Grosvenor Property Developers Ltd, Re

A company director remains subject to statutory and fiduciary duties when acting as a nominee or following another person’s instructions. Company assets must be applied for the company’s purposes.

Section 234 of the Insolvency Act 1986 provides a summary means of recovering property to which the company appears entitled. A transaction at an undervalue under section 238 requires company participation. Knowing receipt depends on knowledge making retention unconscionable. An innocent recipient who changes position may have a complete defence.

The joint liquidators of a company established to acquire and convert a Bristol hotel brought claims in misfeasance, delivery up, transactions at an undervalue, unjust enrichment and knowing receipt against former directors, associated companies and recipients of company money.

The trial concerned claims against Arjun Khadka, Siddhant Varma and Jonathan England. The central issues were the directors’ duties, the scope of the statutory recovery provisions, whether the payments constituted transactions entered into by the company, and whether Varma’s receipt was unconscionable or unjust.

1. England. The sole director was bound to ensure that company assets were used only for the company’s purposes and could not rely on instructions from another person. Nomineeship does not remove directors’ duties. England’s account was rejected, the authorisation documents were found to be fabricated, and he had acted dishonestly under the test in Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67. Judgment was entered under section 212 of the Insolvency Act 1986 for £6,548,076. Section 281(3) was engaged.
2. Khadka. Section 234 provides a summary procedure for placing property which appears to belong to a company under the office-holder’s control. Khadka had possessed the company’s jewellery and failed to deliver it up. He was liable in misfeasance for £4.95m.
3. Varma. The Bentley and £210,552 were supported by a genuine loan facility. Consideration had therefore been provided and the payments were not transactions at an undervalue or unjust enrichment. Section 238 also required company participation in the transaction.
4. The £2m was traceable company money, but Varma received it as an inheritance which he reasonably believed to be genuine. His knowledge did not make retention unconscionable. His alternative change-of-position defence would also have succeeded.
5. The claims against Varma were dismissed. The claims against England and Khadka succeeded, subject to consequential directions.