Re Finch UK Plc; Henry v Finch

Corporate insolvency – preferences – s.239 Insolvency Act 1986 – Re Duomatic

The liquidators of Finch UK Plc brought claims against Mr and Mrs Finch, the directors and shareholders. Finch UK Plc’s business was property ownership and development. As part of a so-called ‘commercial arrangement’ Mr Finch arranged for properties to be sold to Finch UK Plc by trusts of which he and his family were the beneficiaries. The equity value of the properties was credited to his director’s loan account and was the consideration for the sale.

Finch UK Plc also issued £850,000 in preference shares to Mr Finch. The consideration for these was a debit to Mr Finch’s loan account. While the shares were redeemable on one month’s notice, accounts signed in January 2008 recorded that Mr Finch agreed not to redeem the shares until January 2009. In fact the shares were converted to be redeemable on demand, and Mr Finch demanded their redemption. Finch UK Plc redeemed the shares by crediting £850,000 to Mr Finch’s loan account and then transferred back to him the properties subject to the ‘commercial arrangements’.

The court held that by demanding the redemption of the shares Mr Finch became a creditor of Finch UK Plc and that by procuring the retransfer of the properties he improved his position at the expense of the general creditors. The other requirements of section 239 of the Insolvency Act 1986 were also satisfied.

Further the court held that Mr Finch could not rely on the principle in Re Duomatic [1969] 2 Ch 365 to cure the failure to redeem the shares in accordance with the Companies Act 2006. That principle has no application where the company in question is insolvent or creditors are at risk.

This case illustrates the flexibility of an application under s.239. It is also the latest in a line of cases (see also Re Idessa (UK) [2011] EWHC 804 (Ch) and Goldtrail Travel v Aydin [2014] EWHC 1587(Ch)) to make clear that the principle of informal consent by all the shareholders (i.e. the Duomatic principle) cannot apply when the company in question is insolvent.