Director not insulated from liability on insolvency—Re Cosy Seal Insulation Ltd (in administration); Ross v Gaffney

Director not insulated from liability on insolvency—Re Cosy Seal Insulation Ltd (in administration); Ross v Gaffney

Oberon Kwok, barrister at St Philips Chambers, outlines that while the decision in Re Cosy Seal Insulation grants some practical knowledge to lawyers, there are legal issues, namely relating to carbon credits and the nature of ‘transaction’, that remain ambiguous.

Original news

Re Cosy Seal Insulation Ltd (in administration); Ross and others v Gaffney and another company [2016] EWHC 1255 (Ch), [2016] All ER (D) 29 (Jun)

The Chancery Division allowed the applicant administrators’ applications concerning a number of payments made by the first respondent company director and the second respondent company and arising out of the insolvency of the second respondent company. The court held that the interests of the company’s creditors had plainly been engaged, and the respondents were ordered to make repayments.

What was the background to the hearing?

Cosy Seal Insulation Ltd (CSIL) went into administration on 4 July 2014. CSIL’s sole shareholder and director was Mr Paul George James Gaffney. His wife, Mrs Gaffney, was the sole shareholder and director of Cosy Seal Insulation (UK) Ltd (CSIL(UK)).

CSIL and CSIL(UK) were both insulation contractors. Under the government’s Energy Company Obligation (ECO) scheme, energy companies were required to meet targets in helping consumers to reduce emissions. Credits of different types and quantities could be earned from qualifying actions, such as the installation of insulation. Thus CSIL, by performing insulation work, would gain credits, which could then be bought by energy companies in order to help hit their ECO targets.

CSIL, prior to entering administration, had entered into transactions and made payments that the administrators subsequently sought to impugn as preferences and/or transactions at an undervalue (TUV). Additionally, the administrators alleged misfeasance against Mr Gaffney in respect of those transactions. The transactions in question fell into three broad categories:

  • payments to Mr Gaffney, its director
  • payments to CSIL(UK), and
  • the sale of credits to CSIL(UK) for

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.