Geoffrey Carton-Kelly v Darty Holdings SAS

For the purposes of Insolvency Act 1986, a preference may arise where a company repays an existing creditor using new secured borrowing, even though the wider transaction provides funding to the acquiring structure rather than to the company.

The statutory requirement of a desire to prefer is subjective. The company must have positively wished to improve the creditor’s position in an insolvent liquidation, and that desire must have influenced the relevant decision. It need not be decisive. The relevant decision may be taken before the formal payment or completion steps, depending on the facts.

Where a connected creditor is involved, the presumption in section 239(6) is rebuttable but imposes a real evidential burden. Relief should ordinarily restore the company’s position and will not be refused merely because the counterfactual is difficult to calculate.

The liquidator of Comet Group plc, now CGL Realisations Limited, sought relief under section 239 of the Insolvency Act 1986 concerning the repayment of approximately £115.4 million owed to Kesa International Limited during Comet’s sale to OpCapita-related entities.

A preliminary issue concerning whether Kesa International Limited was connected with Comet had previously been determined for the liquidator: Darty v Carton-Kelly [2021] EWHC 1018 (Ch). The trial issues were whether Comet was insolvent, whether the repayment constituted a preference, whether there was a desire to prefer, and what remedy should be ordered.

The central questions included whether the relevant decision was made when the sale agreement was signed or when the newly appointed board formally approved completion, and whether the court should refuse relief because of the wider transaction.

1. Insolvency. Comet was balance-sheet insolvent under section 123(2) of the Insolvency Act 1986 immediately before the disposal. The deferred tax asset should be disregarded. The Kesa revolving credit facility was an actual liability, although the likelihood of continued lender support remained relevant. The court left open whether Comet became balance-sheet insolvent in consequence of the disposal.
2. Preference. The repayment of £115.4 million of the KIL revolving credit facility, including the Triptych amount, placed KIL in a better position than it would have occupied in an insolvent liquidation. Set-off arrangements were equivalent in substance to cash payments because Comet incurred secured borrowing to discharge the existing debt.
3. Desire to prefer. Applying Re MC Bacon Ltd (No 1) [1990] BCC 78, the relevant desire was a subjective desire to improve KIL’s position in an insolvent liquidation. Kesa’s objective of achieving a clean break, together with the agreed funding structure, showed that repayment of the KIL facility was positively desired. The possibility of an insolvent liquidation was within contemplation even though Kesa hoped to avoid one.
4. Attribution and timing. Re Drabble Bros [1930] 2 Ch 211 remained relevant to attribution through an agent, but only where the agent acted in that capacity and within the scope of the relevant authority. A person’s desire could not be attributed merely because that person happened to be a director or employee. In the particular circumstances, however, the substantive decision was taken on Comet’s behalf when the sale agreement was entered into on 9 November 2011. The formal resolutions of the new board on 3 February 2012 implemented that earlier decision.
5. Remedy. The court rejected the argument that exceptional circumstances justified making no order. Section 239(3) required restoration of Comet’s position, and difficulty in identifying the counterfactual was not a reason to refuse relief. The appropriate counterfactual was that the disposal did not occur. The amount of relief was the repayment received less the counterfactual dividend, adjusted to reflect the transfer of liability for the pension scheme.

This was a first-instance decision. A preliminary issue concerning connection between the parties had previously been decided by Deputy ICC Judge Agnello and upheld on appeal by Miles J in Darty v Carton-Kelly [2021] EWHC 1018 (Ch).