Darty Holdings SAS v Carton-Kelly (As Additional Liquidator of Cgl Realisations Limited)

Factual and Procedural Background

The appeal concerns whether the repayment by Company A of £115.4 million of unsecured intra-group debt to Company B on the disposal of Company A to entities controlled by a private equity firm constituted a preference under section 239 of the Insolvency Act 1986. The repayment was pursuant to a sale and purchase agreement (SPA) dated 9 November 2011 and was formally approved by Company A's board on 3 February 2012, the day the transaction completed. Company A entered administration on 2 November 2012, later converted to creditors' voluntary liquidation in October 2013.

Company B, succeeded by another entity, brought the appeal with permission granted by the trial judge. The case arose from Company A's financial difficulties, including significant losses and a troubled defined benefit pension scheme, leading its parent company to seek disposal options. The SPA involved a complex three-tier purchaser structure and detailed provisions for repayment of intra-group loans. The new board of Company A was appointed immediately prior to completion and approved the repayment and related transactions.

Legal Issues Presented

1. Whether the repayment of the intra-group debt by Company A to Company B constituted a preference within the meaning of section 239 of the Insolvency Act 1986.
2. When the relevant decision to repay the debt was made by Company A for the purposes of section 239.
3. Whether the decision to repay was influenced by a desire to prefer Company B.

Arguments of the Parties

Appellant's Arguments

• The decision to repay the debt was made by Company A's board at the meeting on 3 February 2012, not earlier.
• There was no evidence that Company A had made any decision to repay the debt at the time of the SPA in November 2011.
• The SPA did not bind Company A to repay the debt; it required future decisions by Company A's board.
• The SPA contained provisions allowing termination if Company A did not fulfill obligations, contradicting the notion of a pre-existing decision.
• The new board actively considered alternative financing before approving the repayment, indicating an independent decision.
• The judge's finding that an operative decision was made in November 2011 was unsupported by evidence.
• Even if a decision had been made by a director of Company A, it was not communicated or authorised by the board.
• The decision on 3 February 2012 was a genuine, binary decision that could have been refused.

Respondent's Arguments

• The substantive decision to repay the debt was made on or around 9 November 2011 by a director acting on behalf of Company A.
• The SPA was prescriptive about Company A's required actions and did not contemplate refusal by Company A's board.
• The new board's approval was a formal, necessary step to implement a decision already taken.
• The director acted both as a director of Company A and as counsel for the parent group, with no perceived conflict of interest.
• The new board’s hands were effectively tied by the time of the February 2012 meeting.
• The decision was influenced by a desire to prefer Company B, satisfying the requirements of section 239.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed the timing and nature of the decision to repay the intra-group debt for preference purposes under section 239. The trial judge found that Company A was insolvent immediately before the disposal and that the repayment constituted a preference influenced by a desire to prefer Company B. She identified that the substantive decision was made on or around 9 November 2011 by a director acting on behalf of Company A, despite Company A not being a party to the SPA and the formal board approval occurring later on 3 February 2012. The judge relied on the commercial realities, the prescriptive terms of the SPA, and the director's dual role within the group to infer that the old board was content to leave the decision to him and that the new board's approval was a formality with "tied hands".

On appeal, the court emphasised the strict standards for appellate interference with factual findings and inferences, acknowledging that the trial judge was entitled to draw inferences from incomplete evidence. However, the appellate court found that the evidence did not support the conclusion that the decision to repay was made by Company A before the board meeting on 3 February 2012. The SPA did not bind Company A directly, and the new board actively considered financing options, indicating a genuine decision-making process. The conditional nature of the SPA obligations and the existence of termination rights contradicted the notion of a pre-existing operative decision. Furthermore, there was no evidence that the director had authority to make such a decision on behalf of Company A or that any such decision was communicated or ratified.

The court concluded that the only operative decision was that of the new board on 3 February 2012, which was not influenced by a desire to prefer. Consequently, the repayment did not constitute a preference under section 239.

Holding and Implications

ALLOWING THE APPEAL

The court held that the decision to repay the intra-group debt was made by Company A's board at the meeting on 3 February 2012, not earlier, and that this decision was not influenced by a desire to prefer Company B. Therefore, the repayment did not amount to a preference under section 239 of the Insolvency Act 1986. The appeal was allowed, overturning the trial judge's finding of preference.

The direct effect is that the repayment stands and is not subject to reversal as a preference. No new precedent was established beyond clarifying the application of timing and decision-making principles in preference claims under the Insolvency Act. The judgment underscores the importance of clear evidence in establishing when a company has made a substantive decision for preference analysis and affirms appellate restraint in overturning factual inferences absent compelling reasons.