due, whether there was an intention to prefer, and whether restitutionary defences were available.

The appeal was dismissed unanimously. The Board unanimously advised that the payments were recoverable preferences, although Sir Donnell Deeny, with whom Lord Wilson agreed, reached the conclusion on the fraud point by different reasoning and expressed reservations about aspects of the majority’s reasoning on change of position.

1. Net asset value and fraud. The articles made valuations binding, but the valuation functions had effectively been delegated to the company’s controlling mind. The dishonest valuation was therefore internal to the company, was not made pursuant to the articles and was not binding. The principle in Fairfield Sentry Ltd v Migani [2014] UKPC 9, which concerned fraud external to the fund, was distinguishable. A party seeking to avoid the valuation would have to bring proceedings against the liquidators on notice to affected persons. SEB could not benefit from avoidance because it had received more than the honest entitlement and would have to repay the proceeds.
2. When the redemption debts arose. The articles provided that the redemption price was a liability from the Valuation Point on the Redemption Day. The reference to payment generally being made within 30 days described supplementary procedure. It did not defer the debt or the shareholder’s status as creditor. The Board applied the approach in Culross Global SPC Ltd v Strategic Turnaround Master Partnership Ltd [2010] UKPC 33 and Pearson v Primeo Fund [2017] UKPC 19. The contingent future-debts issue did not require determination.
3. Intention to prefer. The statutory phrase with a view to giving a preference required a dominant intention to prefer. It could be inferred from the evidence. Paying SEB in full while larger December redeemers received only partial payments, and while January and February redeemers were unlikely to be paid, justified the finding of a specific intention to prefer.
4. Effect and restitution. Section 145 rendered the payments voidable, rather than void from the outset. Since it did not prescribe the consequences, the general law supplied the remedy. The liquidators could recover the money at common law on the ground of unjust enrichment. SEB, as registered shareholder and trustee acting as principal, was enriched by receipt of the redemption proceeds; the position of an agent was different.
5. Change of position and public policy. Although change of position may generally be a restitutionary defence, it was unavailable to recovery of a preference avoided under section 145. Allowing it would undermine the statutory scheme and pari passu distribution. Recovery was not barred by illegality or public policy.

• Privy Council: advised that the appeal should be dismissed: [2019] UKPC 36.
• Court of Appeal of the Cayman Islands: upheld the Grand Court’s findings that the payments were preferences and that repayment was required. The citation is not stated in the judgment.
• Grand Court of the Cayman Islands: Clifford J declared the payments invalid preferences on 5 January 2016 and ordered SEB to repay them with interest and costs.