Group restructure held to be lawful

This claim concerned a restructure of The Hospital Medical Group Limited which completed in November 2012. At the time of the restructure, the company was facing claims following the PIP breast implant scandal. A new structure was created with the business and assets (which included a hospital building) transferred out into separate companies following which there remained an intercompany debt due to the company. A dividend was also declared.

Four years later, the company entered administration, principally because of a backdated VAT assessment on cosmetic procedures, together with a substantial liability arising from the PIP litigation after one of its competitors (and a lead defendant in the PIP litigation) collapsed.

The claimant took an assignment of claims from the company’s liquidators and alleged the restructure was a transaction defrauding creditors, an unlawful return of capital and an informal winding up. It pursued claims against two directors for fraudulent breach of duty and against a consultant project manager (the former finance director) who it claimed acted as de facto director. It also alleged a claim in negligence against the company’s solicitors, and against the bank, the consultant, and solicitors in dishonest assistance. An unusual feature of this case was that the claimant provided no witnesses of fact and relied on the available records and evidence obtained during the proceedings. None of the parties called the company’s former accountants as witnesses. The claims also extended to the bank, who had provided consent to the restructure by virtue of the fact it had security over the assets.

All of the claims failed:

  1. The court did not accept the restructure was for the purpose of putting assets beyond the reach of creditors. In any case, after considering the evidence of the experts, there was no undervalue and the company was neither insolvent, nor became insolvent as a result of the restructure.
  2. The third defendant did not act as a “de facto” director. He may have liaised with other professional advisors, but he was not the decision maker, played no part in the corporate governance systems and did not assume or hold himself out as having the status or function of a director.
  3. The negligence claim against the solicitors failed. In particular, it was not within the scope of duty of the solicitors to check the company was receiving sufficient value for its assets and whether a distribution proposed by the accountants would be lawful.
  4. Even if the restructure had been unlawful, none of the defendants had acted dishonestly, and as such no claim in dishonest assistance would have arisen in any event, including against the bank.

The trial judge also considered that the conduct of the claimant was unreasonable to such a degree that it merited an order for indemnity costs, with an interim payment of those costs ordered at 70%. There were several factors which led Mr Justice Richard Smith to reach this conclusion:

  • In his view, the claimant had taken an approach which involved placing its own interpretation (often strained) on a handful of incomplete documents or complete documents not placed in their proper context which led it to then sidestep or ignore other important parts of the much larger record which ran counter to its case.
  • The claimant had positively courted publicity through the media to increase pressure on the defendants.
  • The claimant significantly overstated the value of its claim by doubling counting the value of the property and the business, even though both reflected the same earnings stream. The trial judge considered the claimant’s expert had not considered that issue fully because he had been instructed to add the value of the property to his calculations. That resulted in a significant overvalue and gave rise to unrealistic figures being bandied about which had a chilling effect on settlement prospects. 
  • He also considered that the claim was only brought in the form it had been (with allegations of dishonest assistance) because the solicitors and the bank were the only parties with the means to meet any judgment.

Mills & Reeve acted for the third defendant.

Henderson & Jones v David Jason Ross (and others) [2023] EWHC 1276
Henderson & Jones v David Jason Ross (and others) [2023] EWHC 1585 (costs)

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