Transactions at an Undervalue & Misfeasance - Funding a liquidator's claim

The Client

A company providing information technology and private equity development consultancy services.

Value of Dispute

£450,000

The Commercial Dispute

Our client (the “Claimant”) was in the business of lift installation, maintenance and repair, before entering Creditors’ Voluntary Liquidation in late 2018. 

Upon being appointed, the Liquidators were concerned that a valuable portfolio of lift maintenance contracts had been transferred by the company to another firm, (the “Defendant”), a few months prior to the liquidation. No consideration of the true value of these contacts having been paid, which is the definition of a Transaction at an Undervalue.

Further investigations revealed a complicated set of circumstances, however, the Liquidators were of the view that:

• The Claimant was insolvent at the time of the transfer of contracts
• The ‘consideration’ for the transfer entailed the director of the secondary company waiving the right to over £1m in ‘management fees’ said to be owed by the Claimant to another of the director’s companies. However, the Liquidators could find no evidence to support any such services being provided
• Therefore, the transaction did not appear to have been entered into in good faith or for the purposes of carrying on the business of the lift maintenance (the service contracts constituted the main business of the liquidated company)
• The transaction constituted a Transaction at an Undervalue in contravention of the Insolvency Act 1986.

How Escalate Resolved – Services Used

Escalate agreed to fund the Liquidators’ claims on behalf of the Claimant, including claims against:

• The former director of the lift maintenance company, for misfeasance in causing or allowing the transfer to happen in breach of his duties to the company and its creditors 
• The secondary firm, as the recipient of the transfer
• The director of the secondary firm, as the orchestrator of the transfer and having dishonestly procured the former director of the liquidated company’s misfeasance/breach of duty.

The claim was denied on all grounds by each defendant, and Court Proceedings were issued. Following the instruction of an expert forensic accountant to consider the insolvency of the lift maintenance company and the value of the maintenance contract portfolio, a settlement was agreed, which saw the director of the secondary company pay in excess of £200,000 in damages and costs to the Claimant.