Winding-Up - Misfeasance
In the matter of E D Games Limited 
[2009] EWHC 223
Chancery Division:  September 2009

Facts:
The company in question was wound up on HMRC’s petition.  Following the appointment of the liquidators, proceedings were issued against one of the directors pursuant to s 212 Insolvency Act 1986 on the basis that a director had caused the company not to file VAT returns thereby avoiding paying VAT in breach of his fiduciary duty as a director of the company.  The director argued that the claim should be struck out on the basis that it was misconstrued as the liquidator had to show that the breach of fiduciary duty had caused the company loss and the losses referred to were losses to the creditors not the company.  The creditors had suffered a loss because the claim for unclaimed VAT increased the level of creditors’ claims and therefore the sums available to creditors, however, the company itself had not suffered any loss.

Decision:
The Court agreed that to bring a claim under s 212 a liquidator had to show that loss had been suffered by a company as a result of any alleged breach of duty although in this case the claim did disclose a basis on which it could be argued that the breach of duty had caused loss to the company.   The money which was not paid by way of VAT enabled the company to continue trading beyond the point at which it would otherwise have stopped trading due to a lack of working capital.  This further trading generated a loss which could be seen as a loss to the company in respect of which a 212 claim could be brought. 

Winding-Up – Preferential Payments
Re:  Oxford Pharmaceuticals Limited
[2009] EWHC 1724
Chancery Division:  10th July 2009

Facts:
The facts in this case were complex. In summary, the company in question was a wholly owned subsidiary of the first respondent (R Ltd) of which the second respondent was sole director and in respect of which, together with his wife, he held 99% of the issued share capital.  The company was involved in the production of a cream treatment for skin cancer which it sought to have licensed in the UK.  The costs associated with developing and marketing the cream became very high and neither the company nor R Ltd could pay them. The company therefore entered into an option agreement with an Australian organisation for the sale of information relating to the cream at a price of £500,000.00.  The Australian company exercised that option and paid £250,000.00 as the first tranche to the company.  The company immediately paid that sum to R Ltd.  Shortly afterwards a further £200,000.00 was transferred by the company to R Ltd which reduced R Ltd’s overdrawn bank balance.  Shortly after that the final tranche of £250,000.00 under the option agreement was paid to the company and again immediately transferred to R Ltd the effect of which put R Ltd in credit with the bank.  Finally, approximately a month later R Ltd paid the company £36,000.00 to assist it in repaying its loan to its bank.  The company was subsequently wound up and the liquidator applied for a declaration that the payments made by the company to R Ltd under the option agreement and otherwise were preferences pursuant to s 239 of the Insolvency Act 1986.  The liquidators requested an order that the sums be repaid but that credit be given for the sum of £36,000.00 paid by R Limited to the company.  The director in question was joined into the proceedings on the basis that he was a Guarantor of the company’s liabilities so that the payments had benefited him in that capacity.

Decision:
The Court took the view that there had been no preference in favour of the director as the payments were made to R Ltd and whilst the effect of the payments to the bank reduced R Ltd’s liability to it (and as a consequence both the director and the company’s exposure to the bank as Guarantor for R Ltd’s liabilities) there was no significant benefit to the director.  In the event of a hypothetical liquidation at any relevant time the bank’s position was fully covered by book debts and secured by cross guarantees and debentures so that the director was in the same position so far as the bank were concerned as if no payments had been made.  The Court then turned to the issue of whether the company was influenced in making the payments by desire to prefer R Ltd or the director’s position.  In relation to the first tranche paid under the option agreement the Court took the view that on the balance of probabilities the sole influencing factor was the desire to regularise the position with the bank and there was no desire to improve the position of R Ltd or the director in the event of an insolvent liquidation.  In relation to the second and third payments of £200,000 and £250,000 respectively, however, the Court took the view that R Ltd and the director had failed to rebut the presumption of the desire to prefer them so that those payments were preferences within the meaning of s 239.  It was not appropriate however that an order should be made against the director as the monies paid by the company to R Ltd were not paid on to that director.  The Court did credit the sum paid by R Ltd to the company when assessing the sum to be repaid.

Administration – Set-Off
In the matter of  Kaupthing Singer & Friedlander Limited (In Administration)
[2009] EWHC 2309 
Chancery Division – 22nd October 2009

Facts:
Once again the facts of this case were extremely complicated. The company in administration was an authorised deposit taker with some of the creditors also owing the company money and issues with regard to the different terms on which monies were deposited had to be considered by the Administrators.  The administrators applied to Court for directions as to how debts due to or from the company should be treated depending on whether they were due for payment before or after the distribution date, whether the insolvency set-off provisions should apply and how interest should be dealt with.

Decision:
The Court held that for the purposes of insolvency set-off within an administration a debt should be classified as a “future debt” if it was not due for payment as at the date when the notice of intention to make a distribution was given.  Accordingly a future debt payable before the date of distribution should be given full value for the purpose of taking an account of mutual dealings but a future debt payable after the date of the distribution should be taken at its discounted value.  Secondly, the Court took the view that for the set-off provisions to take effect there had to be a creditor of the company claiming to prove for a debt in the administration and in those circumstances an account should be taken of mutual debts and credits.   When trying to work out the balance due in respect of mutual dealings between a creditor and a company post the administration, interest should be ignored on both sides but the company was entitled to claim interest on any balance due from the date of the administration.

Winding-Up - Misfeasance
Phillips and another –v- McGregor-Paterson
[2009] EWHC 2385
Chancery Division : 2nd October 2009

Facts:
Following the winding-up of the company and the appointment of the liquidators a claim was brought against a director of the company alleging misfeasance and/or breach of fiduciary duty.  The claim was stayed pending resolution of an application by another director to rescind the winding-up order and the outcome of an Insolvency Service investigation into the company’s affairs. The application to rescind the winding-up order was dismissed and the Insolvency Service confirmed that no action would be taken following their investigations.  The stay of the proceedings was therefore lifted and the liquidators served particulars of claim seeking payment of the total sum of £260,000.00. The defence alleged that the Defendant had not been involved in the day to day running of the company but the liquidators applied for and obtained summary judgment in respect of all of the sums claimed.  The director appealed.

Decision:
The Judge granted the appeal holding that the claims should not have been dealt with on a summary basis and would have to go to trial. The question of the defendants’ fiduciary duty and whether or not it had been breached was one that could only be determined after a full hearing of all the evidence at trial.

Winding-Up – Protection from Foreign Judgments
Re: Harms Offshore AHT GMBH and Co KG and others –v- Alan Robert Bloom and others as joint administrators of Oilexco North Sea Ltd
[2009] EWCA Civ 632
Chancery Division: 26th July 2009

Facts:
Oilexco was involved in offshore oil and gas exploration and was put into administration.  Harms Offshore was a German shipping company which was a creditor of Oilexco prior to the administration in respect of charterparties of their ships provided to the company. Those charterparties were governed by English law and included a provision with regard to English arbitration.  The company continued to trade during the administration with a view to selling the business.  Harms Offshore then, without notice to the administrators, brought proceedings in New York claiming sums due from Oilexco under the charterparties with orders for attachment and garnishees in respect of its property.  They did not within those proceedings mention the administration or the arbitration agreement.  The US Courts made ex-parte orders as requested by Harms Offshore.  Without knowing about the orders the administrators made a substantial payment into a New York account of one of the Oilexco’s post administration suppliers which payment was then attached.  The administrators applied for and obtained an injunction requiring Harms Offshore to release the attachment orders and Harms Offshore appealed on the basis that there was no statutory restriction on legal proceedings being commenced against a company in administration as the relevant provisions of the Insolvency Act did not have effect in the US. The position was different from that in a liquidation and the US was able to deal with it.  The administrators argued that the injunction was appropriate as the US proceedings interfered with the Administrators exercising their functions and the subject matter of the US proceedings had no connection with the US jurisdiction.

Decision:
The Court held that one of the statutory duties of administrators was to take custody or control of the Company’s property both within the jurisdiction and outside the jurisdiction and the Court had jurisdiction to protect the Company’s assets from foreign attachments and executions within an administration as well as within a winding-up.  It did not follow, however, that the Court should exercise jurisdiction to prevent a creditor taking advantage of a foreign attachment and, indeed, it would not usually be appropriate for a Court to grant injunctive relief which would affect proceedings in the foreign Court. In this case, however, the Court took the view that as Harms Offshore’s conduct had been unconscionable, they failed to inform the Administrators of the attachment orders until after the funds had been attached and had effectively set a trap for the Administrators – the circumstances were exceptional and justified injuctive relief being granted.  The appeal was dismissed and the injunction was allowed to stand.