Summary

The court considered the relief that should be granted to a successful claimant under the Insolvency Act 1986 s.423.

Facts

The court considered consequential matters following the judgment in [2016] EWHC 1686 (Ch), [2017] Bus. L.R. 82.

The main judgment concerned proceedings brought by the claimant companies for breach of duty against a company, its subsidiary and its directors and considered whether dividends paid between the defendant companies contravened the Companies Act 2006 Pt 23, or were a breach by the directors of their fiduciary duties, or were transactions defrauding creditors under the Insolvency Act 1986 s.423. The claimants had become liable, through a series of corporate acquisitions, to pay for part of an environmental clean-up operation in the US and the subsidiary was liable to indemnify them for part of that liability. The subsidiary's directors had resolved to reduce its capital and paid two dividends to the company. The main claim failed apart from one finding in the claimants' favour which held that one dividend (the May dividend) was found to have been entered into at an undervalue within the meaning of s.423(1). There was a consequentials hearing to consider the relief that should be granted pursuant to s.423; the appropriate order as to costs including the size of any interim payment; and whether permission to appeal should be granted to both parties. The company asked for permission to appeal on the legal issues arising from the s.423 claim in respect of the dividend and the claimants sought permission on a range of issues determined against them in the dividend claim. A funding agreement had been entered into to finalise the contributions owed for the clean-up operation.

Held

(1) The court had a broad discretion as to the remedy to impose when a transaction fell within s.423, 4 Eng Ltd v Harper [2009] EWHC 2633 (Ch) considered. The overriding purpose of s.423 was to recover assets for the victims so as to protect their interests and that objective would generally override the interests of the transferee. One of the factors to take into account at the stage of fashioning the remedy was the state of mind or action of the transferee. In the instant case there was no suggestion that the directors had been dishonest in their decision-making as regards the May dividend. Although it would be impossible to unravel everything that had happened since the dividend payment, it would be contrary to s.423 to decline to make an order. The instant case was not one in which the interests of the transferee should outweigh the interests of the victims of the May dividend. It would also be wrong to treat the funding agreement as a change of circumstances which militated against the grant of any relief. 4Eng did not indicate that the remedy under s.423 could not go further than the value of any obligations of the transferor to the victims at the time when the court came to consider the imposition of the remedy. Such a principle would risk creating an unfairness to the victims where a substantial period of time had elapsed between the date of the impugned transaction and the date when the remedy was devised and where the relationship between the various parties had changed in ways which had, at the least, been influenced by the fact that the impugned transaction took place. It would be contrary to the justice of the case to limit the remedy to the defendants' liabilities under the funding agreement because it was specifically contemplated by the parties to the funding agreement that any recoveries resulting from the s.423 claim would be paid in addition to the amounts for which the defendant was liable. Anything recovered as a result of the instant proceedings would go straight into the pot in order to pay for the clean-up and that would be in addition to the other liabilities of the parties to the agreement. The court had to try to achieve a result that met the statutory objective of restoring the claimants to the position they would have been in had the May dividend not been paid. The company was ordered to pay the sum of $138.4 million, that being the amount paid towards the remediation under the funding agreement and would remain liable to pay further sums up to a cap representing the amount of the May dividend, grossed up by the addition of interest (see paras23-25, 29-30, 33-56 of judgment). (2) Overall the claimants had been the successful party because they had achieved a substantial award in their favour. But a reduction needed to be made to reflect the failure of the s.423 claim in relation to the other dividend. The fair order to make was that the claimants should get 50% of their total costs of the proceedings leading up to and including the trial to be assessed on the standard basis if not agreed (para.91, 95-96).