Henderson and Jones Limited v David Jason Ross & Ors.

A group reorganisation is characterised by its true substance and purpose, not by the labels attached to individual transactions. Transfers between group companies at market value, a properly authorised dividend and intercompany accounting entries do not amount to an unlawful return of capital, informal winding-up or transaction defrauding creditors merely because value moves within the group. The court must assess the whole transaction, including purpose, consideration, solvency and the directors’ actual state of mind.

A transaction falls within Insolvency Act 1986, section 423 only if it was entered into for the prohibited purpose, even if it also had other purposes. Directors may consider group interests, but must separately consider the interests of the company whose assets are being dealt with. A consultant is not a de facto director merely because he gives significant advice or manages a restructuring project.

The claimant, a litigation investment company and assignee of the claim, sued former directors, a bank and solicitors concerning a 2012 restructuring of a medical-services group. The restructuring transferred property, intellectual property, trading assets and liabilities between group companies, left patient claims in the former trading company, and included a dividend and intercompany debt simplification.

The claimant alleged unlawful distributions, unlawful return of capital, informal winding-up, a transaction defrauding creditors under section 423 of the Insolvency Act 1986, breaches of directors’ duties, de facto directorship, dishonest assistance, negligence and unlawful means conspiracy. The central questions were the restructuring’s true purpose and substance, the value transferred and received, the company’s solvency, and the liability of each defendant.

1. Claim dismissed. The restructuring was a genuine and bona fide group reorganisation undertaken for commercial reasons, including separating business lines, managing possible future VAT exposure, limiting future claims to the relevant trading entity and improving financial transparency. It was not motivated by PIP claims or backdated VAT, and it had no purpose of prejudicing or defrauding creditors.
2. The court assessed the arrangements as a whole. The property was transferred at market value, the transferred business assets were not shown to have been undervalued, the intellectual property valuation was not shown to be improper, and the intercompany consideration was worth its face value. The proposed loan write-off was never implemented. The loan simplification exercise did not alter any group company’s net assets or liabilities improperly.
3. The dividend complied with Companies Act 2006, Part 23. Applying sections 845 and 846 to the relevant accounts, the available profits were calculated at £8,725,040, exceeding the £7.5 million dividend. The dividend was not a disguised return of capital, nor was it shown to be part of an improper extraction of value.
4. THMG was not cash-flow insolvent or balance-sheet insolvent at the restructuring date and did not become so as a result. Its liabilities continued to be funded through the intercompany balance and group support. The creditor-interest duty was therefore not engaged.
5. D3 was not a de facto director. He acted as a part-time consultant and project manager, not as part of THMG’s corporate governance system or as a decision-maker. His tortious duty was correspondingly limited, and the negligence claim failed.
6. D1 and D2 did not breach their statutory duties. D1 was entitled to consider group interests but did separately consider THMG’s interests and reasonably relied on professional advice. D2 did not abrogate his responsibilities and honestly believed the restructuring benefited THMG and the group.
7. The dishonest assistance, negligence and unlawful means conspiracy claims also failed. D6 advised on market value, directors’ duties, creditor fraud risks, distributions and the proposed loan write-off. Its advice was adequate in the circumstances.