Court rules on claim to recover void payments after winding-up petition (Officeserve Technologies Ltd v Annabel’s (Berkeley Square) Ltd)

Simon Passfield of Guildhall Chambers acted successfully for the liquidator applicants in an insolvency case to recover a disposition rendered void by operation of the Insolvency Act 1986 (IA 1986). He discusses the practical implications of the judgment.

Officeserve Technologies Ltd and another v Annabel’s (Berkeley Square) Ltd and others [2018] EWHC 2168 (Ch)

What are the practical implications of this case?

This decision is helpful in clarifying the nature of the claim which should be brought in order to recover a disposition rendered void by operation of IA 1986, s 127. It suggests that the ability of the recipient to avoid liability to make restitution to the company will be extremely limited.

However, it should be borne in mind that none of the recipients in the present case sought a validation order. The case also provides a useful reminder of the potential unintended consequences of settling claims and the importance of ensuring that the right to pursue other claims is expressly reserved (if that is intended).

What was the background?

After the presentation of a winding-up petition against it, a company made payments to 43 recipients in the total sum of £205,932.90. The company subsequently entered compulsory liquidation on the petition and accordingly, by operation of IA 1986, s 127, those payments were rendered void.

The liquidators of the company issued a claim against a former director of the company pursuant to IA 1986, s 212, alleging that he had committed various breaches of his fiduciary duties to the company including, inter alia, by causing or permitting the company to make the payments (the misfeasance claim). By the misfeasance claim (which was the subject of the decision of the High Court in Officeserve Technologies Ltd and another v Anthony-Mike [2017] EWHC 1920 (Ch)), the liquidators sought equitable compensation in the total sum of approximately £1.9m.

The liquidators also issued a claim against the 43 recipients of the payments for repayment of the monies which they received (the restitution claims). Between issue and the first hearing of the restitution claims, the liquidators settled the misfeasance claim and the other potential claims which the company had against its directors for £1.1m.

At the hearing of restitution claim, the court had to determine:

  • the judicial nature of a claim to recover payments which are void by operation of IA 1986, s 127
  • whether the settlement of the misfeasance claim precluded the company from pursuing any of the restitution claims
  • whether any of the recipients had any available defences to the restitution claims

What did the court decide?

It was well established that the company’s right to recover property disposed of contrary to IA 1986, s 127, is determined by the general law. Such right can be characterised as ‘restitutionary’ but does not mean that the claim made by the company against the recipient must necessarily be a claim in unjust enrichment. It is perhaps better seen as a claim for the ‘restitution’ (in the old-fashioned sense of ‘return’) of the property the subject of the disposition which, by virtue of IA 1986, s 127, is void in law.

Where the void disposition involves the physical transfer of an asset, the company’s claim would be for the physical return of that asset under the general law of tort (ie interference with goods). Where the void disposition involves the payment of money, the appropriate claim is in unjust enrichment. However, such a claim does not necessarily have all the characteristics to be found in cases not involving insolvency—the policy surrounding the law’s treatment of insolvency may require that the claim be modified, particularly when it comes to defences.

For example, the restitutionary defence available to a bona fide purchaser does not apply in an insolvency context. Moreover, while the restitutionary defence of estoppel by representation (identified in Avon County Council v Howlett [1983] 1 All ER 1073, and affirmed by the Court of Appeal in National Westminster Bank plc v Somer International (UK) Ltd [2002] QB 1286, [2002] 1 All ER 198) is in principle available, the recipient would need to show a representation that the payment made was not a disposition liable to be avoided under IA 1986, s 127 IA, and such a representation ‘could not be allowed to mature into an estoppel’ because the parties could not contract out of the effect of IA 1986, s 127.

Accordingly, the only potentially relevant defence was change of position. On the facts, none of the recipients had demonstrated that they had changed their position in reliance on the payments.

As regards the settlement agreement, some of the restitution claims were closely analogous to the misfeasance claim, but others were not. Where the relevant payments were to settle debts owed by the company (ie preferences) or to purchase goods or services for the company, the restitution claims against the recipients were not closely analogous to the misfeasance claim (because the company did not suffer any loss as a result of the payments—the loss was suffered by the creditors) and therefore the settlement of the misfeasance claim could not have the effect of extinguishing the company’s rights in respect of those claims.

However, where the relevant payments were simply presents out of the company’s property (or to settle debts or buy goods or services for third parties), the restitution claims against the recipients were closely analogous to the misfeasance claim, and therefore, whether the settlement of the misfeasance claim had the effect of settling the analogous restitution claims was a matter of construction of the settlement. On the facts, it was clear from the terms of the settlement agreement that the liquidators did not intend to extinguish the company’s right to pursue the restitution claims by settling the misfeasance claim.

Simon Passfield is a specialist insolvency barrister who undertakes litigation and advisory work in all aspects of corporate and personal insolvency law. In the last year, Simon has acted in three of the most significant insolvency cases to reach the Court of Appeal. In addition, Simon has a broad experience of company law and general commercial matters arising in an insolvency context, including contractual and corporate disputes, agency matters and guarantees.

Further reading

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First published on LexisPSL Restructuring and Insolvency

Interviewed by Barbara Bergin.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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