Preference Developments

Author:Mr Nicholas Pike
Profession:Lawrence Graham LLP

Timothy Brown (as Liquidator of Cityspan Limited) v Nicholas Clark

Unreported - 4 April 2007

Cityspan Limited ("Cityspan") carried on a business as the owner and operator of public houses. Cityspan purchased two public houses which were funded in part by a bank loan and in part by a loan from one of its directors, Mr Clark. Cityspan was unable to operate the public houses at a profit and they were therefore sold. The net proceeds of sale represented the remaining assets of the company and were held in the client account of Cityspan's solicitors. In April 2000, Cityspan's directors instructed its solicitors to make two payments to Mr Clark's personal account totalling £28,000. In May 2000, the directors instructed Cityspan's solicitors to make a payment to another director, Mr Dean in the sum of £5,000. The payments to the directors were made by way of repayment of lending to Cityspan by the directors. Cityspan entered into creditors' voluntary liquidation on 24 July 2000. The liquidator subsequently commenced proceedings against Mr Clark for declarations that the payments to Mr Clark constituted preferences contrary to section 239 of the Insolvency Act 1986 ("the Act") and that Mr Clark acted in breach of his fiduciary duty to Cityspan by causing it to make the transfers to the directors.

Mr Clark accepted that the payments made to him personally constituted unlawful preferences contrary to section 239 of the Act. However, Mr Clark defended the claim arguing that the liquidator had agreed at an initial meeting with him to accept £5,000 in full and final settlement of all of the liquidator's claims against Mr Clark and that he had made part payment of that sum to the liquidator.

Mr Philip Sales QC (sitting as a deputy judge of the High Court) rejected Mr Clark's defence as there was no evidence that the liquidator had reached any agreement with Mr Clark to accept the sum of £5,000 in full and final settlement of his claims against Mr Clark. The discussions between the liquidator and Mr Clark at the initial meeting were simply exploratory conversations and there was evidence that the liquidator pursued Mr Clark for the full amount of the claim on numerous occasions following the initial meeting. The payments which Mr Clark had made to the liquidator related to the liquidator's fees in connection with the preparation of the statement of affairs. Mr Clark was therefore ordered to pay the sum of £28,000 plus interest to the liquidator of...

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