Gary Paul Shankland & Ors v Iain Urquhart McKeand (Re Lion House Portfolio Ltd (in liquidation))

The Liquidators sued under s.212 Insolvency Act 1986 for misfeasance and restitution, alleging that Mr McKeand (director and controller) caused or permitted transfers and payments from Lion House to benefit himself and related parties. The court held that Lion House had been balance-sheet insolvent for a number of years and that the creditor duty (as explained in Sequana and Eurosail) engaged by no later than 28 November 2013, so that from that date directors had to give appropriate weight to creditors’ interests when making payments or investments.

The court found that: (i) the declared trust deed dated 26 September 2011 had placed the beneficial interest in the Fruehauf shares in Mr McKeand so those shares were not, from that date, Lion House’s beneficial assets and the Liquidators’ claim based on their alleged misappropriation failed; (ii) Mr McKeand must account for the payment of £149,861.65 used to buy his Now Technologies shares; (iii) he was liable to account for the CorpAcq payment of £1,757,168 received into his personal account, and directions are required to determine the account; and (iv) he was liable in respect of post-28 November 2013 advances and payments to related entities (Mac Capital, Mac1 Sports, Accrued Equities and Country Park) for breaches of duty, subject to assessment of loss and possible set-offs. The court rejected Duomatic and s.1157 Companies Act 2006 defences as inapplicable or inappropriate on the facts.

Background and parties: Lion House Portfolio Ltd (in liquidation) was an investment/loan-note vehicle controlled and directed by Mr Iain McKeand. The company was wound up in June 2018 and the joint liquidators commenced proceedings under s.212 Insolvency Act 1986 alleging misapplication of company property and breaches of duty by Mr McKeand.

Nature of the application and relief sought: The Liquidators sought monetary compensation and account against Mr McKeand for (inter alia) a £1,757,168 payment received into his personal bank account (the CorpAcq Payment), advances from Lion House after 28 November 2013 to a number of related entities (Mac Capital, Mac1 Sports, Accrued Equities, Country Park), payment of £149,861.65 from Lion House for shares issued to him in Now Technologies, alleged transfer/misappropriation of Fruehauf shares and receipt of benefits from Fruehauf.

Issues framed:

• whether and when Lion House was insolvent such that the directors’ creditor duty under s.172 Companies Act 2006 was engaged;
• whether the Fruehauf share dealings resulted in misappropriation or whether a trust deed meant the beneficial interest rested with Mr McKeand;
• whether the CorpAcq Payment was received by Mr McKeand for Lion House and, if not, whether he must account for it;
• whether post-28 November 2013 advances to related companies and the Now Technologies payment were breaches of duty and caused loss to Lion House;
• whether defences such as Duomatic or s.1157 CA06 could absolve Mr McKeand.

Evidence and procedural context: The trial was a first instance multi-day hearing. The court received witness evidence from the Liquidators, three loan-note creditors, the former non-executive director Jessica Swift and two expert accountants. The defendant represented himself and relied on a previously prepared skeleton. The factual position was complicated by poor books and records, inconsistent and evasive evidence from Mr McKeand, and limited documentary trails for some transfers.

Reasoning and conclusions: The judge concluded that Lion House had been balance-sheet insolvent for several years and, on the facts, the creditor duty engaged by 28 November 2013. The Fruehauf deed of trust (dated 26 September 2011) operated to confer the beneficial interest in Fruehauf shares on Mr McKeand; consequently those shares were not Lion House assets for the purposes of the Liquidators’ claim and claims about consultancy payments from Fruehauf to Mr McKeand did not found liability in this action. The court found that Mr McKeand received the CorpAcq Payment into his personal account deliberately (not by mistake) and routed almost all of it to Accrued Equities; he must account for that receipt and the court directed further investigation and directions to determine the proper accounting and any compensation. The Now Technologies payment was held to be Lion House’s money used for his personal investment and required to be accounted for (£149,861.65). The post-28 November 2013 payments into related companies were breaches of duty liable to compensation, subject to further inquiry as to recoverable loss and accounting entries. Defences under Duomatic and s.1157 Companies Act 2006 were rejected on the facts.

Remedy and next steps: The court declared liability in respect of specified items and directed further steps to determine the detailed account and quantification of loss, including inquiries into documentary records and accounting treatment for the CorpAcq Payment and the post-28 November 2013 advances.

First instance: The court held that the Liquidators’ claims succeed in part. The Fruehauf shares were held on trust for Mr McKeand (deed dated 26 September 2011) so claims based on their transfer failed. Mr McKeand was ordered to account for the payment of £149,861.65 used to buy Now Technologies shares, to account for the CorpAcq payment (directions made for further inquiry), and to make contribution for breaches of duty in relation to post-28 November 2013 advances to Mac Capital, Mac1 Sports, Accrued Equities and Country Park; further directions were given to quantify losses. Duomatic and s.1157 defences were rejected as inapplicable or inappropriate on the evidence.