Sean Richard Ormsby Lindsay v Penny O’Loughnane & Anor (Re FX Solutions Ltd (in liquidation))

The applicant, a creditor, brought a s 212 Insolvency Act 1986 misfeasance claim against two former directors of FX Solutions Ltd and GlobalFX Solutions Ltd seeking restitution and other relief. The court applied the summary judgment test in CPR Part 24 and, relying in part on findings in an earlier trial in Lindsay v O’Loughnane, granted summary judgment against the second respondent for restitution of the amount attributable to an illegal overdrawn directors' loan account. The court concluded there was a real dispute of fact as to whether funds used to buy the property Beacon Hill were properly repaid and therefore made a conditional order requiring payment into court to preserve the applicant's position. The court also refused summary judgment on the £102,300 payment to Mr French because of unresolved factual issues and gave the respondents leave to defend.

This is a first instance application under s 212 Insolvency Act 1986 for misfeasance and restitution brought by a customer-creditor because the liquidator would not pursue the claim. The applicant sought summary judgment under CPR Part 24 on three heads: (a) restitution of £715,162 said to be due from the second respondent in respect of an illegal overdrawn directors' loan account; (b) restitution of £324,521.75 transferred from FXS's Barclays client account to solicitors for purchase of Beacon Hill, Westerham; and (c) restitution of £102,300 paid from a GFX HSBC account to the first respondent's step‑father, James French.

Background and parties: FXS and GFX provided foreign exchange services, held client accounts and later went into administration and liquidation. Both respondents were directors and subsequently gave disqualification undertakings under the Company Directors Disqualification Act 1986. The applicant had earlier been successful in deceit proceedings against the second respondent (Lindsay v O’Loughnane) and relied on that earlier decision.

Issues framed by the court:

• Whether the applicant satisfied the CPR Part 24 test so that summary judgment could be entered on each head.
• Whether the sums the applicant seeks were derived from client money or company money held on trust and therefore misapplied.
• The effect of prior findings in Lindsay v O’Loughnane on the present proceedings and the credibility of the respondents.

Court’s reasoning and disposition: On the directors' loan claim the court accepted the prior finding (as recorded in Flaux J’s judgment and the company accounts) that the directors' loan was illegal and concluded the second respondent could not now go behind that finding; summary judgment was therefore granted against the second respondent for restitution in respect of that head. On the Beacon Hill transfer, the respondents asserted repayment by a third party (Mr Leahy) but produced no convincing documentary evidence; given factual disputes the court declined final relief and instead made a conditional order under CPR (payment into court) directed at both respondents to preserve the applicant's position. On the £102,300 payment to Mr French the court found contested factual accounts about whether the account was a client account and whether the payment was proper; there was insufficient evidence to resolve these matters without oral evidence, so summary judgment was refused and the respondents were given leave to defend.

The court also reviewed the statutory duties of directors (ss 171–177 Companies Act 2006) and the creditor duty where insolvency is known or suspected, and noted that the status of client accounts and trust obligations was central to the applicant’s case.

This was a first instance determination. The court granted summary judgment under CPR Part 24 in favour of the applicant against the second respondent in respect of restitution for the illegal overdrawn directors' loan account, on the basis that earlier findings (in Lindsay v O’Loughnane) and the company accounts established illegality and there was no real prospect of the second respondent successfully defending that issue. For the transfer to purchase Beacon Hill the court declined final summary relief because of unresolved factual disputes about purported repayment and instead made a conditional order directing payment into court against both respondents under the relevant CPR provisions. The court refused summary judgment as to the £102,300 payment to Mr French because of material factual disputes requiring oral evidence and gave the respondents leave to defend.