Arron Kendall & Anor v Timothy Dorian Ball & Anor

An application under section 234 of the Insolvency Act 1986 is a summary and discretionary procedure designed to place apparent company property under an office-holder’s control. It may determine title in an appropriate case, particularly where the issue is a pure point of law and a summary process is fair. Paragraph 63 of Schedule B1 confers broader jurisdiction to give directions, including resolving disputes with third parties.

A resulting trust depends on payment in the character of purchaser and the parties’ actual intention. An express declaration of trust does not prevent a resulting or constructive trust arising in favour of a third party whose beneficial interest had already vested. Directors breach the no-conflict duty by diverting to themselves a commercial opportunity needed by their company. A constructive trust may be the appropriate proprietary remedy.

The joint administrators of Sherwood Oak Homes Limited and Sherwood Oak Holdings Ltd applied for declarations that land acquired by Timothy and Carol Ball was held on resulting or constructive trust for one or both companies, together with consequential transfer orders.

The purchase price was paid from Homes’ bank account, but the land was transferred to the respondents jointly under a declaration that they held it for themselves as tenants in common in unequal shares. The administrators relied on section 234 of the Insolvency Act 1986, paragraph 63 of Schedule B1, resulting trust principles and breaches of directors’ duties under the Companies Act 2006.

The central issues were whether the summary applications were procedurally appropriate, whether Homes paid as purchaser, whether the express declaration controlled the beneficial ownership, and whether the respondents had diverted a corporate opportunity in breach of duty.

1. Procedure. The application was permissible under section 234 of the Insolvency Act 1986 and paragraph 63 of Schedule B1. Section 234 is principally a summary, discretionary remedy for placing property to which the company appears entitled under the office-holder’s control. It does not ordinarily determine complex disputed title, although the court may resolve title where fairness permits, including where the issue is a pure point of law. Paragraph 63 is broad enough to permit the court to resolve disputes with third parties. The respondents had sufficient notice of the constructive trust case, and the absence of pleadings did not make the process unfair.
2. Resulting trust. Homes paid the purchase price, but did not do so in the character of purchaser. The evidence showed that the respondents intended to acquire and own the land, with a possible future sale to Holdings. The payment from Homes’ account was therefore insufficient to establish a resulting trust. The express declaration in the transfer did not prevent the court from finding a resulting trust in favour of a third-party true purchaser, but no such trust was established on the facts.
3. Constructive trust. The land was an integral and valuable part of the development project. The respondents, as directors, diverted to themselves an opportunity which the companies had long intended to exploit. This created a direct conflict between their personal interests and the companies’ interests and breached sections 172 and 175 of the Companies Act 2006. Section 175(2) made it immaterial whether the companies could themselves have taken advantage of the opportunity.
4. The inquorate board meeting could not authorise the arrangement for the purposes of section 175(6). In any event, the companies were unable to pay substantial debts when the transaction occurred, and the arrangement protected the respondents’ position rather than benefiting creditors as a class. The respondents therefore could not rely on authorisation, ratification or section 1157 relief on the evidence before the court.
5. The appropriate remedy was a constructive trust over the land for the companies. The declaration in the transfer did not defeat that remedy because the respondents acquired the land in breach of duty. The court declared that the land was held on constructive trust for the companies and directed consequential transfer orders.