Case-law Digest

COMPANY & INSOLVENCY

Directors’ duties and the interests of creditors
Fox v Bishop
Companies Court, Ch D, 13 July 2015

The directors of an insolvent company made payments to a connected company and various selected creditors. They were all found to have breached Companies Act (CA) 2006 s172 because they had failed to consider the interests of the company’s creditors as a whole.

Comment: Many (small) companies are run informally, often not in strict accordance with company law rules. Indeed, company law has developed rules which recognise that informality is not necessarily problematic where the company is solvent and the interests of the shareholders and creditors are not harmed or put at risk.

This case illustrates that very different considerations apply where companies are insolvent or insolvency is imminent: the interests of the creditors become paramount, and directors should seek advice on how they can best protect all of the company’s creditors.

Restoration to the register
ELB Securities Ltd v Love and Prestwick Hotels Ltd [2015] CSIH 67

When a company was dissolved and struck off the register of companies, the rights it enjoyed under a lease became bona vacantia and were subsequently disclaimed by the Crown. The status of the disclaimer was at issue when the company was later restored to the register. Under CA 2006 s1032, the effect of restoration is that ‘the company is deemed to have continued in existence as if it had not been dissolved or struck off the register’ .

Lady Paton, delivering the court’s opinion, said that section 1032 provided a general approach which should give way to the specific provisions dealing with the company’s property. The disclaimer was unaffected: on restoration, the company no longer had the benefits of the lease.

Comment: The court’s decision is now a leading authority. The decision is eminently sensible for important practical reasons. Indeed, Lady Paton was alert to the fact that if the disclaimer were deemed not to have occurred, uncertainty and confusion would be the result.

Pooling of company assets
Huelin-Renouf Shipping (Guernsey) Ltd Royal Court, Guernsey, 46/2015

Deputy Bailiff McMahon held that it was open to him to grant an application by liquidators to transfer the assets and liabilities of a Guernsey company in liquidation into the insolvent estate of a Jersey company. The purpose was to consolidate the assets and liabilities of the two companies, the affairs of which were heavily interwoven, and to pay the creditors from the pooled assets.

Comment: Winding up companies often raises many difficulties, and these are magnified where operations cross jurisdictions. This case illustrates a practical approach to the issues raised, driven by achieving the best outcome for the creditors, in an area where English authority is sparse.

CRIMINAL

Prosecution time limits and animal welfare
Letherbarrow v Warwickshire County Council [2014] EWHC 4820 (Admin)

A defendant was prosecuted under Animal Welfare Act (AWA) 2006 s31 relating to animal husbandry practices. A number of the informations were challenged on the basis that it was alleged that some of them had been laid out of time. Following conviction, an appeal by way of case stated was dismissed by the Queen’s Bench Division on the basis that the AWA provided for an extension of the time limits for prosecutions well beyond the usual six months set out in the Magistrates’ Courts Act 1980.

EMPLOYMENT

Appeals and Acas guidance
Adeshina v St George’s University Hospitals NHS Foundation Trust [2015] IRLR 704

The Advisory, Conciliation and Arbitration Service Code of practice on disciplinary and grievance procedures recommends that an appeal ‘should be dealt with … wherever possible, by a manager who has not previously been involved in the case’ (para 27). In addition, Discipline and grievances at work: the Acas guide recommends that employers should ‘wherever possible provide for the appeal to be heard by someone senior in authority to the person who took the disciplinary decision’ (page 34). However, these guidelines need to be applied in a flexible and pragmatic way.

In Adeshina, the Employment Appeal Tribunal (EAT) concluded that an appeal process which did not comply with the Acas principles was not unfair. To decide otherwise would, on the facts, be ‘both unrealistic and undesirable’ (para 42 of the EAT judgment).

School closure with prior consultation
E Ivor Hughes Educational Foundation v Morris and others [2015] IRLR 696

This case concerned a school closure without any prior consultation with employee representatives. The governors met and decided to close the school unless numbers for the next academic year improved rapidly. An employment tribunal (ET) ruled that this triggered the collective consultation obligation, which is a statutory duty to consult where an employer is ‘proposing to dismiss as redundant’ 20 or more employees, because it amounted in law to a ‘proposal’ (paras 4 and 19 of the EAT judgment). Furthermore, there were no ‘special circumstances’ that rendered it ‘impracticable to consult’ (para 52).

The EAT agreed. It also upheld the ET’s decision to make the maximum protective award despite the fact that the employees in question suffered no actual loss as a result of the failure to consult.

EUROPE

Compensation for cancelled or delayed flights
van der Lans v Koninklijke Luchtvaart Maatschappij NV C-257 /14, 17 September 2015

Regulation (EC) No 261/2004 contains rules on the compensation and assistance airlines should provide to passengers who were denied boarding, or where a flight was cancelled or delayed. Compensation was not payable where cancellation was caused by extraordinary circumstances that could not have been avoided if all reasonable measures were taken. At issue were the circumstances in which technical diÿculties , including the need to replace defective components, would be extraordinary.

The court held that circumstances would be extraordinary only where they were not inherent in the ordinary exercise of the activity of the air carrier. Examples included damage caused by sabotage or terrorism, or problems highlighted by aircraft manufacturers or aviation authorities.

Comment: This is another decision from the court making plain what some carriers are reluctant to accept, ie, cancellation for technical reasons is not alone suÿcient to deny the payment of compensation. Indeed, as the court reiterated, only a very narrow class of technical problems are likely to amount to extraordinary circumstances.

TAXATION

Tax avoidance and the purposive construction of ‘income’
Huitson v HM Revenue and Customs [2015] UKFTT 448 (TC)

HM Revenue and Customs contended that the taxpayer was a partner in an Isle of Man partnership under Income Tax (Trading and Other Income) Act 2005 s858(4). The taxpayer argued that section 858(4) did not apply because it referred to the entitlement to a share in the ‘income’ of a firm, whereas he was entitled to a share of the ‘profits’ (para 10). The tribunal held that ‘income’ should be interpreted as meaning a share in the profits and not a share in the partnership’s income or gross receipts (para 81).

Comment: Although a decision of the First-tier Tribunal, the case is significant because of the clarification it provides with regard to the meaning of ‘income’ in respect of these anti-avoidance provisions. The decision illustrates a very strong purposive approach to construction as well as the significance of context in determining the meaning of ‘income’ .

PROBATE

Post-death variation
Vaughan-Jones and Griffiths v Vaughan-Jones and others [2015] EWHC 1086 (Ch)

Varying a will can reduce or negate inheritance tax (IHT). In this case, a post-death variation which did not include a statement that the parties were claiming retrospective tax treatment for IHT purposes was still rectified because it did not achieve what the parties had intended. However, there was suÿcient evidence of their intentions to order rectification.