Asertis Limited v Dale Heathcote & Anor.

[2022] EWHC 2498 (Ch)

Summary

A director who receives a challenged payment must explain and justify it as a proper payment. The company determines whether remuneration should be awarded and its amount, but the court may examine the payment’s true nature and decide whether it was genuine remuneration or a disguised gift.

A transaction is caught by Insolvency Act 1986, s.423 only where the statutory undervalue and subjective-purpose requirements are established. The creditors’ interests duty arises when insolvency is present or probable. A connected creditor payment is presumed to be influenced by the statutory desire to improve that creditor’s position. That presumption is not displaced merely because the payment is intended to support another creditor or reflects ordinary commercial concerns.

Factual background

The claimant, as assignee of Servico Build Tec Ltd, brought claims against its former sole director, Dale Heathcote, and Servico Contract Upholstery Ltd. The rewards claims concerned two payments of £270,000 and £250,000 made through an employee benefit trust tax scheme. The claimant alleged that the payments were unauthorised or unjustified remuneration, transactions defrauding creditors under s.423 of the Insolvency Act 1986, and breaches of the creditors’ interests duty.

The payment claim concerned a £65,000 transfer by the Company to Contract shortly before the Company entered creditors’ voluntary liquidation. The issues were whether the rewards were recoverable and whether the transfer constituted a preference under s.239.

Held

  1. Rewards claims dismissed. The rewards were, in substance, bonuses for Mr Heathcote’s services as director. The board minutes were produced after the events and did not establish that the payments were intended to be non-remuneration payments. The Company’s articles permitted remuneration, and the court would not assess whether the amount was reasonable where there was a genuine exercise of the power to award remuneration. The payments were not shown to be patently excessive or disguised gifts.

  2. The s.423 claim failed because the rewards were remuneration supported by consideration and there was no evidence that the Company entered into them with the subjective purpose of putting HMRC’s prospective claims beyond reach or prejudicing HMRC. Insolvency at the transaction date was unnecessary, but the statutory purpose still had to be proved.

  3. The creditors’ interests duty was not engaged. The Company had not been shown to be balance-sheet insolvent, or probably going to become insolvent, in October 2014 or October 2015. The court nevertheless observed that, had the duty been engaged, an objective assessment would have required retention of sufficient funds to meet the realistic tax exposure. The recoverable breach would have related only to the excess paid, not automatically to the whole rewards.

  4. Payment claim allowed. The £65,000 payment satisfied the requirements of s.239. Contract was a connected creditor, so the statutory presumption applied. The evidence did not establish that the payment merely restored monies legally belonging to RBS. Even if the payment was intended to assist Contract in paying RBS, it improved Contract’s position and was therefore a preference. Judgment was entered for £65,000 against Contract as recipient and against Mr Heathcote for causing the payment in breach of duty.

The court’s approach to earlier authorities

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Appeal route

  1. This judgment [2022] EWHC 2498 (Ch) High Court (Business List)
  2. Appealed to[2024] EWCA Civ 242Outcomeappeal dismissed

Key cases cited

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