Background
Cavendish IP Solutions Limited, a litigation funder, acquired from the liquidator of One Property Group (UK) Limited the company’s claims against On And On Consultants Limited and Neil Macpherson. It sought recovery of payments made before the company’s November 2015 creditors’ voluntary liquidation, alleging transactions at an undervalue and preferences under the Insolvency Act 1986, as well as breaches of Macpherson’s statutory duties and constructive-trust liability.
Macpherson was not formally appointed as a director. The claimant alleged, however, that he controlled the company’s financial and business affairs while Darren Bradbury served as its nominal director, and that Macpherson also controlled On And On despite his wife being its registered director and shareholder. The defendants were debarred from defending and their defences struck out after serious disclosure failures, although the court still critically assessed whether the claimant had proved its case.
The challenged payments included a corrected total of £377,165 paid to On And On and £240,607.04 paid to other entities, much of it allegedly for Macpherson’s benefit. The claimant also alleged that Macpherson’s continued operation of the insolvent company increased the deficiency suffered by creditors.
The Court’s Holding
Fancourt J found that Macpherson was both a de facto and shadow director of One Property Group throughout its existence before liquidation. He controlled its finances, directed its formal director, decided which creditors were paid and participated in all significant business decisions. The company was balance-sheet insolvent throughout the relevant period, and On And On was connected with it because of Macpherson’s directorship and control.
The court held that the Annex D payments to On And On were transactions at an undervalue except to the extent they represented reasonable remuneration for Macpherson’s services, assessed at £42,300 annually, of which £12,000 was paid directly as salary. It also held that all Annex C payments were transactions at an undervalue except a £9,200 payment made outside the statutory two-year period. That earlier payment was nevertheless made in breach of Macpherson’s statutory duty.
Macpherson’s use of company funds for his own benefit and his continued trading from at least 31 May 2012 without adequate protection for creditors were dishonest and therefore fraudulent breaches of duty. Section 21(1) of the Limitation Act 1980 defeated his limitation defence. The continued breach increased the company’s deficit by £912,126, but the court deferred the final form and amount of relief because adding that loss to repayment of the challenged transactions could produce double recovery.
Key Takeaways
- A person who controls a company’s finances, directs its registered director and makes its significant business decisions may be both a de facto and shadow director despite deliberately remaining invisible to outsiders.
- Payments to a connected company may be transactions at an undervalue where the insolvent payer receives no equivalent benefit, although reasonable remuneration for services must be deducted.
- Dishonest diversion of company funds and knowing disregard of creditor interests can constitute fraudulent breaches of duty to which the ordinary six-year limitation period does not apply.
Why It Matters
The judgment demonstrates that concealed control and informal governance will not insulate an individual from directors’ duties. Courts will examine what the individual actually did, including control over payments, employees, filings and insolvency decisions, rather than relying on formal titles.
It also highlights the need to avoid double counting when insolvency claims overlap: the same payments may support both transaction-avoidance relief and compensation for an increased deficiency, but the claimant cannot recover the same loss twice.