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

Key legal principles and grounds of decision:

• The court found that informal, undifferentiated payments from the operating company (Health and Home) to the property company (Elite) created an informal contract of loan for Limitation Act 1980 section 6 purposes, so time ran from a written demand in October 2015.
• Transactions at an undervalue under Insolvency Act 1986 section 238 were established in relation to dividend distributions (2012 and 2013) and the May 2013 sale/transfer (insofar as the purchase price was discounted by agreed treatment of contingent employee liabilities), and the relevant two‑year period and insolvency prerequisites were satisfied.
• The court concluded that the 2001 written agreement between the parties reserved ownership of goodwill to the property company (Elite), so the May 2013 agreement did not transfer company goodwill and there was no undervalue claim in respect of goodwill.
• Misfeasance under Insolvency Act 1986 section 212 succeeded against the director who authorised the 2013 dividend and who caused the undervalue transfers; he was ordered to compensate the company.

Material subsidiary findings included adverse credibility findings against Mr Stavrinides, rejection of weight to unsworn / non‑compliant statements of a key director/shareholder who did not give oral evidence, and criticism of belated disclosure (notably an Elite cashbook and board minutes disclosed only at trial).

Background and parties: Health and Home Limited (the operating care‑home company) entered administration on 11 September 2013 and creditors’ voluntary liquidation in 2015. The joint liquidators and former administrator sued Elite Property Holdings Limited (a BVI property company) and certain family members/directors. The dispute concerned intercompany payments, declared dividends in 2010–2013, and agreements of 18 May 2013 (the "May 2013 Agreement" and a collateral manager arrangement) said to transfer the business.

Nature of the claim/application: The liquidators advanced multiple claims: (i) a debt claim that Elite owed the company monies recorded in the company accounts; (ii) claims that dividends (2012 and 2013) were unlawful or constituted transactions at an undervalue under IA 1986 s238; (iii) claims that the May 2013 Agreement transferred the company’s business (including substantial goodwill) at an undervalue; and (iv) misfeasance claims under IA 1986 s212 against the director(s). Essex counterclaimed for sums held by the company under the May 2013 Agreement.

Issues framed by the court:

• Whether Elite owed the company a debt and, if so, whether that debt (or part of it) arose under a contract of loan so as to be within Limitation Act 1980 s6.
• Whether the dividends and/or the May 2013 Agreement were transactions at an undervalue under IA 1986 s238 (including whether they occurred at a relevant time, whether the company was insolvent, and whether the s238(5) defence applied).
• Whether goodwill belonged to the company or to Elite under the 2001 Agreement.
• Whether directors (in particular Mr Stavrinides) committed misfeasance under IA 1986 s212.
• Whether sums received by the company after 18 May 2013 were held on trust for Essex and should be accounted for.

Court’s reasoning and outcome of key issues:

1. The court accepted contemporaneous accounts, BDO reports and a belatedly disclosed Elite cashbook showing undifferentiated transfers from the operating company to Elite. Those transfers, at least from 1 July 2011, were properly characterised as repayable under an informal contract of loan. On that footing, and because written demand was made in October 2015, Limitation Act 1980 s6 applied and the claim in respect of the loan was not time‑barred. Judgment was given for £552,737 on that debt claim.
2. On the dividend claims, the court found that the transactions by which the benefit of the dividends accrued to Elite (whether by set‑off or by a family‑trust mechanism) were transactions at an undervalue within IA 1986 s238, entered into within the two‑year relevant period (construed as about 30 June 2012 and 30 June 2013 respectively). The s238(5) defence (good faith and benefit to the company) failed: transfers principally benefited the wider family group and depleted the company’s assets while the company was unable to pay its debts (notably unpaid HMRC liabilities). The court ordered restitution in respect of the aggregate dividends (£1,200,000) against Elite and compensation of £250,000 under s212 against the director who authorised the 2013 dividend.
3. As to the May 2013 Agreement, the court construed the earlier 2001 written agreement as reserving goodwill to Elite and licensing the operator. On that construction the company did not transfer goodwill and the claim in respect of goodwill failed. However, the court found an undervalue in the £174,471.66 reduction of purchase price by reason of treatment of contingent employee liabilities and ordered repayment of that sum (less any part that subsequently actually crystallised) by Elite and Essex, and compensation under s212 from the director.
4. The court directed an account and ordered that sums received by the company after 18 May 2013 in respect of book debts sold under the May 2013 Agreement be paid to Essex; it accepted that such receipts were to be treated as held for Essex.

Procedural and evidential findings: The judge made adverse credibility findings about a key defendant (Mr Stavrinides), rejected unsworn or non‑compliant witness statements (notably from the registered director/shareholder who did not give oral evidence), and criticised late disclosure of material documents which reduced the weight to be attached to the defendants’ case. The single joint expert was not cross‑examined because the application to do so was made at trial and would have caused unfairness.

First instance: The court granted substantial relief for the Claimants. Key disposals were: (i) judgment for the Company against Elite for £552,737 as a debt on an informal contract of loan (Limitation Act 1980 s6 applied); (ii) under Insolvency Act 1986 s238 the court ordered Elite to account for and pay £1,200,000 in respect of the 2012 and 2013 dividend transactions at an undervalue; (iii) under s212 the director who authorised the 2013 dividend was ordered to pay compensation of £250,000; (iv) under s238 the court ordered Elite and Essex to pay £174,471.66 (less any amount by which contingent liabilities in fact crystallised) in respect of the May 2013 purchase price reduction, and the director was ordered to compensate the company for that sum under s212; and (v) the court directed an account and payment to Essex of sums received by the company after 18 May 2013 in respect of debts transferred to Essex. The court’s reasoning rested on documentary records, the Elite cashbook, contemporaneous BDO reporting, construction of the 2001 Agreement (which reserved goodwill to Elite), findings on insolvency at relevant times and adverse credibility findings.