Arron Kendall & Anor v Timothy Dorian Ball & Anor

The administrators of Sherwood Oak Homes Ltd and Sherwood Oak Holdings Ltd applied under paragraph 63 of Schedule B1 to the Insolvency Act 1986 and/or section 234 of the Insolvency Act 1986 for a declaration that a small parcel of land (the "Land") was held on resulting and/or constructive trust for the companies and for an order for transfer. The court ruled that the resulting trust claim failed because, although Homes paid the purchase monies from its bank account, the evidence showed the purchasers (the respondents) intended to own the Land and the payment was not made by Homes "in the character of a purchaser".

However, the court granted declaratory relief on a constructive trust basis. The respondents, both directors, had acquired the Land in circumstances that created a real and sensible possibility of conflict with the companies' interests and therefore breached their duties under section 175 (and section 172) of the Companies Act 2006. The constructive trust was an appropriate proprietary remedy because the respondents had exploited an opportunity connected to the companies' development project, and there was no effective authorisation or ratification. The court made consequential orders for transfer to the companies.

This was a final, expedited hearing of an administrators' application seeking a declaration that a small parcel of land transferred to Mr and Mrs Ball was held on resulting and/or constructive trust for Sherwood Oak Homes Ltd and Sherwood Oak Holdings Ltd and an order for its transfer. The administrators relied on paragraph 63 of Schedule B1 and/or section 234 of the Insolvency Act 1986. The development project, funding history and the Land's role in the intended access arrangements were described in detail. The Land was transferred by Mansfield District Council to the respondents on 31 May 2023; Homes paid the purchase monies from its bank account shortly before the transfer.

Parties and procedure: The applicants were the joint administrators; the respondents were Mr and Mrs Ball (Mr Ball a director and sole shareholder of Holdings; Mrs Ball a director of Homes at limited periods). The hearing proceeded on written evidence only; there was no cross-examination. The matter was expedited because a sale of the wider development site to a national housebuilder depended on inclusion of the Land.

Issues framed:

• Whether relief could properly be sought under s.234 IA 1986 and/or paragraph 63 Schedule B1 to determine ownership and order transfer;
• whether a resulting trust arose in favour of Homes or Holdings because Homes paid the purchase price;
• whether a constructive trust arose because the respondents breached directors' duties (notably s.175 CA 2006) by acquiring the Land for themselves; and
• the appropriate remedy and whether any statutory relief (for example s.1157 CA 2006) or authorisation could defeat the claim.

Court reasoning: The court set out the proper scope of s.234 and paragraph 63, observing that s.234 provides a summary discretionary remedy to assist an office holder but is not primarily intended to determine complex disputed title; paragraph 63 can be used for directions but fairness of a summary process is relevant. On the resulting trust claim, the court applied the orthodox tests and recent authorities: the payment for the Land, though made from Homes' account, was not by Homes in the character of purchaser; contemporaneous documents and correspondence (including the TR1 and board minutes/emails) supported the respondents' intention to own the Land and to sell it to the companies later once funding was arranged. Consequently a resulting trust failed.

On the constructive trust claim, the court found that the Land formed a valuable opportunity connected to the companies' development, that the respondents placed themselves in a clear conflict by acquiring the Land for themselves, and that no effective authorisation or ratification was demonstrated (the relevant board meeting was inquorate and creditors' interests had not been protected). The breach of duty under s.175 (and s.172) justified a proprietary remedy. The court was not persuaded that s.1157 relief or reliance on professional advice should prevent imposition of a constructive trust in the circumstances. The court therefore declared the Land held on constructive trust for the companies and ordered consequential transfer.

Procedural and contextual notes: The court emphasised limitations of summary procedures where there is no cross-examination or disclosure but found the respondents had sufficient notice of the case. The expedited nature was justified by urgency of the proposed sale and estate holding costs.

The court allowed the administrators' application in part. The resulting trust claim was rejected because Homes did not pay in the character of purchaser and the contemporaneous evidence showed an intention that the respondents were to own the Land. The court, however, declared that the respondents held the Land on constructive trust for the companies and ordered consequential transfer, because the respondents acquired the Land in breach of their duties (notably s.175 CA 2006) by placing themselves in a conflict with the companies and exploiting an opportunity connected to the development without effective authorisation.