Ian Donal Parker v Dominique Masson & Ors

This is an application for permission to bring a derivative claim under the 2006 Companies Act. It arises in the following circumstances. Mr Parker, the Claimant, was a shareholder and director along with Mr Masson and Mr Bennett, the First and Second Respondents to the application, of a company Cordial 4 Limited. The point of the company was to exploit property opportunities in Southampton.

Mr Parker says that it was agreed that certain opportunities for the company to invest in property in Southampton and that contrary to the arrangements the three individuals in relation to the company Mr Masson and Mr Bennett diverted opportunities which belonged to the company for their own benefit.

There is no question that the underlying fact that is to say that some property deals which were going to be done by Cordial 4 Limited ultimately were done by a different company, Cordial 4 Development Limited. The significance of the difference between Cordial 4 Limited and Cordial 4 Development Limited is that Mr Parker is not a shareholder or director of Cordial 4 Development Limited. That is the origin, the core of it, of Mr Parker’s complaint. Mr Parker says that the property opportunities were worth something of the order of £2,500,000.

Mr Masson and Mr Bennett hotly dispute Mr Parker’s claims. Essentially their defence is that the real agreement between them and Mr Parker was that Mr Parker would contribute an equal amount of money to the deals as themselves and that he refused to do so and that was the origin of why in the end the relationship between Mr Parker and Mr Masson and Mr Bennett fell apart frankly. They content that they have not committed any breach of directors duties which they owe to Cordial 4 Limited and there is nothing in Mr Parker’s claims.

As I say this is an action for permission to bring a derivative claim. Mr Parker brought the application for permission in order to bring the claim against his former colleagues. Mr Parker I think was a director at one stage but ceased to be a director at a relatively early stage as the dispute began to brew.

The claim which Mr Parker seeks to bring is a claim for breach of directors duties by Mr Masson and Mr Bennett on the basis that they owed fiduciary duties to the company, which of course they will have done, and Mr Parker says it was a breach of those fiduciary duties to divert the property opportunity for their own benefit into Cordial 4 Developments Limited.

The next step in the chronology is that Mr Parker brought the application for permission to bring the derivative claim against the First and Second Respondents. After the application for permission to bring the derivative claim had been brought the company Cordial 4 Limited was put into insolvent liquidation. It is insolvent and has no funds.

At an earlier stage it did hold some assets which was freeholds in other properties related to the same property deals which Mr Parker, Mr Masson and Mr Bennett were dealing with but those final assets were transferred out of the company according to Mr Masson and Mr Bennett they were transferred out in return for certain debts which the company was said to owe the First and Second Respondents.

Mr Parker says that those debts did not exist, at least not in that form or to that extent, and therefore the transfer of those final freeholds which was for no actual transfer of any funds, was another aspect of the breaches by Mr Masson and Mr Bennett and I gave permission at a previous hearing for an amendment to the particulars of claim to include those allegations.

At the previous hearing when it first came before me Mr Masson and Mr Bennett set out the existence of the liquidation as a reason to refuse to permission. Now, by that stage the company was in insolvent liquidation and liquidators had been appointed. At a late stage the liquidator came to court and was represented by Mr Hammond. Mr Parker’s case before me previously was that the liquidator was essentially a cipher for the First and Second Respondents.

On that occasion as I said I allowed the amendment to the particulars of claim but I adjourned the hearing in order to give the liquidator the opportunity to file evidence to explain her position. She has done so and now all three parties appear in front of me. I have counsel for Mr Parker, counsel for Mr Masson and Mr Bennett and counsel for the liquidator.

In the witness statement from the liquidator she explains her position. She is an experienced insolvency practitioner independent of the First and Second Respondents and mindful of her duties. She has explained she wishes to investigate and will take action if she finds reason to do so. She does not want to elaborate in detail on the position in relation to claims in case that prejudices them.

There are solicitors, Freeths, involved who are prepared to act on what is called a recoveries basis which I understand to mean that that is without expecting any money up front for their work.

Counsel for the liquidator referred, I do not think this was in the witness statement, but on instructions he referred to the possibility of litigation funders coming in. He makes the point that if the claim is worth £2,500,000 and has a reasonable prospect of success one might expect a litigation funder to be interested and be prepared to fund such a claim.

The liquidator contends that I should not give permission to bring the derivative claim because that will conflict with the liquidator’s duties. It could for example lead to a settlement of the claim between the three former directors which would prejudice the interests of the other creditors. I should say that not the only creditors but two of the creditors are Mr Masson and Mr Bennett, although as I say Mr Parker denies that they are, or at least that they are to the extent they claim to be.

Although it is fair to say that the liquidator’s witness statement only mentions by name the possibility of bringing proceedings against Mr Parker himself, counsel confirmed on instructions that the liquidator recognises her duties include investigations relative to the behaviour of Mr Masson and Mr Bennett and how they conducted themselves and that if evidence emerges what she has explained to the Court shows that she is prepared to bring proceedings against them if need be.

Counsel for Mr Masson and Mr Bennett’s position first is to make clear that his clients deny the merits of Mr Parker’s claim. He recognises that to some extent the dispute I have to resolve is really between the liquidator and Mr Parker but he contends on behalf of his clients that the liquidator is the right person to investigate these matters from his clients’ point of view and that is because the liquidator is a person who is independent both of Mr Parker and of course of the First and Second Respondents.

In terms of the law I have had cited a number of cases to me including Fargro v Godfroy [1986] 3 All ER 279, Cinematic Finance v Ryder [2010] EWHC 3387 (Ch), Core VCT or Re Fakhry v Pagden it is the same case, [2019] EWHC 540 (Ch) and a report of a case Montgold v Ilska which was a decision on 16 October 2018.

In very brief terms Fargro was a decision of Walton J given before the current statutory regime for derivative claims in the 2006 Companies Act was passed. In Cinematic Finance v Ryder Roth J makes clear in my judgment that at least that derivative claims where an office holder like a liquidator has been appointed would be highly unusual but it is fair to say in my judgment he does leave open that possibility.

Core VCT is another case which indicates a clear steer against the idea for giving permission for a derivative claim when an office holder like a liquidator has been appointed but it is important to note that Core VCT is on very different facts and that the decision of the judge there what was actually dealing with was the question of removal of the liquidator.

Now, as far as Montgold v Ilska is concerned all I have is a summary of the case and it is not clear exactly what authorities were cited in that case or exactly what the position was in those proceedings because the researches of counsel have not been able to produce the judgment.

Mr Hammond for the liquidator submitted that what these authorities amount to overall is that the Court should not give permission to bring this derivative claim. Counsel for Mr Parker contends that although the law clearly shows that permission for a derivative claim in circumstances where office holders have been appointed like this is, I will put it at its lowest, unusual he submits that I should give permission in these circumstances. For one reason the liquidation itself is all part of a scheme by Mr Masson and Mr Bennett to avoid their liability to Mr Parker and to the company.

Counsel, Mr Marsden, for Mr Parker points out the liquidator has no funds and he contends there is no prospect of a claim being brought by the liquidator or by the company controlled by the liquidator against Mr Masson or Mr Bennett, or at least no prospect of such a claim being pursued.

I will take the law to be that it is at least open to the Court to give permission in these circumstances. The particular circumstances that I am highlighting when I say that are ones in which the liquidation itself occurred after the application for the derivative claim permission was brought and in which at least part of the allegation is that the liquidation itself was part of the directors against whom the claim is sought to be brought’s scheme to avoid scrutiny and a situation in which the company is without funds and is also insolvent.

Essentially, the reason to give permission would be that if I thought that there was a real concern that the liquidator would not be performing his or her functions properly. I am not satisfied about that. On the contrary, in my judgment the evidence is that I have before me an experienced liquidator who understands her duties and is willing to investigate matters as she should. The fact that she has been appointed by the First and Second Respondents does not alter the fact that the liquidator is an independent office holder and whose duty is to the Court.

As Mr Hammond says, if there is a good claim worth something of the order of £2,500,000 then it seems to me there is every chance that the liquidator could obtain some sort of funding of some kind or have the claim brought one way or another.

Mr Parker’s fears that the investigation into the conduct will be stifled in my judgment while I understand he is concerned about that, I do not believe there is strong evidence for that and importantly Mr Parker has a remedy under section 112 of the Insolvency Act to come to court and seek directions if he is concerned that the liquidator has not carried out her duties properly.

I also bear in mind in my judgment critically that the liquidator has duties to the creditors. Their interests now come first and they come ahead of the interests of a shareholder like Mr Parker or for that matter Mr Masson and Mr Bennett. I will assume for this purpose that all the other discretionary factors in relation to giving permission were in Mr Parker’s favour but despite all that in my judgment the right thing to do in these circumstances is not to give permission for a derivative claim to be brought, it is to allow the liquidator to carry out her duties and that is what I will do. That is my decision.