A Collection is a selection of features, articles, comments and opinions on any given theme or topic. It allows you to stay up‑to‑date with what interests you most.
Login here to access your saved articles and followed authors.
We have sent you an email so you can reset your password.
Sorry, we had a problem.
Tags related to this article
Published 31 October 2017
In Global Corporate Limited v Dirk Stefan Hale  EWHC 2277 (Ch), the Applicant, the assignee of the claim in question, failed in its application seeking relief against the former director and shareholder of a company in liquidation, Mr Hale (DSH). The decision is a salutary lesson in the importance of a properly drafted Deed of Assignment, the need to properly consider the commercial benefits of such an assignment and the risks of pursuing an unlawful dividend claim.
The company (C) was placed into liquidation on 25 November 2015 and liquidators appointed. The investigations of the liquidators revealed that the former director and shareholder of C, DSH, had received, in the period prior to liquidation, what appeared to be, unlawful dividends.
By letter dated 3 August 2016, the Applicant (acting as agent of the liquidators) wrote to DSH seeking payment of £23,511, being the value of dividends paid to DSH at a time when there were, it was alleged, insufficient reserves. The claim was advanced under section 847 Companies Act 2006 (unlawful dividends) and section 238 Insolvency Act 1986 (Transaction at Undervalue).
On 25 August 2016, C (acting by its liquidators) purported to assign to the Applicant its interest in the potential claim against DSH by Deed of Assignment (the Deed). The claim was described as a debt claim for alleged illegal dividends and/or transactions at undervalue. The consideration paid was £950.
The Judge, HHJ Paul Matthews, observed that the Deed did not provide for the assignment of any claim in misfeasance, or a claim for preference under section 239 Insolvency Act 1986.
The application was put before the court in three different ways:
Evidence was given at trial by DSH and one of the joint liquidators. The Applicant was represented by Counsel and DSH appeared in person, which the Judge found to be unfortunate as he recognised the complexity of the issues being raised and would have liked for them to have been the subject of full legal submission.
On the question of whether the payments should be repaid, the Judge found in favour of DSH and decided that the payments made to him could not be characterised as dividends and could not, for that reason, be treated as unlawful. DSH admitted that payments had been made to him every month at a time when there were insufficient reserves and tax vouchers had been signed. He argued, however, that it was for C's accountant at the end of the financial year to decide whether the payments could in fact be characterised as dividends. In short, the payments were not definitively characterised as dividend payments, and were only provisionally so described pending the accountant's review of whether there were sufficient distributable reserves at the end of the year.
On the question of misfeasance, the Judge questioned the Applicant's right to pursue the head of claim on the basis that the Deed did not purport to assign any claim in misfeasance.
On the question of transaction at undervalue relief, the Judge found that the payments were not at undervalue on the basis that DSH had provided services in exchange for the payments made.
On the question of preference, the Judge found that no claim in preference had been assigned by the Deed and that no assignment of a claim in preference could be implied by the Deed. On the basis that any preference claim remained with the liquidators and they were not party to the application, no preference claim could be advanced.
The application therefore failed on all counts. The case serves as a useful reminder of the risks in pursuing an unlawful dividend claim. Payments that for all intents and purposes appeared to be unlawful dividend payments were not in fact dividend payments but only provisional dividend payments that were awaiting characterisation by the company's accountant. The case also highlights the importance of properly documenting the terms of an assignment. The consideration for the assignment of the claim was given as £950, but the return on that assignment might be called into question given the time that one of the joint liquidators then had to spend in giving evidence on the claim.
+44 (0)117 918 2195
London - Walbrook
+44 (0)20 7894 6470
+44 (0)20 7894 6910
+44 (0)113 251 4775
Anthony Menzies, Franc Gozalvez
Tracey Longfield, Colin Moore, Claire Moore, Claire Anderson
Philip Murrin, Jenny Eacott
Philip Murrin, Gareth Robinson
Lorraine Wilson, Michael McMillen
Georgia Court, Anjali Kanish
David Williams, David Johnson
Richard Stallard, David Johnson
Deirdre Nally, Kate Sheppard
Peter Allchorne, Michael McCabe, Caroline Hall
Peter Allchorne, Michael McCabe
Cassandra Mitchell, William Swift
Claire Laver, Helen Laight
Barbara Goddard, Matthew Atwell, Ben Morris
Catherine Burt, Georgia Court, Inderjit Khera