On 1 March 2022, Deputy Insolvency and Companies Court Judge Curl KC handed down judgment on Kelmanson v Gallagher & De Weyer  EWHC 395 (Ch), a claim brought by the liquidator of De Weyer Ltd for preferences under s.239 Insolvency Act 1986 and misfeasance under s.212 Insolvency Act and s.172 Companies Act 2006. Andrew Brown acted for the liquidator, and was instructed by Nicholas Hughes and Sima Patel at HCR Sprecher Grier.
The case concerned payments comprising the bulk of its remaining funds made by the Company shortly before its entry into CVL to an associated company and then onwards to the Respondents as creditors of the Company. It raised a novel point of where a company makes payment to an intermediary, who then funnels funds onwards to the creditors of the original company making payment, then whether such a scheme could constitute a ‘preference’ under s.239 Insolvency Act 1986 as the Company ultimately was not directly paying the creditor(s) itself. Following concessions in cross-examination by the Respondent regarding the purpose of payment away from the Company, Andrew was successful in arguing that the series of transactions must be viewed as a whole for its commercial reality, and that the purpose and effect of making the payment to the intermediary company and then onwards to the creditors was to ultimately put the creditors in a better position than they otherwise would have been in an insolvency. Further, the Court accepted that by putting the intermediary company in funds to pay the creditors with permission to pay them, the Company was ‘suffering something to be done’ which had the effect of putting the creditors in a preferential position. Andrew was further successful in arguing such a scheme constituted a misfeasance in breach of the director’s duties to the Company under s.172 Companies Act 2006 to be liable for equitable compensation.
You can read the judgment here.