Darty Holdings SAS v Carton-Kelly

For a preference claim, the relevant connection between a company and the recipient is assessed when the relevant dealing between them occurs. A wider transaction intended to end the connection, including an arm’s-length sale of the company, does not retrospectively remove a statutory connection existing at that time. The court must apply the statutory language and may not substitute a broad commercial rationale for the definition in Insolvency Act 1986. Where transaction documents prescribe a sequence of steps, they should ordinarily be interpreted to give effect to that sequence. The time of the preference is the time when the relevant thing is done between the company and the recipient; other elements of the wider transaction may remain relevant to desire, benefit and remedies.

The appellant, Darty Holdings SAS, appealed from an order of Deputy ICC Judge Agnello QC dated 10 July 2020. The judge had declared that Darty was connected with Comet Group Limited for the purposes of an alleged preference under section 239 of the Insolvency Act 1986.

The alleged preference comprised repayments of intercompany debts totalling about £115 million, made during the sale of Comet to an acquisition vehicle. The appeal concerned whether the repayments occurred before registration of the transfer of Comet’s shares and whether the wider sale transaction had severed the statutory connection before the repayments occurred.

1. Appeal dismissed. The payments were made before completion of the transfer of the shares and at a time when Darty and the Company remained connected.
2. The Completion Agreement was the crucial agreement on timing. It superseded the inconsistent timing provisions of the sale agreement and had to be read with it. Its provisions created a carefully prescribed sequence: the payments in the three tranches were to occur at the “Pre-Completion Time”, while the final payments occurred at completion. The court should interpret the contract so that its provisions remain effective and capable of performance. The requirement that all payments be actioned did not prevent the earlier payments from occurring before completion.
3. The court followed the approach in Unidare plc v Cohen, [2005] EWHC 1410 (Ch), that where parties intend multiple transaction documents to be executed in a particular order necessary to give effect to the transaction, the court may presume that they were executed in that order. The documents therefore established that the impugned repayments preceded completion.
4. The statutory concept of connection was not narrowed because the connection was shortly to end or because the transaction was negotiated at arm’s length. Sections 249 and 435 of the Insolvency Act 1986 used a broad concept of association and control. The court applied the reasoning of Granada UK Rental and Retail Ltd v The Pensions Regulator and anor (Box Clever), [2019] EWCA Civ 1032, that the statutory definition was not confined to practical control.
5. For sections 239 and 240, the time of the preference was the time when the relevant thing occurred between the company and the alleged preferred person. Here that thing was repayment of the intercompany debt. The sale of shares was undertaken by another group company, was not a transaction to which the Company was a substantive party, and did not alter the timing of the repayment. The wider transaction could be relevant to the desire to prefer and to remedial relief, but not to the jurisdictional question of connection at the time of the preference.
6. The court approved the relevant reasoning in Damon v Widney (unreported, 28 November 2001), while treating it as persuasive only. The appeal was dismissed.

• High Court (Chancery Division): appeal dismissed from the order of Deputy ICC Judge Agnello QC dated 10 July 2020.
• Deputy ICC Judge: declared that Darty Holdings SAS was connected with Comet Group Limited for the purposes of the alleged preference and struck out the relevant defence.