09 February 2021
Business turnaround – claims by liquidator’s assignee successfully resolved
Commercial and insolvency lawyers in the firm’s Dispute Resolution group were instructed by a former director over alleged misfeasance claims seeking the return of some £2.5m following the liquidation of a leading furniture brand.
The multi-party claim, later assigned to a commercial funder, made substantial allegations of preference and transactions at undervalue, as well as unjust enrichment, unlawful capital distributions, and breach of trust. The claims concerned events dating back several years, with the lion’s share of the issues hinging on questions over the historic solvency status of businesses backed by large balance sheet debt, the rationale for assets being sold, and the validity of fixed and floating security granted by debenture against the backdrop of investment lending.
In particular, argument addressed the circumstances in which section 245 IA 1986 can invalidate floating security, the appropriateness of consideration needed to grant security on future and previously unsecured lending, and the extent to which rights of subrogation exist and impliedly transfer from rights held by a previous lender.
With a complex factual nexus and a long history, a string of corporate relationships involved, and substantial costs shortly to be incurred through to trial, the parties agreed to mediate. After an extended period of negotiation, aggregable terms of a commercial settlement were reached by all parties to bring the matter to close.
Whatever the circumstances of this particular dispute, these sorts of claims serve to highlight the importance for investors wanting to secure their interests, particularly those looking at distressed business opportunities as many may well be doing in present climate, doing so properly and on an informed basis. The fundamental point is that although an investment approach is (most often) geared to turn around a business through new strategy and funding, time can move very quickly and the best of commercial intentions can paint a somewhat different story through the looking-glass of hindsight held later down the line by officeholders.