Health and Home Limited (in liquidation) & Ors v Elite Property Holdings Limited & Ors

A transaction at an undervalue may comprise a connected series of arrangements designed to transfer value, rather than merely the immediate contract or declaration identified by the parties. For section 238 purposes, the court must assess the transaction holistically and may restore the company only to the position it would have occupied had that transaction not occurred.

The statutory solvency tests in section 123 stand side by side. Persistent non-payment of a substantial debt, unsupported reliance on hoped-for assistance, and prospective liabilities may establish cash-flow insolvency even where other debts are being paid.

An informal loan without a fixed repayment date or demand condition falls within section 6 of the Limitation Act 1980. Time begins when repayment is demanded.

The liquidators of a failed care-home company brought claims against companies, directors and a shareholder within an informal family group.

The claims concerned an alleged intercompany debt, dividends said to be transactions at an undervalue, misfeasance, the transfer of the care-home business under agreements made in May 2013, and a counterclaim concerning book debts assigned to a replacement operating company.

The principal issues were whether Elite owed money under a loan or reimbursement arrangement; whether dividend arrangements and the May 2013 transfer were transactions at an undervalue under the Insolvency Act 1986; whether the company was insolvent at the relevant times; the availability of statutory defences and relief; and whether assigned debts were held on trust.

1. Debt claim. Elite was liable for £552,737. Payments made by the company to Elite after 1 July 2011 were made under an informal contract of loan. The payments were undifferentiated and were used by Elite for its own purposes and those of the wider group. The company’s obligations to Elite for rent, fees and other sums could be set off against the debt.
2. The loan had no fixed repayment date and was not conditional on demand. Section 6 of the Limitation Act 1980 therefore applied. Time began to run when repayment was demanded on 28 October 2015, so the claim was not time-barred.
3. Dividend transactions. The dividend arrangements were transactions at an undervalue under section 238 of the Insolvency Act 1986. “Transaction” in section 436 includes an arrangement and may comprise linked steps involving different parties. The arrangements transferred the benefit of the dividends to Elite and depleted the company’s assets. Elite and Mrs Christoforou were parties to the relevant arrangements.
4. The 2012 and 2013 transactions occurred at a relevant time. The defendants failed to prove solvency under section 123. Non-payment of substantial HMRC liabilities, inadequate evidence of available resources, reliance on hoped-for support, and prospective tax liabilities established or supported insolvency. The section 238(5) defence also failed because the transactions were made for the purposes of the wider family group, rather than for the company’s business or benefit.
5. Relief under section 238 is restitutionary and discretionary. The court must restore the position that would have existed had the particular transaction not occurred, and cannot reconstruct a different transaction or place the company in a better position. Elite was ordered to pay £1,200,000.
6. Misfeasance. Mr Stavrinides breached his duties by causing payment of the 2013 dividend when the company was insolvent and ordered to compensate the company £250,000. The May 2013 transaction was also at an undervalue to the extent that it imposed a full discount for contingent employee liabilities. Essex and Elite, and Mr Stavrinides under section 212, were liable for £174,471.66 less liabilities that actually crystallised.
7. Goodwill and counterclaim. The 2001 Agreement retained ownership of the care-home goodwill in Elite and licensed its use to the operating company. No goodwill was therefore transferred at an undervalue. Book debts assigned under the May 2013 Agreement were held by the company as trustee for Essex. An account was ordered and the relevant sums were to be paid in full to Essex.

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