The Fatcs

A gift card retailer entered creditors’ voluntary liquidation with an estimated deficiency of £2.8 million. The liquidators subsequently sought declarations that various categories of payments made to the wife of the sole director and shareholder of the company, who was employed as its book keeper, constituted transactions at an undervalue. Mrs Lawson claimed that the payments, which were made to a joint bank account in her and Mr Lawson’s name, were made to discharge expense claims.

The Decision

  • In principle a remuneration package can be so far in excess of the commercial value of the services provided by an employee that it amounts to a transaction at an undervalue. Such an assessment must be made by taking into account the whole of the value of the package and the whole of the value of the services, however, and the Judge did not have clear evidence as to the value of Mrs Lawson’s work for the company. The liquidators’ claims that salary and motor expenses were transactions at an undervalue were therefore dismissed.
  • With regard to various lump sum and rent payments, they were transactions at an undervalue, as there was insufficient evidence to support their legitimacy. Without a full picture of such payments, there was a risk (enhanced by Mr Lawson’s evasive answers upon cross-examination) that they were used to extract cash from the company and such unexplained payments were to be regarded as gifts.

Comment

The payment of expenses by the company prior to the appointment of liquidators is a problem often encountered by insolvency practitioners and the case provides useful confirmation that, in principle, excessive remuneration packages can be challenged. It also highlights the importance of thorough investigation of company records and the importance of evidence in claims of reviewable transactions.

Re Kiss Cards Ltd [2016] EWHC 2176 (Ch)