In the Matter of Mobigo Ltd (in liquidation)

The judge dismissed the defendants' strike out and reverse summary judgment application and directed that the liquidator's section 212 Insolvency Act 1986 claim proceed to trial. The court held that (i) it was not possible on the material before the court to conclude as a matter of law that the liquidator’s claim was an abuse of process by attempting to recover a regulatory fine from the directors (the judge distinguished Safeway and explained the relevance of Bilta and the attribution principles); (ii) whether the duty to consider creditors arose under section 172 Companies Act 2006 involved fact questions (including what the directors knew or ought to have known about likely insolvency) which required trial; (iii) the Duomatic principle could not be assumed to apply because solvency and actual shareholder assent had to be established at trial; and (iv) documents produced in the PSA regulatory process and related materials were admissible as background evidence (subject to the rule in Hollington v Hewthorn and ordinary rules on opinion evidence), so exclusion was not appropriate at strike out stage. The judge therefore refused to strike out the substantive application or to exclude the tribunal and investigatory materials and refused summary judgment on the misapplication of funds allegations, concluding that the matters raised required fuller factual investigation at trial.

The joint liquidator brought a section 212 Insolvency Act 1986 application against the company's present and former directors seeking declarations of breach of duty and a contribution to the company's assets. The asserted breaches were said to arise from failures in relation to a premium rate service that led to a PSA regulatory investigation and a fine, and from payments and transfers of company funds to the directors and third parties.

Parties and procedural posture: The liquidator (applicant in the substantive section 212 claim) was met by a strike out / reverse summary judgment application by the directors. The strike out application argued that the claim was an abuse of process because it impermissibly sought to recover a PSA fine from the directors, that breaches were not pleaded with sufficient precision, that any breaches had been ratified under the Duomatic principle, and that various regulatory tribunal documents should be excluded (relying on Hollington v Hewthorn and objection to opinion evidence). The court heard argument and decided the strike out application.

Relief sought: Declarations of breach of duties under the Companies Act 2006 (notably sections 172 and 174) and orders for contribution to the company's assets; alternative allegations of misapplication of company funds to directors and third parties.

Issues identified by the court:

• Whether the company’s claim against the directors for breaches of duty seeking to recoup the consequences of a regulatory fine was an abuse of process or otherwise bound to fail (reliance on Safeway and the illegality/attribution principles);
• Whether the Duomatic principle barred the claim because the sole shareholder had approved the conduct;
• Whether the liquidator had pleaded breaches with sufficient particularity;
• Whether regulatory and investigatory documents (PSA tribunal decision, Warning Notice, Case Report, IMImobile/Tap2Bill material) were inadmissible under Hollington v Hewthorn or as opinion evidence;
• Whether the misapplication payments to directors and to third parties were explained or required trial to resolve.

Reasoning and conclusions: The judge declined to find, on the strike out application, that the liquidator’s claim was an abuse of process. He explained that Safeway was a decision driven by the particular statutory scheme in the Competition Act 1998 (which made the undertaking alone liable in specific terms) and that Bilta, Singularis and other Supreme Court authority show that attribution and illegality issues are context-sensitive. The court could not conclude at strike out stage that the regulatory fine was necessarily non-recoverable from directors by way of a company claim for breach of duty. The judge emphasised that whether the duty to consider creditors under section 172(3) arose depended on the facts (the BAT Industries/Sequana test that the company is or is likely to become insolvent when directors know or should know), and that those questions required trial findings on knowledge, causation and likely insolvency.

The Duomatic defence was rejected at the strike-out stage because solvency and the existence of clear, outward shareholder assent had not been established and are matters for trial. The court also refused to exclude the PSA tribunal judgment and associated materials: while Hollington v Hewthorn precludes treating those findings as binding on strangers, the tribunal materials were admissible as background and the judge left it to the trial judge to assess weight and to disregard inadmissible opinion material as necessary. The pleadings and witness material, though not drafted with precision in every respect, were sufficient for the abbreviated section 212 procedure and did not justify strike out. Finally, the alleged misapplication of funds to directors and to JC Consultancy involved disputed facts, missing company records and explanations the directors should justify at trial; summary disposal was inappropriate.

The Strike Out Application was dismissed. The court held that the liquidator’s section 212 claims raise fact-sensitive issues (including attribution, causation, and the point at which the directors’ duty to consider creditors arose) which could not be resolved on a strike out or summary judgment application; the Duomatic defence and Safeway arguments do not dispose of the claims at this stage; and regulatory tribunal materials should not be excluded entirely but may be used as background evidence with their weight for trial to determine.