CGL Realisations Ltd, Re

The court determined narrow interlocutory issues arising from a liquidator's preference claim under sections 239 and 240 of the Insolvency Act 1986 and the associative test in section 435. The principal questions were (i) the timing of repayment of an intra-group revolving credit facility (the KIL RCF) on 3 February 2012 in relation to the transfer of shares in Comet, (ii) whether Comet remained "connected" to Kesa International Limited (KIL) at the time of that repayment under section 435, and (iii) whether the repayment must be treated as part of a single "entire transaction" such that it could not be viewed separately for the purposes of section 239. The judge construed the share sale documentation (the SPA) and the Completion Agreement and held that the repayment occurred prior to the transfer of shares, that KHL (the seller) remained, at the relevant time, entitled to exercise voting power under section 435(10)(b) so that KIL was connected with Comet, and that the preference-complaint act could properly be viewed as the repayment rather than being collapsed into a larger single transaction. The court therefore struck out the parts of the defence disputing connectedness and declared that KIL was a person connected with Comet for the purposes of the alleged preferential payment.

Background and parties: The applicant was the liquidator of CGL Realisations Ltd (formerly Comet Group Ltd). The respondent was Darty Holdings SAS as successor to Kesa International Limited (KIL). The dispute arose from a repayment on 3 February 2012 of about £115.4m under a revolving credit facility provided by KIL to Comet, which the liquidator alleges constituted a preferential payment under section 239. The repayment took place in the context of an arm's-length sale of Comet's shares by Kesa Holdings Limited (KHL) to Hailey Acquisitions Limited (HAL), implemented by a Share Purchase Agreement (SPA) and a contemporaneous Completion Agreement (CA).

Nature of the application: The liquidator sought a strike out (and the respondent sought determination of a preliminary issue) directed at whether, for the purposes of the two-year look-back in section 240(1)(a), Comet and KIL were "connected" at the time of the repayment. If they were not connected then the relevant look-back would be six months and the pleaded preference fell outside that period.

Issues framed: (i) Did the repayment under the KIL RCF occur before, at the same time as, or after the transfer of Comet shares? (ii) If repayment preceded completion, was Comet connected to KIL at the time under section 435 (principally section 435(10)(b))? (iii) Could the repayment be treated in isolation for section 239 or must it be collapsed into the "entire transaction"?

Reasoning and findings: The SPA set out a sequence of pre-completion steps (clause 8) but left detailed timing to the CA. The Completion Agreement required executed payment instruction letters and receipt of funds to be in place by a defined Pre-Completion Time and authorised Macfarlanes (the escrow solicitor) to effect a carefully staged movement of funds at or before that Pre-Completion Time. The judge concluded that the CA manifested an intention that the repayments described in Tranches A–C were actually effected during the pre-completion sequence, i.e. prior to the transfer of shares, and that the conditionalities in the CA (receipt of payment instruction letters and funds) operated at or before Pre-Completion Time rather than converting all steps into simultaneous acts at Completion. On connection, the court construed section 435(10)(b) broadly: entitlement to exercise voting power is to be assessed by reference to who is registered and entitled as against the company. Unidare (Re Kilnoore) did not assist the respondent because it concerned bare trusteeship; by contrast the Court of Appeal decision in the Box Clever litigation supported a wide construction that captures registered owners entitled to exercise voting power even where practical control might be constrained. On those bases the judge held KHL remained entitled to exercise voting power immediately prior to registration of the transfer and therefore KIL was connected to Comet. Finally, the court rejected the submission that the repayment must be collapsed into a single wider transaction so as to alter its character for section 239 purposes: the Act permits the liquidator to rely on an identifiable act (the repayment) and the repayment was not necessarily to be recharacterised as part of an indivisible whole in the circumstances here.

Outcome and procedural effect: The court struck out those parts of the defence asserting lack of connection and declared KIL to be connected with Comet in respect of the alleged preferential payment; the preference claim therefore survives to be litigated on its merits subject to the disclosed limitation on look-back being satisfied.

The court allowed the liquidator's application in relation to the connectedness point: it struck out parts of the defence which alleged there was no connection at the relevant time and declared that KIL was a person connected with Comet for the purposes of the alleged preferential payment. Rationale: construction of the SPA and, critically, the Completion Agreement showed the KIL RCF repayment occurred during the pre-completion sequence (before share transfer); section 435(10)(b) must be read widely so that KHL remained entitled to exercise voting power immediately prior to completion; and the repayment could properly be treated as the relevant act under section 239 rather than being collapsed into an "entire transaction" that defeated the liquidator's pleaded act.