The recent case of F Options Ltd v Prestwood Properties Ltd
concerned the setting aside of a transaction as a preference under
section 239 of the Insolvency Act 1986.
A preference arises when a company's creditor is put in a
better position than they would otherwise have been in the event of
the company's insolvency. Transactions may be a preference
whether or not the parties are connected, but where it can be shown
that there is a connection within section 249 of the Insolvency Act
1986, two important advantages are gained:
the need to demonstrate that the transaction was intended to
put that party in a better position on the company's
insolvency falls away as there is a presumption that this was the
the period in which a transaction may be caught extends from
six months prior to liquidation to two years.
As transactions which are found to be preferences can be set
aside by the administrator, it is in the unsecured creditors'
interests to ensure any such transactions are indeed set aside to
increase the pot of funds available for distribution to the
unsecured creditors. Landlords of insolvent tenants may therefore
wish to consider whether their position can be improved by
encouraging the administrator to challenge any transactions of
which they are aware and take advantage of the presumption in
respect of connected person, including any potential de facto
In this case, F Options Ltd (F Options) received a partial VAT
repayment in 2006 following a claim that VAT had been overpaid.
These funds were the company's sole asset and were transferred
to Prestwood Properties Ltd (Prestwood) and Mr Saunders personally.
When F Options was dissolved in 2007, it had outstanding VAT
liabilities and the joint liquidators applied for the payments to
be set aside as preferences.
Mr Saunders, although not a director of either company, was alleged
to be a connected person and therefore to be subject to both the
presumption and longer period in respect of which transactions
could be set aside. Mr Saunders had resigned as a director of F
Options in 2003 and had never been a director of Prestwood but Mr
Charles Hollander QC considered the nature of Mr Saunders'
relationship with the companies, concluding that he was a de facto
or shadow director of each.
The factors considered relevant to this assessment included, in
the case of F Options, that the person named as the replacement
director on Mr Saunders' resignation lived in Australia and had
nothing to do with the running of the company. In contrast, Mr
Saunders had signed Companies House and HMRC forms as a director
and represented to third parties in correspondence that he was a
director for the period after his resignation to the company's
winding up in 2007. These actions were held to be sufficient to
find that Mr Saunders was a de facto director of F Options.
In the case of Prestwood, the sole director of the company was
Mr Saunders' aunt. The company's only asset, however, was a
house in which Mr Saunders lived and Mr Saunders had guaranteed the
mortgage over the property. In respect of Prestwood, Mr Saunders
was therefore held to be the controller or real owner of the
company and a shadow director.
The result of these findings was that the transactions were set
aside as a preference and Mr Saunders and Prestwood were ordered to
repay the money with interest.
When faced with an insolvent tenant (or other insolvent
creditor) landlords may wish to consider whether the actions of any
party other than those directors listed at Companies House should
be reviewed. De facto and shadow directors may not be immediately
visible but thought should be given to any information which
point to the involvement of other people or companies in the
running of the insolvent company. An exercise as simple as
confirming who has signed documents which are publically available
at Companies House or reviewing correspondence against the dates
between which relevant directors were in post may lead to
potentially useful lines of inquiry.
F Options Ltd sub nom (1) Ian Mark Defty (2) David Ingram v (1)
Prestwood Properties Ltd (2) John Gerrard Saunders  EWHC 3325
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.
A commentary on the UK Supreme Court judgment in the joined cases of Rubin and another v Eurofinance SA and others and New Cap Reinsurance Corporation (in liquidation) and another v A E Grant and others  UKSC 46, which has been anxiously awaited by the UK's restructuring and insolvency community.
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