If it quacks like a preference…

A company owned a property. After having ceased to trade and, on the evidence, being insolvent, the company sold the property, repaid the mortgage debt and then sent the balance of the sale proceeds to an associated company who then distributed those monies to the respondents in repayment of their loans to the company. The company then went into creditors’ voluntary liquidation.

The liquidator argued that the chain of events was a preference to both respondents. The company’s sole director, and only respondent who attended the trial, argued that he believed, at the time of the sale and advance of monies, that the debts due to the respondents were secured by way of equitable charge and therefore were due to be paid in priority to the company’s other creditors and therefore there was no preference.

This was notwithstanding that the director had issued a claim against the company, post liquidation, for a declaration that he had been granted an equitable charge by the company in respect of his loan. That claim failed, probably not helped by the fact that the director did not attend the hearing.

The Deputy ICCJ disagreed and did not find the director to be a “satisfactory witness”, flip-flopping on his position on the equitable charge during the trial. The Deputy ICCJ dispensed with that point as any charge was void due to non-registration in any event.

The Deputy ICCJ found that the director had not rebutted the presumption of an intention to prefer in respect of repaying himself and that the liquidator had demonstrated that the director intended to prefer the other unconnected respondent. For good measure, the Deputy ICCJ also found the director personally liable for the repayments as breach of duty.

Kelmanson and others v Gallagher and others [2022] EWHC 395 (Ch)

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