CGL Realisations Ltd, Re

For the purposes of the connected-person condition in a preference claim, the relevant act may be identified as the repayment itself rather than the wider transaction of which it formed part. Contractual arrangements for a share sale do not ordinarily deprive the registered shareholder of entitlement to exercise voting power before the transfer is registered. Section 435 of the Insolvency Act 1986 is deliberately wide and asks whether the person was entitled to exercise, or control the exercise of, at least one third of the voting power. Carefully sequenced completion documents may establish that a payment occurred before the share transfer, even where payment was conditional on all payment instructions being delivered and all payments being made.

The liquidator brought a preference claim concerning Comet’s repayment of approximately £115.4 million owed under a revolving credit facility to Kesa International Limited. The repayment occurred during a wider sale of Comet’s shares by its parent, Kesa Holdings Limited, to Hailey Acquisitions Limited.

The court determined preliminary issues concerning the construction of the share purchase agreement and completion agreement, the timing of the repayment and share transfer, whether Comet and Kesa International remained connected under sections 435 and 249 of the Insolvency Act 1986, and whether the repayment had to be assessed as part of the entire sale transaction.

1. Outcome. The liquidator’s application succeeded. The parts of the defence alleging that there was no connection at the relevant time were struck out. It was declared, so far as necessary, that Kesa International was connected with Comet in relation to the alleged preferential payment.
2. Timing. The share purchase agreement distinguished between pre-completion steps and completion. Its carefully sequenced clause 8 steps included the repayment of the Kesa International revolving credit facility. The completion agreement, to which Comet was a party, separately defined a pre-completion time and prescribed the order in which the payment instructions were to be actioned. The conditionality requiring all payment instructions and funds to be received did not change the timing of the individual payments. The repayment therefore occurred before the transfer of the shares.
3. Connection. Kesa Holdings remained the registered holder of Comet’s shares and was entitled, as against Comet, to exercise more than one third of the voting power. Contractual restraints arising from the share purchase agreement did not remove that entitlement. Applying Granada UK Rental & Retail Ltd v the Pensions Regulator [2019] EWCA Civ 1032, section 435 was to be construed broadly and was not confined to practical control. The court declined to apply the contrary analysis in Re Kilnoore Ltd, Unidare plc v Cohen [2005] EWHC 1410 (Ch) to these facts.
4. Entire transaction. The authorities concerning transactions at an undervalue did not require the repayment to be treated as part of the entire sale transaction. A preference concerns an act under section 239(4)(b), and the liquidator was entitled to rely on the repayment as the relevant act. Damon v Widney PLC did not decide the wider construction issue and did not assist the respondent.