Examining the interplay between the Companies Act and the Insolvency Act—Re Pro4Sport Ltd (in Liquidation)

Examining the interplay between the Companies Act and the Insolvency Act—Re Pro4Sport Ltd (in Liquidation)

Did Pro4Sport v Adams clarify how a claim under the Companies Act 2006 (CA 2006) may also be brought as part of proceedings under the Insolvency Act 1986 (IA 1986)? James Morgan, barrister at St Philips Chambers, explores this recent case.

Original news

Re Pro4Sport Ltd (in Liquidation); Subnom Hedger (Liquidator of Pro4Sport Ltd) v Adams [2015] EWHC 2540 (Ch), [2015] All ER (D) 12 (Sep)

The Chancery Division dismissed an application by the liquidator of a company, under IA 1986, s 212 against the respondent—a former director and majority shareholder of the company. It held, among other things, that the claim under CA 2006, s 172 failed and the respondent had not been in breach of his duty under CA 2006, s 174.

What was the background to the application?

In 2012, very shortly before the creditors’ voluntary liquidation of Pro4Sport Ltd (the company), its director and majority shareholder caused it to sell its assets to an associated company, Pro4Sport.co.uk (Pro4) for deferred consideration of £56,400. The only security provided was a retention of title clause. Pro4 paid £35,910 of the purchase price before going into creditors’ voluntary liquidation in 2014.

The liquidator of the company brought misfeasance proceedings against the director under IA 1986, s 212, alleging the sale was in breach of his duties under CA 2006, ss 172, 174 and (possibly) 190, resulting in loss to the company of £20,490 (that being the difference between the price and the sum in fact paid by Pro4). The claim was brought despite:

  • business advisors associated with the liquidator advising the director as to the sale, and
  • post-liquidation—the liquidator had adopted the sale contract and agreed a payment schedule with the director

What were the legal issues that the judge had to decide in this application?

The judge was required to deal with four issues:

  • whether the director

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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.