The High Court was not convinced of the merits of the claims and found other flaws in the shareholder’s claim, including the lack of creditor protection in the event of an adverse costs order. pronounced against the company or the directors.
- The onus was on the claimant to demonstrate that the claims can be properly pursued.
- The plaintiff has not demonstrated unfair prejudice on the part of the directors.
- Re L & ND Development & Design Ltd (in administration) [2020] EWHC 2803 (Ch)
Lynda Louise Dixon was the sole shareholder of the real estate development company L & ND Development & Design Ltd (in administration). In 2016 and 2017, the company entered into various facility and financing agreements with the same lender for the purpose of building real estate developments on the land it owned.
The company needed additional financing to complete the development, but was unable to negotiate additional financing with the lender. Ultimately, a notice of default was served on the company and the lender, as the qualifying floating charge holder, appointed directors in August 2018. The directors were subsequently appointed as receivers of property owned by the company as well. Dixon, in a possession proceeding against her.
Dixon claimed the lender breached the terms of the facility by delaying the advance of debt tranches under the facility, which ultimately led the company to delay payments to contractors on the development and caused losses. and damage to society. She also claimed that a third facility deal with the lender was made under intimidation and economic duress.
Dixon asked the trustees to assign the debt to him and offered to pay £ 2,000 in return, but that request was denied. Dixon subsequently sought a court order requiring the directors to assign the cause of action to him, relying on the provisions of subsection 74 (1) (a) of Schedule B1 to the Act. insolvency of 1986 (IA86). Section 74 (1) (a) of Schedule B1 IA86 provides for such claims if the claimant can show that the directors acted “unfairly to prejudice the interests of the claimant” in deciding not to assign the debt to them.
The court was to determine whether the directors should award the causes of action for the claim to Dixon. The court decided that the onus was on the shareholder to demonstrate that the directors’ refusal to assign the receivables to him was unfairly prejudicial to his interests, which required the shareholder to establish a real prospect of success. The court therefore also had to examine the merits of the two claims.
The court ruled that the cause of action for damages for the lender’s late advances was lacking in reality. Dixon had not argued that the lender’s delay violated the facility agreement and lacked evidence to support his claim. The court also ruled that the economic duress claim would not succeed because it was already established in the property proceedings that there was no economic duress and Dixon could not seek to re-argue this. point. Ultimately, the court rejected the shareholder’s claim.
The court also ruled that the assignment of the receivables to the shareholder would not be in the best interests of the company’s creditors. The £ 2,000 offered for the assignment of the claims to the directors was found to be insufficient and the court also found that there was no protection in place in the event of an adverse costs order against the company or its directors.
This ruling demonstrates the challenges that corporate directors or shareholders face when challenging a rational and well-informed decision made by directors, and the court’s reluctance to assign directors’ claims to plaintiffs. The onus is ultimately on the plaintiff to demonstrate that the directors have caused unfair harm and that the cause of action can be properly pursued.
Laura Labunet is a restructuring expert at Pinsent Masons, the law firm behind Out-Law.
