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21 November 2017

Deeds of assignment – what claims are you really buying?

Global Corporate Limited v Dirk Stefan Hale [2017] EWHC 2277 (Ch)

Summary

A recent judgment re-iterates the importance of carefully drafting a deed of assignment when assigning claims.

In Global Corporate, the liquidators of a company assigned certain claims by way of a deed of assignment to Global Corporate Limited (the “Assignee”). The Assignee (the Applicant in this case) then brought several claims against the company’s former director and shareholder.

Two of the Assignee’s claims were dismissed because, as the High Court held, only the claims expressly set out in in the transfer documentation were transferred to the Assignee. As the other claims had not been provided for in the deed of assignment, they failed for lack of standing.

Background

Powerstation UK Ltd (the “Company”) entered liquidation in November 2015 and liquidators were appointed.

The liquidators identified various claims against a former director of the Company. The claims related to payments to the former director which, in the liquidators’ view, constituted an unlawful dividend or, in the alternative, a transaction at an undervalue.

The Assignee agreed to purchase the claims from the liquidators.  The assignment of claims was recorded in a deed of assignment dated 25 August 2016 between the liquidators and the Assignee (the “Deed”). Under the terms of the Deed, the liquidators assigned the ‘claim’. ‘Claim’ was defined as (emphasis added) “a potential debt to the company comprising alleged illegal dividends and/or transactions at an undervalue”.

The Assignee subsequently brought claims against the former director on the basis that the payments to him constituted either:

  1. unlawful dividends;
  2. a transaction at an undervalue;
  3. a preference; or
  4. misfeasance.

On the unlawful dividends claim, the judge, His Honour Judge Matthews, concluded that the Company’s articles did not allow the former director to declare provisional dividends capable of being subsequently re-categorised (which the judge found was the nature of the payments made to the former director). Therefore, whatever the payments were, they were not dividends and so could not be unlawful. This removed the Assignee’s prospects of seeking recovery of unlawful dividends pursuant to section 847 of the Companies Act 2006.

The transaction at an undervalue claim failed on the basis that sufficient consideration had been given.

On the remaining claims (misfeasance and preference), HHJ Matthews said that the Assignee did not have standing as the Deed did not mention these claims.

At para 45 HHJ Matthews said, in respect of the misfeasance claim:

‘There is some difficulty here with the applicant’s title to sue, since the deed of assignment did not on its face extend to any claim in respect of director’s misfeasance.'

At para 66 HHJ Matthews noted that, as regards the preference claim:  

‘The applicant is not an assignee of any claim of the company or the liquidators in respect of a preference...The first reference to a claim to set aside a preference that I have been able to find in the documents comes out in the application notice of 12 September 2016... But this cannot operate so as to confer on the applicant a title to sue that he otherwise would not have.’

HHJ Matthews emphasised that a preference claim could not be implied into the Deed due to the material differences between a transaction at an undervalue and a preference. If the Assignee wanted to acquire a right to bring a preference claim, the Deed should have expressly mentioned it.

At para 67 HHJ Matthews commented that:

‘A preference is not the same as a transaction at an undervalue, and neither is there necessarily an example of the former every time there is the latter. If the applicant wished to take an assignment of the claim to set aside a preference, it should have drafted the deed of 25 August 2016 so as to achieve this end.’

Finally, the court held that while the liquidators of the Company did retain the right to bring a claim to set aside a preference, they were not parties to the application and an effective order could therefore not be made.

Consequences

This case highlights the importance of thoroughly reviewing the deed of assignment where claims are being acquired.

Only those rights of action expressly mentioned in a deed of assignment will be transferred to the assignee. The court will not allow an assignee to bring an action which has not been included in the wording of the assignment. Further, the court will not imply alternative causes of action into deeds of assignment where those actions have material differences from those actually transferred.


This article was written by Aziz Abdul and Jamie Tilling. For more information please contact Aziz on +44 (0)20 7427 1024 or aziz.abdul@crsblaw.com, or Jamie on +44 (0)20 7438 2206 or jamie.tilling@crsblaw.com

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