Search

How can we help?

Icon

Pre-winding up settlement with director set aside

For a short time, Officeserve Technologies Limited (OTL) made a big impact in the ‘lunch at work’ market.  Its director and majority shareholder,  CAM, oversaw a rapid expansion to an estimated value of £40 million.  However, OTL was unable to pay the instalments due on two businesses it had acquired and in October 2016 was served with a winding-up petition. 

CAM was removed as a director and in December 2016 he entered into a settlement agreement with OTL, which included CAM giving up his shares in the company.  It was hoped that this would allow OTL to reach a settlement with its creditors.  That wasn’t possible and OTL was wound up in February 2017.

Notwithstanding the settlement agreement, OTL’s liquidators sought declarations against CAM that he had misapplied company money and that payments to him were void under section 127 Insolvency Act 1986.  They sought an order that he repay to OTL more than £500k.

Section 127 provides that dispositions of company property between presentation of a winding-up petition and a winding-up order are void.  The Court had to consider (1) whether the settlement agreement precluded such a claim being brought and (2) whether the giving up of a cause of action is a disposition of property within the meaning of s127.

CAM lost on both counts.   The Court noted that in the settlement agreement CAM gave up all claims as an employee and director.  In contrast, OTL only gave up claims against CAM as an employee.  Accordingly, the liquidators remained free to bring claims against him in his capacity as director.

 

They sought an order that he repay to OTL more than £500k.

The Court went on to find that the settlement would have been void under s127 in any event.  Although the settlement was not obviously a transfer of property, the intention behind s127 is to prevent the reduction in the value of the company’s assets as a whole, including causes of action.

The Court was invited by CAM to validate the settlement agreement under s127.  It declined to do so.  The Court was entitled to judge this issue with the benefit of hindsight.  Had the settlement allowed the company to be saved, it may well have been in OTL’s interests.  However, as this wasn’t possible, it became a bad deal from OTL’s creditors’ perspective and should be set aside.

This case is significant because it is the first reported decision of whether the settling of claims against a director in the context of an employment settlement agreement is a disposition of property and void in the context of winding-up.  Accordingly, it is a helpful reminder of the width of s127 and the care a company should take before entering into any transaction once a winding up petition has been served.

About this article

Disclaimer
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

About this article

Read, listen and watch our latest insights

Pub
  • 19 May 2025
  • Corporate and M&A

Thinking of exiting your business? Part 2

In the second instalment of our three-part series, join Stuart Mullins from Clarkslegal and Nicky Goringe Larkin from Succession Planning as they discuss the complexities surrounding business financing, accounting practices, and valuation strategies, along with key insights into private equity.

Pub
  • 16 May 2025
  • Employment

London Seminar – Understanding the Employment Rights Bill: Legal changes and what they mean for HR

We are pleased to invite you to an in-person seminar at our London office on Tuesday 24th June, hosted by our Employment Law team. Join Monica Atwal, Managing Partner; Katie Glendinning, Partner; and Amanda Glover, Associate, as they unpack the legal implications of the new Employment Rights Bill and what it means for your organisation.

Pub
  • 16 May 2025
  • Employment

Reading Seminar – Understanding the Employment Rights Bill: Legal changes and what they mean for HR

We are pleased to invite you to an in-person seminar at our Reading office Tuesday 17th June hosted by our Employment Law team. Join Monica Atwal, Managing Partner, Katie Glendinning, Partner and Amanda Glover, Associate, will unpack the legal implications of the new Employment Rights Bill and what it means for your organisation.

art
  • 15 May 2025
  • Immigration

The 2025 Immigration White Paper: A Turning Point in UK Immigration Policy

On 12 May 2025, the UK Government unveiled its White Paper titled “Restoring Control Over the Immigration System”, outlining the most substantial proposed changes to immigration law since the post-Brexit overhaul.

Pub
  • 15 May 2025
  • Employment

TUPE Podcast Series – Information and Consultation Obligations

In this ninth episode of our TUPE Podcast Series, Katie Glendinning, a Partner in the employment team, will examine the information and consultation obligations under TUPE.

art
  • 15 May 2025
  • Privacy and Data Protection

Ashley v HMRC – The High Court clarifies the scope of Data Subject Access Requests

DSARs are very rarely the subject of litigation, and they are even rarer in the High Court, so the case of Ashley v HMRC is a valuable decision for both data subjects and data controllers.