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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Manolete Partners Plc v White [2022] EWHC 3769 (Ch) (08 August 2022) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2022/3769.html Cite as: [2022] EWHC 3769 (Ch) |
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BUSINESS AND PROPERTY COURTS
IN MANCHESTER
INSOLVENCY AND COMPANIES LIST (ChD)
IN THE MATTER OF LLOYDS BRITISH TESTING LIMITED (In liquidation)
1 Bridge Street West Manchester, M60 9DJ |
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B e f o r e :
(Sitting as a Judge of the High Court)
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MANOLETE PARTNERS PLC | Applicant | |
- and - | ||
IAN RUSSELL WHITE | Respondent |
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2nd Floor, Quality House, 6-9 Quality Court, Chancery Lane, London WC2A 1HP
Tel No: 020 7067 2900. DX: 410 LDE
Email: [email protected]
Web: www.martenwalshcherer.com
THE RESPONDENT appeared In Person
Hearing dates: 15 – 17 August 2022
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Crown Copyright ©
HIS HONOUR JUDGE HODGE KC:
BACKGROUND
THE APPLICABLE LAW
(1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole: see section 172 (1); and
(2) A director of a company must exercise reasonable care, skill and diligence: see section 174 (1).
These two core duties are reinforced by the duties on directors to exercise independent judgment: see section 173; and to avoid conflicts of interest: see section 175.
"[Counsel's] third general contention, that many directors of companies use their company's assets to pay personal expenses, may be accurate empirically, but it offends basic legal principles. Companies are separate legal persons, and the creditors who deal with a company, and its shareholders, are entitled to require the directors to apply corporate assets for proper purposes and in its interests."
"… where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be."
"A further possible qualification of the Duomatic principle is that, in some cases, doubts have been expressed as to whether the principle applies where it is the beneficial owners, rather than the registered shareholders, who consent ... But the correct view is that, at least as here where the ultimate beneficial owner and not the registered shareholder is taking all the decisions in the relevant transactions, the Duomatic principle applies as regards the consent of (and authority given by) the ultimate beneficial owner ... Certainly, the [claimant] in this case did not seek to argue that, in relation to the Duomatic principle, any distinction should be drawn between Mr Byington, as ultimate beneficial owner, and Mr Stollman, his lawyer, who held the bearer shares."
(1) The burden of proving that a director received any relevant payments rests on the applicant; but if that burden is discharged:
(2) The burden of proving that such payments were proper rests on the director, in this case Mr White.
(3) If the applicant seeks to rely upon the duty to creditors, it must be for the applicant to prove that the director, in this case Mr White, knew that the company was insolvent or would probably become insolvent, so as to engage the duty towards creditors. However, to accommodate one possible outcome of the appeal in Sequana, I should also consider whether Mr White knew, or should have realised, that there was a real risk, as opposed to a probability, of insolvency. In considering cash-flow insolvency, I remind myself of the guidance given by Lewison LJ in a case cited at [151] of Registrar Barber's decision in Ball v Hughes [2017] EWHC 3228 (Ch), reported at [2018] BCC 196. At [151] of her judgment in that case, Registrar Barber reminded herself of the guidance given by Lewison LJ in Re Casa Estates (UK) Ltd [2014] EWCA Civ 383, reported at [2014] BCC 269 at [92]:
"(1) Firstly, the cash-flow test 'looks to the future as well as to the present ... The future in question is the reasonably near future; and what is the reasonably near future will depend on all the circumstances, especially the nature of the company's business ... The test is flexible and fact sensitive ...
(2) Secondly, cash-flow solvency or insolvency is 'not to be ascertained by a blinkered focus on debts due at the relevant date. Such an approach will in some cases fail to see that a momentary inability to pay is only the result of temporary illiquidity. In other cases it will fail to see that an endemic shortage of working capital means that a company is on any commercial view insolvent, even though it may continue to pay its debts for the next few days, weeks, or even months."
(4) To the extent that Mr White seeks to rely on the Duomatic principle, then the burden lies upon him to prove that the company was solvent at the relevant time. In the present case, however, I see no real scope for the application of the Duomatic principle, at least in relation to the payments made for Mr White's personal benefit. Even if I equate Mr White with the holding company, on the basis that he held all of the voting shares, there is no suggestion that he ever intended to authorise payments for his personal purposes without any proper reconciliation, by way of adjustment to his director's loan account, taking place at the company's financial year end. In any event, it seems to me that, in relation to payments for Mr White's own benefit, and also for other payments not for the benefit of the company, the Duomatic principle would be of limited application because it cannot authorise an unlawful distribution of the company's assets, or any payment which is not made bona fide for the purposes of the company.
THE COMPANY'S SOLVENCY
"Please note that drawings in this period have been made in relation to preference shares redeemed by the parent company. We understand from management that these amounts represent an equivalent to the salary that would have been paid had the redemption not taken place."
THE PAYMENTS
"Following on from our conversation this morning, I can confirm the following to be the case with regards to the planned purchase of the helicopter.
Cost: 450,000 plus VAT.
Advance from Lombard: 324,400.
Deposit to be paid by Ian White: £50,000 has already been paid transacted through director's loan account.
Terms with Lombard: 5 years at £3,485 per month for 60 months followed by final payment of £170,000 in month 61. The helicopter will be held in the company's name. The monthly payment, £3,485, will obviously not have any noticeable impact on the financial status of the company."