15 August 2012
appeared in Company Secretary's Review, 1 Aug
Re Algrave Ltd and 726 other companies Cohen and another
v Safe Solutions International Ltd and another
A payment made from insolvent
companies was a voidable preference within the meaning of section
239 of the Insolvency Act 1986 ("IA"). By allowing the payment, the
de facto director of the companies had been guilty of misfeasance
within the meaning of section 212 of IA.
The joint administrators of Algrave Limited
made an application against Safe Solutions International Ltd (S)
for a declaration that the sums (£75,000, £250,000 and £50,000)
received by S from various companies (C) in November 2007, January
2008 and 9 June 2008 were voidable preferences. A declaration was
also sought against Mr Hill (H) that he acted in breach of his
fiduciary duties for allowing the payments to be made by C.
H was de jure director of Safe Business
Services Ltd (SB) and S. SB was the only de jure director of C. H
was de facto director C. S provided administrative services to C
pursuant to a management agreement. The management agreement
entitled S to "an amount (the "Bank Administration Charge")
equivalent to all interest from time to time arising in respect of
the bank account(s) from time to time administered by SSIL [S]
for the company". The schedule to that agreement provided
that the "Bank Administration Charges shall be due to SSIL [S]
from the moment any interest accrues on the relevant account(s) and
such interest shall be deemed to belong to SSIL [S] from
C were placed into administration on 29
September 2008. The Court held that C were insolvent by the time C
made the first payment to S in November 2007. Specifically, C owed
HMRC a total of £4.4 million in respect of unpaid VAT.
S lent another company named Safe Solutions
Investments Limited the £375,000. The loan was paid out of an
account in S's name which had held funds on trust for C.
The Court rejected the applicants' argument
that because S was entitled to an amount "equivalent to interest"
rather than "all interest" the money belonged to C if only for a
'scintilla' of time. S was entitled to interest on the account as
soon as it was credited to it. There was no beneficial ownership of
the interest by C.
However, the Court held that the balance
(£174,898.71) did constitute a preference in favour of S at a time
when C were insolvent. Even if S was owed professional fees, there
could be no operation of set off to prevent the payments being
preferences (applying Manson v Smith  2.B.C.L.C
250). Accordingly, and in the absence of any evidence that H acted
honestly and reasonably, the Court declared that H had acted in
breach of his duty to C by allowing the payment to be made to S.
The Court emphasised that H's duty was to protect the interests of
the creditors generally (applying West Mercia Safety
wear Limited (in liquidation) v Dodd 
Khoury, Senior Associate in the Dispute Resolution
Group at Field Fisher