Homes of England Ltd v Horsham Holdings Ltd & Ors

On an application for an interim injunction restraining a specific payment, the applicant need satisfy only the American Cyanamid requirement of a serious issue to be tried. The more demanding test applicable to freezing orders is not required where the order targets a particular transaction rather than ordinary asset disposal. The court must then select the course likely to involve the least risk of injustice, considering prejudice to all affected parties and the adequacy of the cross-undertaking in damages. Relief may be refused or qualified where the proposed payment would otherwise be restrained, including by permitting payment subject to appropriate indemnities. A shareholder’s contractual priority rights and directors’ conflicts of interest may each raise serious issues supporting relief under Companies Act 2006, section 994.

The petitioner, a 25% shareholder in several property-development companies, sought interim orders under section 994 of the Companies Act 2006. It sought to restrain Horsham Holdings Ltd from paying £500,000 to DNG Bedford Properties (3) Ltd or the Redwood Partnership, and alternatively to prevent Horsham Holdings from disposing of the money other than in repayment of the petitioner’s alleged loans.

The petitioner alleged that the underlying intercompany loan was unauthorised or ineffective, that repayment would breach the shareholders’ agreement, and that the directors were preferring their personal liability under guarantees. The respondents disputed those allegations and relied on the risk of enforcement by the Redwood Partnership. The issues were whether there was a sufficient merits case, where the least risk of injustice lay, and whether alleged non-disclosure barred relief.

1. Merits test. The first proposed order concerned disposal for a particular purpose and did not restrain Horsham Holdings from disposing of assets in the ordinary course of business. The petitioner therefore needed to show only a serious issue to be tried, not the good arguable case and risk of dissipation required for a freezing order. Each of its three objections met that threshold.
2. There was a serious issue as to whether the August 2017 loan agreement and charge reflected the companies’ intentions or had been properly authorised. There was also a reasonably strong issue under clause 4.3 of the shareholders’ agreement because the alleged finance had not been agreed in writing by all shareholders. Clause 4.2 arguably gave priority only to loans secured on the property, whereas the alleged security was over shares and an interest in another company and appeared undated.
3. The directors’ personal guarantees created an apparent conflict between their duty to consider Horsham Holdings’ interests and their own interests. In the absence of an obvious benefit to Horsham Holdings, there was a reasonably strong case that procuring payment to the Redwood Partnership could involve a breach of fiduciary duty capable of supporting relief under section 994.
4. The alternative order was too wide. Horsham Holdings could use the money to pay non-finance debts incurred in the ordinary course of business.
5. Least risk of injustice. The court had to consider prejudice to every affected party, including the companies exposed to Redwood’s enforcement action, the directors’ guarantee liabilities, and the petitioner. The petitioner’s cross-undertaking in damages was inadequate. The appropriate course was to permit the payment, subject to indemnities from the relevant respondents against loss if the payment later proved unlawful.
6. The petitioner owed a duty of full and frank disclosure on the short-notice application. Although its presentation could have been better, the omissions were not materially damaging or deliberate and did not bar relief. The court declined to determine an unsupported complaint concerning payments to solicitors. Consequential terms and costs were left for further hearing.

First-instance decision. No appellate history is stated in the judgment.