Assignment void for lacking authority

Prior to entering administration, London Oil and Gas Ltd (LOG) had lent monies to Atlantic Petroleum (AP). LOG in turn borrowed monies from London Capital & Finance PLC (LCF) and owed LCF c.£122m. LPE Support Limited (LPE) also borrowed £18m from LCF.

LOG and LPE were ultimately owned by the same entities. Further, one of LOG’s ultimate beneficial owners was also a LCF director. Two of LOG’s ultimate beneficial owners were, on occasions, directors of LPE (Mr Baker and Mr Hume-Kendall).   

LOG assigned their rights against AP to LPE for £1, despite AF having drawn-down c.£1m under the loan facility. The assignment was executed by Mr Baker for LOG and Mr Hume-Kendall for LPE. The administrators could not identify a proper purpose for the assignment and applied to court to have it set-aside.

The court clarified that a director binds a company under agency law but will lack authority where their actions breach their duties. Where the other party is on notice of the breach, said party cannot rely on the director’s apparent authority to bind the company. The other party will be deemed on notice where, in the circumstances, a person acting in good faith would have queried the director’s authority. Once on notice, the other party must make enquiries of the director’s authority.

LOG’s directors did not hold a board meeting to approve the assignment. The court concluded Mr Barker breached his fiduciary duties when executing the assignment which had no commercial benefit for LOG. The court determined that Mr Hume-Kendall, materially a director of LOG and LPE, would have known the same and therefore that Mr Barker lacked authority. Mr Hume-Kendall could not rely on Mr Barker’s apparent authority. The court declared the assignment was void due to Mr Barker lacking authority. 

Re London Oil and Gas Ltd (In Liquidation) [2022] EWHC 1672 (Ch)

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