After the English company Styles & Wood Group had gone into liquidation, the liquidators discovered that the company might have claims against its directors. When it assigned those claims to a third party, the directors challenged this in the High Court.
The background
Styles & Wood Group (or ‘SWG’) entered liquidation in July 2020. In March 2023, the liquidators discovered that SWG might have claims against the company’s directors, and in June 2023 the liquidators assigned these claims to a third party, Knaresborough Investments Limited (or ‘KIL’). KIL had already taken an assignment of SWG’s parent company’s claims against both SWG and the directors in relation to the same matters. Together, these claims represented a significant potential return for the liquidation that had otherwise only made realisations of just over £10,000.
The directors applied for an order setting aside the assignment. Their main complaint was that the claims should have been offered on the open market, and to the directors themselves, in order to obtain a better offer. They also argued that the liquidators did not properly consider the claims before assigning them, as they had not taken legal advice on the merits.
The decision
The court first had to consider whether the directors were “persons aggrieved” and so had standing to bring the application to challenge the assignment. The court extensively reviewed previous decisions on similar challenges and held that to have standing, a creditor must show that they have been adversely affected by the relevant act in their capacity as a creditor. The directors claimed to be contingent creditors of SWG, but the court agreed with the liquidators that the directors’ real purpose was to “disrupt and if possible, defeat” the claims for their own personal benefit. They did not therefore have standing.
On the challenge itself, the court confirmed that it will only intervene to set aside the liquidators’ actings if the liquidators’ decision was objectively “perverse” and “so utterly unreasonable and absurd that no reasonable man” properly advised would have made it (Edennote Limited (1996)). This is a very high bar to reach, and the court was satisfied that the directors had not done so. There was no evidence that the directors were prepared to make a better offer than KIL if the claims were marketed. The liquidators did not have the resources to pay for advice on the claim’s merits, or to undertake significant investigations. They were justified in concluding that the claims were not obviously hopeless, but that it would have been very difficult to proceed any further without assigning them.
Conclusion
This decision will be widely welcomed by office-holders. It confirms that the courts will not entertain challenges to the assignation of claims lightly – especially where the challenge is designed to defeat the claims themselves rather than to protect creditors’ interests.
If you would like to have a further discussion about any of these issues, or other insolvency-related matters, please contact our Commercial Disputes and Restructuring and Business Advisory teams or your usual Shepherd and Wedderburn contact.
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