FINBARR O’CONNELL & Ors v LPE SUPPORT LIMITED (IN COMPULSORY LIQUIDATION)

The administrators of London Oil & Gas Limited sought an order setting aside an assignment dated 28 April 2017 by which LOG purported to assign its rights under an £8 million facility to LPE Support for £1. The court applied ordinary agency and fiduciary duty principles, in particular the rule that a director cannot bind the company by a transaction entered in breach of duty where the third party had notice of that breach. The judge found that no board decision authorised the Assignment, that Mr Barker executed it in breach of his fiduciary duties and that Mr Hume-Kendall knew of that lack of authority. Knowledge of the directors was attributed to LPE Support. There was no evidence of ratification by the board. The Assignment was therefore void for want of authority. The court did not need to decide the alternative claim under section 238 of the Insolvency Act 1986.

Background and parties. LOG, a borrower from London Capital & Finance Plc, entered administration in March 2019. LPE Support is ultimately owned by the same persons who were the ultimate beneficial owners of LOG. The LOG administrators applied to set aside an assignment of LOG’s rights against Atlantic Petroleum, contending it was unauthorised and alternatively a transaction at an undervalue under s.238 Insolvency Act 1986.

The Assignment. The Assignment dated 28 April 2017 purported to transfer LOG’s rights under an £8 million facility (approximately £1 million drawn at the time, later increased by further advances) to LPE Support for £1. It was executed by Mr Barker for LOG and Mr Hume-Kendall for LPE Support.

Issues framed.

• Whether the Assignment was validly authorised by LOG.
• Whether the directors who executed the Assignment acted in breach of fiduciary duty and whether LPE Support had notice of that breach so as to prevent reliance on apparent authority.
• Whether any ratification by the company occurred.
• As an alternative, whether the Assignment was a transaction at an undervalue under s.238 Insolvency Act 1986.

Court’s reasoning. The court reviewed the company’s Model Articles (Articles 7 and 8) requiring board decisions for director acts. On the evidence no board decision authorised the Assignment; LOG continued to treat the loan as an asset and the board approved further advances after 28 April 2017. The judge found that Mr Barker had no actual authority and acted in breach of fiduciary duty, that Mr Hume-Kendall knew the board had not authorised the Assignment, and that both men’s knowledge was attributable to LPE Support (Meridian). Because LPE Support had that knowledge, it could not rely on any ostensible authority (Criterion Properties; GHLM). There was no evidence of board ratification. Consequently the Assignment was void for want of authority and the court granted declaratory and attendant relief; it declined to decide the s.238 alternative.

Procedural posture. First instance application heard 20 June 2022, judgment handed down 7 July 2022. The application was unopposed at hearing.

Application granted. The court declared the Assignment dated 28 April 2017 void for want of authority and granted attendant relief. Rationale: no board decision authorised the Assignment; Mr Barker acted in breach of fiduciary duty in executing it; Mr Hume-Kendall knew of the lack of authorisation and that knowledge is attributed to LPE Support, so apparent authority could not be relied upon; no evidence of ratification by the board. Consequently the Assignment is void. It was unnecessary to decide the alternative s.238 claim.