In the case of Hunt (Liquidator of Ovenden Colbert Printers Limited) v Hosking [2013] EWCA Civ 1408, the Court of Appeal held that a payment of company money made by a trustee to a third party, without the company's participation, could not be a transaction at an undervalue under section 238 of the Insolvency Act 1986, because it was not a transaction "entered into" by the company.

Background

Mr. Hosking is a licensed insolvency practitioner who was appointed as Liquidator of two connected companies, CSM Group Limited and CSM Sheet Fed Limited ("the CSM companies") in 2002. The CSM Companies owed Ovenden Colbert Printers Limited ("Ovenden") in excess of £1.3 million and accordingly, Ovenden was prospectively entitled to a substantial dividend from the liquidation. In 2003, Ovenden entered into a fee agreement with its accountant, Mr. Temple, authorising him to receive and hold any distributions from the liquidators of the CSM companies in a client account to the order of Ovenden and to pay his fees out of this account. This agreement was later varied in 2005.Pursuant to this agreement, Mr. Temple made numerous substantial payments out of the sums on the client account.

Ovenden went into administration in 2006, appointing Mr. Hosking as administrator and Mr. Hunt was subsequently appointed as liquidator thereafter. The Liquidator alleged that the payments made by Mr. Temple to Mr. Hosking constituted transactions at an undervalue and that Mr. Temple was not entitled to any fees as he had not provided any consideration for the fee agreement.

Decision

The Court of Appeal unanimously held that the transaction was not one that the company had "entered into" for the purposes of section 238 of the Insolvency Act 1986. Any relevant transaction would have had to be the underlying agreement by which the authority to make the payments was conferred - in this case either the 2003 agreement or the 2005 variation but neither of these agreements had been relied upon. The withdrawing of the funds by Mr. Temple which he held in the client account did not constitute dealing between him and Ovenden; he was acting as trustee of the funds such that the company itself could not be considered to have "entered into" a transaction.

So what does the case illustrate? 

  • The importance of identifying each of the precise elements of an office holder claim.
  • In a claim under s.238 of the Insolvency Act, it is essential to identify both that there was a relevant transaction and that it was a transaction which the company itself had entered into.
  • The expression 'entered into' means the taking of some step or act of participation by the company.

 Authors: Farheen Ishtiaq and Edward Starling

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