Malcolm Cohen & Ors v Co-operative Group Limited & Ors

Expert evidence must be admissible and reasonably required to resolve the proceedings. Evidence which merely assists the court may be permitted, but the decision remains an evaluative judgment informed by proportionality. In a transaction-at-an-undervalue claim, the statutory defence focuses on whether there were reasonable grounds for believing that the transaction would benefit the company. It does not ordinarily require proof that the transaction was the best available option or retrospective expert analysis of unconsidered alternatives. Business valuation evidence will not be permitted where the pleaded case concerns the disposal of assets rather than a business as a going concern.

The joint liquidators of The Food Retailer Operations Limited applied for permission to adduce further expert evidence in proceedings concerning a 2015 transaction with companies in the Co-operative Group.

The underlying claim alleges that the transaction was at an undervalue under section 238 of the Insolvency Act 1986 and that elements were preferences under section 239. Permission was sought for business valuation experts and business restructuring experts. The business valuation application arose from a late attempt to characterise the transaction as the sale of a business as a going concern, although the pleaded case and existing case-management directions treated it as a disposal of specified assets. The restructuring evidence concerned four possible alternatives said to have been available to the company.

1. The application for permission to adduce business valuation and business restructuring expert evidence was refused.

2. The court’s duty is to limit expert evidence to evidence that is admissible and reasonably required to resolve the proceedings. Evidence that is not necessary may still be admitted if it would assist in determining an issue and is therefore reasonably required. The decision is evaluative and must take account of all relevant circumstances and proportionality, applying the approach identified in British Airways plc v Spencer and Re RBS Rights Issue Litigation.

3. The business valuation evidence was irrelevant to the pleaded issues. The pleaded case concerned the sale of identified properties and other assets. The sale agreements’ description of a business sale did not alter the pleaded case, particularly because disclosure, factual evidence and existing valuation directions had been organised on an asset-disposal basis. A business valuation would require amendment of the claim to identify the nature and extent of the alleged business, including any goodwill.

4. Section 238(5) requires an objective assessment of whether, at the time of the transaction, there were reasonable grounds for believing that the transaction would benefit the company. The issue is not whether the directors selected the best option. The relevant comparison is principally with the company’s existing position. An obviously better alternative might support an inference that there were no reasonable grounds, or that the transaction was not entered into in good faith, but no such case was pleaded.

5. Restructuring evidence was not reasonably required. The practical viability of the four alternatives depended on factual matters, including the company’s financial position, its dependence on the Co-operative Group and the integration of its business. Those matters could be proved by factual evidence and evaluated by the specialist court. Retrospective expert analysis of unconsidered alternatives would add substantial cost and complexity without assisting determination of the statutory defence.

First-instance decision. No prior appellate decision is stated in the judgment.