Henderson & Jones Ltd v Ross

The claimant, an assignee of The Hospital Medical Group Limited's (THMG) claims, alleged that a group reorganisation implemented from 30 November 2012 (the Restructure) was unlawful: an unlawful distribution (Companies Act 2006, Part 23) and/ or an unlawful return of capital and/ or a transaction defrauding creditors (Insolvency Act 1986, s.423). It pleaded breaches of directors' duties by the former THMG directors, dishonest assistance by third parties and professional negligence by the solicitors who implemented the transaction.

The court examined the factual matrix (notably the PIP implant litigation and potential VAT exposure), the documentary record and expert accounting evidence. The judge emphasised the need to characterise the true substance and purpose of the Restructure (Progress Property approach) and applied the legal tests for unlawful distributions, transactions at undervalue (s.423 IA86) and directors' duties (CA 2006 ss.171, 172, 174, 175), together with the civil test for dishonest assistance (subjective knowledge and objective standards of ordinary decent people).

Key findings: the Restructure was a bona fide group reorganisation implemented for genuine commercial reasons (including operational separation of business streams and mitigation of potential future VAT exposure); THMG received full value for the assets transferred; the dividend declared was lawful under Part 23 on the account and evidence available; the transaction was not a s.423 transaction defrauding creditors; D3 was not a de facto director; there was no dishonesty by the solicitors or by Barclays; the auditors and other advisers (notably CK/ Colliers) played a central role in valuation and structuring. The expert valuation dispute (double-counting of Dolan Park value) was resolved against the claimant's larger loss figures.

The claimant is a litigation investment company and the assignee of claims against The Hospital Medical Group Limited (THMG). It sued former directors and third parties about a corporate reorganisation carried into effect on and after 30 November 2012. The reorganisation moved the freehold hospital property and trading assets into other group companies, left THMG with client claims, and resulted in intercompany accounting movements and a dividend. The claimant alleged the reorganisation was designed and implemented to put assets beyond the reach of THMG's creditors, infringing Part 23 of the Companies Act 2006, constituting a transaction at an undervalue (s.423 Insolvency Act 1986), and giving rise to breaches of directors' duties, dishonest assistance by third parties and professional negligence by the firm's solicitors.

The court's issues included:

• characterisation of the Restructure (true purpose and substance);
• whether the Restructure involved an unlawful distribution or return of capital (Part 23 CA 2006) or a transaction defrauding creditors (s.423 IA 1986);
• whether D3 was a de facto director and whether D1–D3 breached fiduciary/statutory duties;
• whether Barclays (D5) or the solicitors (D6) dishonestly assisted or were negligent;
• quantification of any loss (competing expert valuations and alleged double-counting of Dolan Park's value).

The judge made detailed factual findings about the context (PIP implant litigation, potential VAT change), witness credibility and the documentary record. The court followed the approach in Progress and Gestmin: the true character of the transaction is decisive, and documentary evidence and contemporaneous commercial context are central. The judge found that THMG and its advisers (including its auditors and valuers) reasonably treated PIP exposure as manageable, that the Restructure had legitimate commercial objectives (operational separation, ability to measure streams, mitigation of potential future VAT on some activities), and that material aspects of the operation (sale prices, intercompany accounting and the dividend) were supported by professional advice and by the company's accounts. The court rejected the claimant's large valuation of loss after discounting the expert double-counting of the hospital value.

Outcome: the claim was dismissed. The judge concluded there was no unlawful distribution or return of capital, no s.423 transaction defrauding creditors, no breach of directors' duties by D1–D3, no dishonest assistance by D3, D5 or D6 and no actionable professional negligence by the solicitors in the respects pleaded.

Claim dismissed. The court held that the Restructure was a bona fide group reorganisation with proper commercial purposes (operational separation of business streams and mitigation of potential future VAT exposure) and not a disguised unlawful distribution or transaction defrauding creditors under IA86, s.423. The directors (D1–D3) did not, on the facts, breach their statutory or fiduciary duties in relation to the Restructure (D3 was not a de facto director). Barclays and the solicitors had not dishonestly assisted and the solicitors had not been negligent in the relevant respects; the claimant's valuation evidence overstated loss (double-counting issues). Judgment for the defendants; the claimant's causes of action fail and the claim is dismissed.