Introduction

The case of Darty Holdings SAS v Carton-Kelly ([2023] EWCA Civ 1135) addresses a pivotal question in insolvency law: whether the repayment of £115.4 million of unsecured intra-group debt by Comet Group plc ("Comet") to Kesa International Ltd ("KIL") constitutes a preference under section 239 of the Insolvency Act 1986. This repayment occurred during the disposal of Comet to entities controlled by OpCapita, leading to Comet's administration and subsequent liquidation. The liquidator sought to have the repayment set aside as a preferential transaction, challenging the initial decision by Falk J at the High Court, which had found in favor of categorizing the repayment as a preference.

The primary issue revolves around determining the timing and nature of the decision to repay the debt and whether it was influenced by a desire to prefer KIL over other creditors. The parties involved include Darty Holdings SAS (successor to KIL), Comet Group plc, and OpCapita, among others.

Summary of the Judgment

The Court of Appeal overturned Falk J's decision, allowing the appeal brought by Darty Holdings SAS. The appellate court concluded that the High Court judge had incorrectly inferred that the operative decision to repay the KIL RCF (£115.4 million) was made on or before the signing of the Sale and Purchase Agreement (SPA) on 9 November 2011. Instead, the court held that the operative decision was indeed made on 3 February 2012 by the newly constituted board of Comet, which was not influenced by a desire to prefer KIL. Consequently, the repayment did not amount to a preference under section 239 of the Insolvency Act 1986.

Analysis

Precedents Cited

The judgment extensively references precedents to delineate the boundaries of what constitutes a preference under insolvency law. Notably:

• Benmax v Austin Motor Co Ltd [1955]: Discussed the extent to which appellate courts can reevaluate factual findings made by trial judges.
• Re Stealth Construction Ltd [2011]: Emphasized that determining the timing of a decision is fact-dependent.
• Wills v Corfe Joinery Ltd [1997]: Highlighted that the operative decision takes into account the context and timing of debt repayments.
• Re Drabble Bothers [1930]: Illustrated the importance of identifying the actual decision-maker in preference cases.
• Additional references include cases like FAGE UK Ltd v Chobani (UK) Ltd [2014] and MC Bacon Ltd [1990], which further explore the nuances of preference and the decision-making process within corporate structures.

These precedents collectively informed the appellate court's approach to evaluating the timing and substance of Comet's decision to repay KIL.

Legal Reasoning

The court's reasoning centered on discerning when Comet made an "operative decision" to repay the KIL RCF. The High Court had inferred that this decision was made at the time of signing the SPA in November 2011, influenced by Mr. Enoch's dual role as Comet's director and Kesa's General Counsel. However, the Court of Appeal found this inference unsupported by concrete evidence.

Key points in the appellate reasoning include:

• The SPA’s formal approval and execution on 3 February 2012 by the new Comet board, which was not influenced by a desire to prefer KIL.
• The lack of direct evidence indicating that the decision to repay was made prior to this board meeting.
• The appellate court emphasized the necessity of clear evidence when inferring the influence behind a corporate decision, especially in the absence of explicit documentation.
• The court criticized the High Court judge for overreaching in inferentially determining the timing of the decision without sufficient evidence.

Ultimately, the appellate court held that the operative decision occurred during the 3 February 2012 board meeting, thereby nullifying the High Court's categorization of the repayment as a preferential transaction.

Impact

This judgment has significant implications for insolvency practitioners and corporate directors:

• Reaffirmation of Fact-Based Decision Timing: Emphasizes that the timing of decisions regarding debt repayments must be substantiated with clear evidence, preventing premature or unsupported inferences.
• Clarification on 'Operative Decision': Provides a more precise understanding of when an operative decision is made within corporate transactions, particularly in contexts involving potential insolvency.
• Guarding Against Improper Preferences: Reinforces the sanctity of the pari passu principle by ensuring that preferential repayments are only set aside when there is concrete evidence of malintent.
• Guidance for Future Cases: Serves as a precedent for future litigation involving allegations of preferential transactions, especially in assessing the roles and influences of key decision-makers.

Complex Concepts Simplified

Preference under Insolvency Law

Preference refers to a situation where a debtor company, on the brink of insolvency, repays or provides more favorable terms to a particular creditor over others. Under section 239 of the Insolvency Act 1986, such preferences can be challenged and set aside to ensure a fair and equal distribution (pari passu) among all unsecured creditors.

Operative Decision

An operative decision is the actual, substantive decision-making act that leads to a transaction or action. In the context of insolvency preferences, determining when an operative decision was made is crucial to establishing whether a preference occurred and whether it was influenced by an intent to favor a specific creditor.

Section 239 of the Insolvency Act 1986

Section 239 provides that any preference given by the company within a two-year period before insolvency can be challenged and reversed. The act aims to prevent the erosion of the insolvent estate and to ensure that all creditors are treated equally.

Conclusion

The appellate decision in Darty Holdings SAS v Carton-Kelly underscores the judiciary's commitment to fair insolvency practices by meticulously scrutinizing the timing and intention behind debt repayments. By overturning the High Court's inference, the Court of Appeal reinforced the necessity for concrete evidence in attributing preferential intent, thereby safeguarding the pari passu principle. This judgment serves as a critical guide for corporate directors and insolvency practitioners, emphasizing the importance of transparent and well-documented decision-making processes to prevent inadvertent preference allegations. As insolvency scenarios become increasingly complex, such clear judicial interpretations are invaluable in navigating the intricate interplay between corporate obligations and creditor rights.