A claim brought by administrators against a director, seeking the recovery of payments alleged to be preferences or transactions at an undervalue, has been dismissed.
The Respondent (TH) was the director and CEO of a company providing legal services. When it suffered financial difficulties, TH loaned £75,000 to the company at 8% interest to assist with cashflow. TH later sought insolvency advice from a firm of insolvency practitioners (AW) who concluded that a CVA would be the best way forward.
Under the CVA terms TH was entitled to continue to be paid his salary. However he instead took repayments of the director’s loan in lieu of salary, in order to save the Company PAYE and NI. TH claimed that this was done on the advice of the CVA Supervisor, an insolvency practitioner from AW (RA). Between April 2019 and November 2019 the company made 8 payments totalling £101,000 to TH (the Payments).
In December 2019 the CVA was terminated due to the company’s failure to meet the monthly contributions under the CVA proposal. The company entered administration and RA was appointed joint administrator, along with another insolvency practitioner from AW (MK).
Unfortunately, RA died in June 2022. In October 2022, MK (now as sole administrator) sent a letter of claim to TH alleging that the Payments were preferences or transactions at an undervalue (TUV).
TH responded by saying that the Payment had been made on the specific instruction of RA. He requested copies of the relevant meeting notes, which were not forthcoming.
MK later assigned the claims to Manolete Partners plc, who issued court proceedings. The director defended the claim and appeared at trial as a litigant in person.
At trial, ICC Judge Barber found that RA had advised TH to make the Payments in lieu of his salary, to save the company PAYE and NI. She found that RA had been fully aware of the arrangement throughout the relevant period, and at no point did he suggest that TH should stop doing so and resume drawing his salary instead. The Applicant had not put forward any alternative explanation as to why TH would suddenly stop taking monthly salary and instead receive repayments of his director’s loan in sums roughly equivalent to his monthly salary, if not pursuant to the advice of RA.
The Judge criticised MK as the remaining administrator for failing to properly seek out, preserve or disclose various documents which would have been relevant to the issue of the advice which TH received. She found that he had failed to conduct proper investigations and lacked objectivity.
The Applicant had failed to prove that TH had been preferred, or that the Payments exceeded the amount owed to TH such that the reminder would be considered a TUV. TH had not received a salary during the relevant period, so in fact had been slightly worse off than he would otherwise have been, as he received slightly less in loan repayments than he would have received in net salary payments. In any event, there had been no desire to prefer him. The arrangement had been put in place to save the company PAYE and NIC.
The case is another salutary reminder that Applicants must look beyond the statutory presumptions contained in s.239 IA 1986 and instead focus on the true nature of a transaction and the reasons for it. It is also a reminder that officeholders must take proper steps to get in, preserve and disclose relevant company documents, and if they fail to do so, the absence of those documents is likely to be construed against them in any proceedings.
Manolete Partners Plc v Howarth [2025] EWHC 2294 (Ch).
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