The creative approach to insolvency offences—Henry v Finch

The creative approach to insolvency offences—Henry v Finch

How will the courts approach a non-standard preference and unlawful distribution in the context of liquidation? Katherine Hallett, barrister at 13 Old Square Chambers, examines the decision in Henry v Finch and explains how this case demonstrates the need for courts to look creatively at the facts to assess whether insolvency offences have been committed.

Original news

Henry and another v Finch and another Subnom Re Finch (UK) plc (in liquidation) [2015] EWHC 2430 (Ch), [2015] All ER (D) 96 (Aug)

The Chancery Division considered an application by the joint liquidators of a company against its respondent directors, in which the liquidators sought, among other things, a declaration that the respondents were guilty of misfeasance and breach of trust in retaining properties that had belonged to the company. The application was dismissed, save in relation to the cancellation of a share redemption and the consequent effect upon properties which had remained in the commercial arrangement. However, in the light of the respondents’ conduct, no relief would be granted to them under section 727 of the Companies Act 1985 (CA 1985) or section 1157 of the Companies Act 2006 (CA 2006) as applicable.

What was the background to the hearing?

Mr and Mrs Finch, the respondents, were the sole directors and shareholders of the company, which was a property development business. In its filed accounts, the company recorded its apparent ownership of various properties that it developed. In the 2003 accounting year, the company allotted 875,000 redeemable shares to Mr Finch. In January 2008, the company redeemed the shares, crediting Mr Finch’s director’s loan account with £875,000. On the same day, Mr and Mrs Finch ‘removed’ various properties from the company, at the same time crediting the corresponding mortgages to the company—via the director’s loan account.

The company went into creditors’ voluntary liquidation in July 2008. Principally, the liquidators challenged:

  • the allotment of the

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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.