Korchevtsev v Severa

The court granted the Claimant permission to continue a double derivative claim on behalf of FATfacades Limited and F.A.T. Structures Limited against the First Defendant, finding a prima facie case of misappropriation and breaches of directors' duties under sections 171 to 177 of the Companies Act 2006. The judge applied the established derivative‑claim test (Prudential / Foss v Harbottle exception), and considered section 263 of the Companies Act 2006 when assessing whether a hypothetical director acting under section 172 would continue the claim.

The court continued the worldwide freezing injunction and the restraint on the First Defendant acting as director, having found (i) a good arguable case, (ii) assets available against which the injunction could bite, (iii) a real risk of dissipation judged objectively, and (iv) that it was just and convenient to continue the relief. The judge granted proprietary freezing relief in relation to specified accounts and assets (including two motor vehicles and certain crypto and bank accounts) up to identified limits and in relation to traceable proceeds.

The court relied materially on the H&F accounting analysis, the First Defendant’s journal entries and a forensic IT report which cast doubt on the authenticity of certain board minutes. The claimant was ordered further specific disclosure (transaction histories) in aid of the proprietary injunctions and to verify other disclosed accounts. A limited pre‑emptive indemnity for the Claimant’s own costs was granted (capped at £100,000). The court refused to increase the fortification of the claimant's undertaking.

This is a first‑instance decision on applications by a 50/50 director‑shareholder (the Claimant) of a holding group to: (1) continue an ex parte worldwide freezing injunction obtained against the other 50% shareholder/director (the First Defendant); (2) obtain permission to continue a double derivative claim on behalf of two subsidiaries for alleged dishonest breaches of directors' duties; (3) obtain proprietary freezing relief over certain assets traceable to the alleged misappropriation; and (4) obtain further disclosure to police the freezing relief.

Procedural background: Bacon J made a without‑notice freezing injunction on 25 March 2022; Fancourt J continued it and directed a forensic IT examination of board minutes; the current reserved hearing was before Leech J on 1–2 September 2022.

Facts and pleaded case: The Claimant and the First Defendant each owned 50% of the holding company and were directors of its subsidiaries. The Claimant alleged that the First Defendant misappropriated in excess of £1,136,000 from the subsidiaries in breach of sections 171–177 of the Companies Act 2006. Key documentary evidence relied on by the Claimant included an accountancy report (H&F Report), extracts from the First Defendant’s journal, and a forensic IT report by an expert examining board minutes.

Issues framed by the court included:

• whether permission should be given to continue the double derivative claim (legal test, prima facie merits, application of s.263);
• whether the freezing injunction should be continued (good arguable case, assets, risk of dissipation, balance of convenience);
• whether proprietary freezing relief should be granted for particular assets and whether the claimant was entitled to tracing/disclosure in aid of such relief;
• whether a pre‑emptive indemnity for costs should be ordered; and
• whether the claimant’s undertaking should be further fortified.

Court’s reasoning and findings (concise):
- Derivative permission: The court applied the established prima facie test (Prudential / Foss v Harbottle exception) and the authorities on double derivative claims. It found a prima facie case on the merits supported by the H&F accounting analysis, the journal entries showing an intention to "siphon assets off", and the IT expert’s conclusions which undermined the authenticity of certain board minutes the First Defendant relied upon. Section 263 factors were considered and the judge concluded that a hypothetical independent director would be likely to continue the claim; permission was granted.

- Freezing injunction: The Claimant satisfied the American Cyanamid style criteria for continuation of the worldwide freezing injunction: there was a good arguable case, identifiable assets disclosed by the First Defendant, a real risk of dissipation supported by the journal and the evidence of unexplained transfers and potential fabrication of minutes, and continuation was just and convenient.

- Proprietary relief and disclosure: The court granted proprietary freezing relief in relation to specified personal accounts, traceable proceeds, two Porsche vehicles and cryptocurrency exchange accounts where there was a serious issue to be tried and inadequacy of damages. The judge ordered targeted transactional disclosure (full statements/transaction histories) for the proprietary accounts to enable tracing and policing of the injunction, and more limited verification disclosure for non‑proprietary accounts.

- Indemnity and fortification: A limited pre‑emptive indemnity for the Claimant’s own costs was ordered, capped at £100,000 (with liberty to apply). The court refused to increase the fortification of the claimant's undertaking beyond the existing terms.

Wider observations: The court noted the rarity and seriousness of derivative and freezing relief but emphasised that the available forensic and accounting material, together with the evidential context, justified immediate relief and further disclosure to preserve assets pending trial.

This is a first‑instance decision. The court granted permission for the Claimant to continue the double derivative claim on behalf of FATfacades Limited and F.A.T. Structures Limited against the First Defendant, finding a prima facie case of misappropriation and breaches of directors' duties under sections 171–177 of the Companies Act 2006 and that a hypothetical director would wish to continue the claim under section 263. The court continued the worldwide freezing injunction and the restraint preventing the First Defendant from taking unauthorised steps as a director. The court granted proprietary freezing relief over specified personal bank accounts, crypto exchange accounts, traceable proceeds and two motor vehicles up to identified limits, ordered targeted disclosure of transaction histories for those proprietary accounts and verification of other accounts, made a limited pre‑emptive indemnity for the Claimant’s own costs capped at £100,000, and refused to increase the fortification of the Claimant’s undertaking. The orders were made to preserve assets and to permit the claim to be litigated with appropriate disclosure; further consequential directions were reserved.