20th Oct 2022


Mr Ben Channer (instructed by Knights Plc) for the Applicant

I.C.C. Judge Jones:

A) The Claim in Outline

This application of Manolete Partners Plc (“MPP”) seeks relief under s.239 Insolvency Act 1986 (“s.239”) asserting that the following transactions by David Coleman & Company Limited, now in liquidation (“the Company”), were preferences:

a) Payment of £15,000 made by the Company to the 1st Respondent (Mr Coleman”) on 25 July 2019;

b) The debiting on 1 April 2019 of the 2nd Respondent’s (“Mr Thacker”) capital account to the extent that it extinguished his debt to the Company of £33,542.20.

c) Payment of £37,746.25 made by the Company to the 3rd Respondent (“FCTL”) on 26 July 2019 for the repayment of loans guaranteed by Mr Coleman and Mr Thacker.

S.239 provides that a liquidator or administrator may apply for such order as the court thinks fit to restore the position to what it would have been if the company had not given a preference. The liquidator of the Company has assigned these claims to MPP as permitted by section 246ZD (2)(d) of the Insolvency Act 1986.

The claim against FCTL has been settled on terms, as stated by counsel on instructions but having reviewed the confidential settlement agreement, that the asserted liability of Mr Coleman and Mr Thacker was not prejudiced or otherwise compromised by its terms. It is accepted, however, that credit must be given in respect of the settlement sum as and when it is paid.

The claim has proceeded against Mr Coleman, who has a witness statement setting out his defence and who attended and gave evidence at the trial. The claim has also proceeded against Mr Thacker but in the circumstance of him being debarred from relying on evidence for non-compliance with an unless order made 20 April 2022. Mr Thacker has been served with notice of the trial and with the trial bundle but has not attended.

B) Matters to be Proved

To establish a preference it is necessary for MPP to prove on the balance of probability:

a) The transaction challenged occurred at the relevant time, as defined in s.240 Insolvency Act 1986, namely:

i) In the period of 2 years ending with the onset of insolvency (including between making of an administration application and the order) if the person receiving the preference is connected (as defined in s.249 Insolvency Act 1986 to include directors) with the company other than by reason of them being an employee but otherwise 2 years is to read 6 months; and
ii) the company is at that time unable to pay its debts within the meaning of s.123 Insolvency Act 1986, or becomes unable to pay its debts within the meaning of that section in consequence of the transaction or preference, which is to be presumed subject to rebuttal if the preference is given to a connected person other than by reason of them being an employee;

b) The person to whom a preference was given is one of the company’s creditors or a surety or guarantor for any of the company’s debts or other liabilities;

c) The preference had the effect of putting that person into a position which, in the event of the company going into insolvent liquidation, will be better than the position he would have been in if that thing had not been done.

d) The company which gave the preference was influenced in deciding to give it by a desire to produce that effect, which is to be presumed subject to rebuttal if the preference is given to a connected person other than by reason of them being an employee.

Mr Channer, counsel for MPP, has considered it unnecessary to refer to authority on the basis that this is a case for which it is sufficient to refer to the statutory wording. I agree but (for reasons which will become apparent) observing with reference to the statutory wording and (amongst other decisions) the judgment of Mr Justice Millett, as he then was, in Re MC Bacon Ltd [1990] BCLC 324 that it is necessary to prove (subject to statutory presumption) a desire not just to confer a benefit on the recipient but to improve their position in an insolvent liquidation. In other words, applying a subjective test, that the Company had a positive desire to produce the effect mentioned in s.239(5), namely to improve the creditor’s position in the event of its own insolvent liquidation. If more than one person receives the preference, that desire must be determined in relation to each.

C) Grounds for the Claims

A summary of the grounds of MPP’s claim can start with the fact that MPP relies upon not only the presumption of insolvency applicable to respondents who are connected persons but also the positive evidence of Mr Bevan, a joint liquidator of the Company. He asserts that cash flow insolvency is established from September 2018 when the Company had to enter into a Controlled Goods Agreement with the debt management unit of HMRC. Whilst a time to pay agreement was reached, the Company was unable to comply with its terms and, on 6 February 2019 HMRC issued a notice of intention to re-enter the Company’s premises unless it received the sum of £25,461.59. Whilst £24,903 was paid to HMRC on 14 June 2019, it in fact remained a creditor and/or there were other creditors whose debts due and owing were still unpaid after that date and until the Company’s liquidation. The Company was wound up compulsorily on 19 December 2019 upon a petition presented on 22 October 2019 for a sum of only £3,942.36 demanded on 4 May 2018.

MPP’s case is that the payments challenged were all within the relevant period as a result of Mr Coleman and Mr Thacker being connected persons. It is MPP’s case that although that does not apply to FCTL, Mr Coleman and Mr Thacker were personal guarantors of the debt repaid to it and, therefore, the 2 year period equally applies. MPP also relies upon the presumption of the required desire in respect of each claim.

Continue reading this judgment here.


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