Manolete Partners Plc v Matta & Ors

The court determined an application by Manolete under sections 171–176 of the Companies Act 2006 and sections 238 and 239 of the Insolvency Act 1986 concerning an overdrawn director's loan account and several payments made from the company prior to administration. The judge held that the former director, Dr Amir Matta, had breached his duties under the Companies Act 2006 by authorising and permitting long‑running personal expenditure from the director's loan account and by authorising certain charitable payments to MMJ Global; those sums are repayable.

By contrast, the court refused the Applicant's applications under sections 238 and 239 of the Insolvency Act 1986 in respect of payments to the director's ex‑wife and daughter because the factual basis for treating those payments as transactions at an undervalue or preferential payments could not safely be resolved on the paper and in the limited hearing time. The judge emphasised the statutory presumptions in IA 1986 and the need for a full evidential inquiry before determining whether the presumptions are rebutted.

Background and parties: Manolete, an insolvency litigation funder, brought an originating application after assignment of the administrators' claims in relation to Saint George Investment Holdings Ltd (the Company), which entered administration on 4 October 2016 and was dissolved on 10 July 2019. The First Respondent, Dr Amir Matta, was the Company's former sole director and majority shareholder. The Second and Third Respondents were his ex‑wife and daughter respectively; the Fourth Respondent was MMJ Global Ltd.

Nature of the application: Manolete sought declarations and orders under CA 2006 (sections 171–176) that Dr Matta breached his director's duties by authorising or permitting personal extractions from the director's loan account (DLA) and by approving various payments to the Second, Third and Fourth Respondents, together with orders under IA 1986 (sections 238 and 239) that certain payments to the Second, Third and Fourth Respondents be set aside as transactions at an undervalue or preferences. Interest and repayment orders were sought. The claim was brought by originating application with witness evidence.

Issues framed:

• Whether Dr Matta breached duties under CA 2006 by permitting/use of the DLA and by authorising payments to the respondents.
• Whether payments to the Second, Third and Fourth Respondents were transactions at an undervalue under s.238 IA 1986 or preferential payments under s.239 IA 1986, within the relevant times in s.240.
• Whether the statutory presumptions in IA 1986 (including the presumption where the beneficiary is 'connected') were applicable and, if so, whether they were rebutted on the available evidence.

Court’s reasoning and findings:

• On the DLA: the judge found that the longstanding and significant personal use of company funds, including luxury personal expenditure funded through the DLA and a failure to regularise the indebtedness (despite tax consequences such as a s.455 charge), amounted to breaches of duties under CA 2006 (sections 172–174 and the overarching requirement to exercise powers for proper purposes). The outstanding DLA balance at administration was ordered repayable by Dr Matta to Manolete (as assignee).
• On payments to the Second and Third Respondents: the court concluded that the factual matrix was insufficiently established on the papers and in a short hearing to determine whether those payments were transactions at an undervalue or preferences. Key factual matters (existence and terms of any employment, nature and value of services, basis of settlement payments and timing relative to insolvency) required fuller evidence and testing. The judge relied on authorities and statutory presumptions to conclude that, save in the clearest of cases, such matters cannot be resolved summarily; accordingly the IA 1986 and CA 2006 claims in respect of the Second and Third Respondents were refused at this stage, with directions contemplated for a full hearing.
• On payments to the Fourth Respondent (MMJ Global): the judge found that the payments (charitable donations in fact) were authorised by Dr Matta in breach of his duties under CA 2006 and therefore Dr Matta is liable to Manolete for those sums. The court did not determine whether, as a matter of IA 1986, MMJ Global was liable under s.238 because that issue could be left open given (i) the finding of Dr Matta's CA 2006 liability and (ii) Manolete's acceptance that double recovery would not be sought; consequently the IA remedies against the Fourth Respondent were refused.

Procedural posture and comment: The application was heard without a full trial. The judge stressed that summary disposal is appropriate only where the case can be made on the available evidence; she declined to make orders under IA 1986 where the evidential picture was incomplete and further inquiry was necessary. The judge referred to Phillips & Another v McGregor‑Paterson [2009] EWHC 2385 (Ch) on the difficulty of determining s.123 insolvency questions summarily.

At first instance the court made partial declarations and refusals. It held that Dr Amir Matta breached his duties under the Companies Act 2006 in relation to the overdrawn director's loan account and in respect of certain payments to MMJ Global and is liable to repay those sums to Manolete (as assignee). Applications under the Insolvency Act 1986 to set aside payments to the director's ex‑wife and daughter as transactions at an undervalue or preferences were refused because the judge could not safely determine those matters on the limited evidence and without a full hearing; related CA 2006 claims against the Second and Third Respondents were also refused. The refusals were grounded on the need to test statutory presumptions and contested factual issues at a full hearing.