The Court is prepared to look at the overall nature of a directors conduct and dissect a complex series of transactions before concluding what (if any) insolvency failings have been committed by a director.
Mr and Mrs Finch were the company’s sole directors and shareholders. In 2003, the company allotted 875,000 redeemable shares to Mr Finch. These were redeemed in January 2008 and Mr Finch’s director’s loan account was credited with £875,000. On the same day as the redemption, Mr and Mrs Finch removed various properties which the company owned and credited the mortgages to the company via the director’s loan account.
When the company went into creditor’s voluntary liquidation in July 2008, the liquidators challenged:
- the allotment of shares, alleging breach of trust and/or misfeasance;
- the subsequent redemption and the removal of the properties, alleging a preference and/or unlawful distribution; and
- the retention of the properties, alleging breach of trust and/or misfeasance.
The Finches relied upon various trust documents to show that the company was merely a nominee and they in fact held legal title to the properties.
The judge held as follows:
- The trust documents were genuine.
- There had been no failure to account as regards the individual properties outside the trust.
- The company had purchased the various properties from the trust, but that had been subject to a call option in favour of the trust.
- The redemption of the shares and the removal of the properties constituted both a preference and an unlawful distribution.
- To the extent of the preference or, alternatively, the unlawful distribution, the company retained a beneficial interest in the properties.
The facts of a case (no matter how complex) will be an important factor for the courts to consider when looking at whether any insolvency offences have been committed.