Asertis Limited v Dale Heathcote & Anor.

The claimant, as assignee of Servico Build Tec Limited, pursued two heads of claim: (a) recovery of two substantial rewards paid to the defendant director pursuant to an Employee Benefit Trust scheme and (b) recovery of a £65,000 payment made by the company to a connected company (Contract). The court applied established principles on directors' fiduciary duties and remuneration, the creditors' interests duty, section 423 (transactions defrauding creditors) and section 239 (preferences) of the Insolvency Act 1986, and authorities including Re Halt Garage and Sequana.

On the facts the judge found the board minutes relied upon were not contemporaneous and that in reality the payments were intended and treated as directors' bonuses paid by reference to the company’s profits via the Qubic EBT scheme. The claimant failed to prove that the rewards were unlawful remuneration, gifts or transactions at an undervalue, or that they were entered into with the subjective purpose required by s.423 to put assets beyond HMRC’s reach; accordingly the rewards claims failed.

By contrast, the £65,000 transfer to the connected company was held to be a preference under s.239. The company was insolvent at the time, the transfer put the connected creditor into a better position in event of insolvency, and the presumption of desire to prefer a connected person was not rebutted. Judgment was therefore given for recovery of £65,000 from Contract and from Mr Heathcote for causing the unlawful preference.

Background and parties: The claimant, an assignee of the liquidator of Servico Build Tec Limited, sued the company's former sole director, Mr Heathcote, and Servico Contract Upholstery Limited (Contract). The disputed matters were (i) two rewards of £270,000 and £250,000 paid to Mr Heathcote under a Qubic Employee Benefit Trust (EBT) tax avoidance scheme and (ii) a £65,000 payment from the company to Contract made within two years before liquidation.

Relief sought: The claimant sought restitution or an order requiring repayment of the rewards (or damages equivalent), alternatively indemnity for the company's tax liability, and in relation to the £65,000 payment sought recovery as an unlawful preference under s.239 InsA 1986.

Procedural posture and evidence: First instance trial in the High Court (Chancery, Manchester). Oral evidence was given by the liquidator, the defendant director, the director’s PA and the director’s long-standing accountant, together with concurrent expert accountancy evidence. The experts agreed on key points; contemporaneous documents, Qubic correspondence and later HMRC proofs of debt were central.

Issues framed by the court:

• Whether the rewards were unauthorised/unjustified payments recoverable for breach of fiduciary duty or transactions defrauding creditors under s.423.
• Whether the directors breached the creditors’ interests duty by authorising the rewards when the company was or likely to become insolvent.
• Whether the £65,000 payment to Contract was a preference under s.239 and, if so, whether the presumption that the company was influenced by a desire to prefer a connected person was rebutted.

Reasoning on the rewards: The judge accepted that the payments were intended and treated as bonuses in substance, despite board minutes drafted by Qubic that purported to say they would not constitute remuneration. The minutes were found not to be genuinely contemporaneous. The court applied the principle that remuneration is a matter for the company but may be examined for its true nature (Re Halt Garage and related authorities). The claimant failed to prove on the balance of probabilities that the payments were gifts, transactions for no consideration or transactions entered into with the subjective fraudulent purpose required by s.423. The company’s state at the time, the advisers' and director’s understanding of the scheme and absence of contemporaneous indication HMRC would litigate meant the creditors’ interest duty was not engaged for the rewards on the facts. The rewards claims therefore failed.

Reasoning on the payment to Contract: The £65,000 transfer occurred while the company was insolvent and benefited a connected creditor. The statutory presumption under s.239(6) applied and the defendants did not rebut it. The liquidator had not authorised such a payment. The transfer put Contract in a better position and was therefore an unlawful preference; recovery against Contract and Mr Heathcote was ordered.

Subsidiary and remedial points: The judgment addressed remedial principles (substitutive v reparative remedies) and noted HMRC proofs and Loan Charge Rules impacting the practical effect of any recovery of the rewards. The judge explained how he would have approached remedies had the claimant succeeded on those claims.

At first instance the court dismissed the claimant’s primary and alternative claims in relation to the two rewards (those claims fail) but allowed the claimant’s s.239 claim. The judge found the £270,000 and £250,000 payments were, in substance, directors’ bonuses implemented through the Qubic EBT scheme and there was insufficient evidence of a subjective purpose to defraud creditors or to show the payments were gifts or transactions at an undervalue under s.423. The £65,000 transfer to the connected company was an unlawful preference and must be restored, with judgment against both Contract and Mr Heathcote for that sum.