Norton Aluminium Ltd (NAL) went into Administration following a partially successful nuisance claim against it and subsequently went into Liquidation. Mr Dickinson was the managing director and controlling shareholder and brought a claim to recover a secured loan made by him to NAL. The Liquidators counterclaimed to set aside or recover compensation for various transactions, including a share buyback from Mr Dickinson and connected parties by NAL for £2.5 million and the sale of a subsidiary to Mr Dickinson for £1.
The Liquidators alleged that Mr Dickinson breached his duties to creditors, preferred his own interests over those of NAL and that the share buyback and sale of the subsidiary were Transactions at an Undervalue under s.423 IA 1986. Alternatively the Liquidators alleged that the transactions were void as the proper approval was not obtained.
The Court found that the share buyback was void as it did not comply with s.658 Companies Act 2006. The Court also found that the transaction was at an undervalue as NAL received no consideration for its payment to buy back the shares. Any rights attached to the shares ended when the buyback took place. The Court also found that Mr Dickinson's primary intention was to reduce the asset value of NAL and to prejudice the interests of the claimants in the original litigation by ensuring that his shareholder debt had priority. The Court decided that the transaction fell within s.423 IA 1986 as a Transaction Defrauding Creditors and therefore the Court could order relief.
The Court also found that the sale of a subsidiary to Mr Dickinson for £1 was a Transaction at an Undervalue and that the transaction formed part of Mr Dickinson's scheme to move assets outside of NAL and therefore out of the reach of the original claimants.
There is no requirement to prove insolvency for a Transaction Defrauding Creditors and the Court will focus on the intention of the party at the time of the transaction. Any attempts to move assets or funds away from the reach of creditors could be reversed especially if the company subsequently enters Liquidation, regardless of whether the company was insolvent at the time or became insolvent as a result of the transaction.