Idessa (UK) Ltd, Re

Factual and Procedural Background

This opinion concerns a trial of an action initiated by Ordinary Application originally dated 19 November 2009 and subsequently amended. The First Applicant, acting as liquidator of Company A (In Liquidation), brought claims against two Respondents: one alleged to be a de facto director and the other a statutory director of Company A during specified periods. The Applicants seek relief under three main heads: breaches of fiduciary duties (misfeasance), transactions at an undervalue, and wrongful trading under the Insolvency Act 1986.

Company A was incorporated in 2002 and was compulsorily wound up by the Court in November 2007 following a petition. The First Applicant was appointed liquidator shortly thereafter. Company A operated in the electronic electoral tools sector. Prior to liquidation, it was balance sheet insolvent, with significant debts and liabilities exceeding assets. The case involved consideration of related entities, including several US incorporated companies connected to the Respondents.

The trial included evidence from the liquidator and both Respondents, with submissions made orally and in writing. The Court assessed the credibility and reliability of witnesses, noting particular concerns about one Respondent's evidence. The Applicants alleged that payments were made or authorised by the Respondents in breach of fiduciary duties, including improper salary payments and failure to account for tax liabilities.

Legal Issues Presented

1. Whether the Respondents breached their fiduciary duties to Company A by authorising or making improper payments, recoverable under section 212 of the Insolvency Act 1986.
2. Whether certain payments constituted transactions at an undervalue under sections 238 and/or 423 of the Insolvency Act 1986.
3. Whether the Respondents are liable for wrongful trading under section 214 of the Insolvency Act 1986, having known or ought to have known that Company A had no reasonable prospect of avoiding insolvent liquidation by certain dates.
4. Whether one Respondent was properly to be regarded as a de facto director of Company A, thereby owing fiduciary duties subject to the claims.
5. The appropriate quantum and concurrency of remedies under sections 212 and 214 of the Insolvency Act 1986.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court carefully examined the factual matrix, documentary evidence, and witness testimony to determine the nature and propriety of payments made by Company A to the Respondents and others. It found Company A was at all relevant times balance sheet insolvent and that the Respondents owed fiduciary duties as directors, including the alleged de facto director.

The Court applied the principle that once the liquidator proves payments were made, the evidential burden shifts to the Respondents to justify those payments. The Respondents failed to provide satisfactory explanations for many payments, including substantial sums paid as salaries, unexplained round sum payments, and credit card expenditures that appeared personal rather than bona fide company expenses.

The Court rejected the Respondents’ contention that the AVS Contract and related payments belonged to a separate US entity, finding instead that the commercial benefit and burden of this contract rested with Company A. The Court found that the scheme to channel payments through US entities was a device to avoid proper tax accounting and that the Respondents failed to account for PAYE and National Insurance contributions, thereby breaching their duties.

Regarding wrongful trading, the Court found that by no later than 30 June 2005, the Respondents knew or ought to have known that Company A had no reasonable prospect of avoiding insolvent liquidation, particularly after the loss of the AVS Contract and cessation of external investment. The Respondents failed to take every step to minimise loss to creditors, continuing to incur expenses and pay salaries as before.

The Court analysed the concurrency of remedies, confirming that recoveries under misfeasance claims prior to 30 June 2005 are distinct from wrongful trading claims, but that misfeasance recoveries after that date reduce wrongful trading liability to avoid double recovery. The Court used established case law to guide the quantification of damages and contributions.

The Court found the evidence of one Respondent lacking in credibility and accepted the liquidator’s evidence as generally truthful despite some limitations. It also noted the Respondents’ failure to produce relevant documents or fully cooperate with disclosure obligations, which hindered a complete factual picture.

Holding and Implications

The Court’s final decision is as follows:

The Respondents are jointly and severally liable to repay or compensate Company A a total sum of £1,438,513.23, comprising £340,411.09 in respect of misfeasance claims and £1,098,102.14 in respect of wrongful trading, including the tax liability claim. Of this, £7,000 is a liability of one Respondent alone. The Court ordered repayment of specific sums found to be improperly paid, including unauthorised salaries, unexplained payments, credit card expenditures, and payments to third parties not for company benefit.

The Court directed that the judgment be referred to the Secretary of State for Business, Innovation and Skills for consideration of disqualification proceedings under the Company Directors Disqualification Act 1986.

No broader legal precedent was established beyond confirmation and application of existing principles concerning directors’ fiduciary duties, misfeasance, transactions at undervalue, and wrongful trading. The decision primarily affects the parties by imposing financial liability and potential disqualification on the Respondents.