IAHP Group Holdings Limited (in Liquidation), Re

The court granted, on an without-notice application, a proprietary injunction, a worldwide freezing order and an order for disclosure against the two respondents who were the de facto directors and shareholders of the company in liquidation. The liquidators brought claims under section 212 of the Insolvency Act 1986 for misfeasance and relied on directors' duties in ss.171–177, 386 and 388 of the Companies Act 2006 and the common law to show that sums paid out of the company were unlawful diversions or, alternatively, not properly repayable loans.

Key legal principles applied were: (i) substance not form when deciding whether transfers were unlawful distributions; (ii) directors bear a duty to account and, once payments are identified, the burden rests on the directors to show legitimacy; and (iii) the usual tests for granting interim proprietary relief and a worldwide freezing order, including a good arguable case and a real risk of dissipation, together with consideration of the cross-undertaking in damages.

The court was satisfied there was a good arguable case that the respondents misapplied company funds, that there was a real risk of dissipation, and that limited protection in the form of capped cross-undertaking insurance (£200,000) was sufficient. The interim relief was therefore granted to preserve assets and to require disclosure relevant to policing the injunctions.

Background and parties. IAHP Group Holdings Limited (the Company) was wound up following a petition presented on 2 February 2024. The applicants are the joint liquidators. The respondents are husband and wife who, on the material dates, were effectively the only acting directors and shareholders. There is no statement of affairs and the liquidators estimate an overall deficiency with a material component of creditor claims connected to the respondents.

Nature of the application. The liquidators applied (without notice) for interim relief including a proprietary injunction, a worldwide freezing order and asset disclosure in support of an intended misfeasance claim under section 212 Insolvency Act 1986, alleging that the respondents misapplied company funds through so-called directors' loan accounts and other transfers (the "Diversions"). The principal pleaded Diversions totalled approximately £4.14m and the interim relief was sought to preserve assets and obtain information.

Issues framed by the court.

• Whether there was a good arguable case that the payments out were unlawful diversions or otherwise constituted breaches of statutory and fiduciary duties (s.212 IA 1986; ss.171–177, 386, 388 CA 2006 and common law).
• Whether the alleged injections into the company (Category A payments) amounted to genuine shareholder loans that could be set off against the alleged diversions, in light of absence of contemporaneous documentation.
• Whether there was a real risk of dissipation of the respondents' assets such as to justify a worldwide freezing order and ancillary disclosure.
• The appropriate protection for the respondents in relation to the cross-undertaking in damages.

Court’s reasoning and findings. The judge found a good arguable case on the merits: the pleaded pattern of substantial, round‑sum payments and apparent lack of contemporaneous documentation supported the liquidators' contention that the company’s funds had been treated as the respondents' own and diverted. Authorities were applied for the propositions that the court looks to substance not form in assessing unlawful distributions, and that directors must account and normally bear the burden of showing the legitimacy of payments they received from the company. The court expressed concern at the absence of corroborative contemporaneous loan documentation supporting the respondents' claims of shareholder loans and found it was permissible to infer impropriety from that absence.

On dissipation the judge accepted that the factual pattern (including alleged evasive conduct at Companies House, prior transfers, alleged use of doctored records, and assets identified both in and out of the jurisdiction) established a real risk of unjustified dissipation. The application was therefore heard without notice and the interim relief granted. The judge accepted limited protection for the respondents by way of a capped cross-undertaking in damages supported by an insurer's policy (CUDI) capped at £200,000, and directed that the relief and disclosure be reviewed at a return date or on application by the respondents.

This first-instance application was allowed. The court granted a proprietary injunction, a worldwide freezing order in the sum claimed (including interest) and a disclosure order because there was a good arguable case of misfeasance under section 212 of the Insolvency Act 1986 and related breaches of directors' duties, and because there was a real risk of dissipation of the respondents' assets; the judge accepted that capped cross-undertaking insurance of £200,000 provided adequate protection pending further hearing.