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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Bucci v Carman (Liquidator of Casa Estates (UK) Limited) [2014] EWCA Civ 383 (03 April 2014) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2014/383.html Cite as: [2014] EWCA Civ 383 |
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION, COMPANIES COURT
MR JUSTICE WARREN
CH/2013/0072
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE McFARLANE
and
LORD JUSTICE LEWISON
____________________
JOANNE MARIE BUCCI |
Appellant |
|
- and - |
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RUSSELL JOHN CARMAN (Liquidator of Casa Estates (UK) Limited) |
Respondent |
____________________
Mr Hermann Boeddinghaus & Mr Alexander Cook (instructed by Geldards LLP) for the Respondent
Hearing dates : 12 and 13 March 2014
____________________
Crown Copyright ©
Lord Justice Lewison:
The issue
The legislation
"… if it is proved to the satisfaction of the court that the company is unable to pay its debts as they fall due."
"A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities."
HH Judge Purle QC's judgment
"The Company did not operate a client account. As a result, it processed many millions of pounds that passed through its accounts and treated them as its own."
"As a result of the sudden collapse of the property market in Dubai, which post-dated the September 2008 collapse of Lehman Brothers by over two months, Casa Dubai failed and [Casa UK's] substantial liabilities to its customers crystallised, without the possibility of recovering any of those liabilities from Casa Dubai, or outstanding commissions. However, until that point, [Casa UK's] liabilities to customers were effectively contingent upon the failure of Casa Dubai or the developers."
"Business was increasing, and there was no likelihood of [Casa UK] being called upon to refund the customer deposits."
The judgment of Warren J
i) The test that HH Judge Purle QC applied, namely the "point of no return" test, had been shown by the Supreme Court's decision in Eurosail not to be the right test: see [36], [66] (iii) and [122].
ii) Thus the question for Warren J was whether, applying the right test, he was in a position to decide whether Casa UK was unable to pay its debts: see [66] (iii).
iii) In reaching his conclusion on cash-flow solvency HH Judge Purle QC had not dealt with some of the important evidence. In particular (a) there were at least four creditors who had expressed concern about the non-transfer of their deposits to the developer; (b) there was a table of creditors which showed an increase in the amount of aged creditors, thus indicating that debts were accruing and not being paid; (c) Mr Bucci had himself stated that there were 34 clients exposed to losses of over £488,000 for goods and services that had not been supplied, and that that list of clients had been compiled by collating complaints from investors who had said that their funds had not been properly invested: see [107] to [110].
iv) HH Judge Purle QC had also not considered how it was that debts continued to be paid. In Warren J's view the continued payment of debts was only possible because new deposits from investors were used to pay old debts: see [48], [62] and [117].
v) There was no material on which it could be said that, if no significant value was attributed to the GUL loan, Casa UK would ever be able to meet its liabilities, including contingent liabilities. Those liabilities included directors' loans, but they could not be excluded. Casa UK was balance sheet insolvent as at 31 March 2007 and thereafter: see [118] to [120].
"It could not be suggested that, had the Company stopped trading on any particular date after 31 March 2007, that it would have been able to meet all of its liabilities: its balance sheet shows (valuing the GUL loan at nil) an excess of liabilities over assets. It would not then have been able to pay its debts as they fell due. Its ability to do so depended on having sufficient cash flow which in turn depended on receiving further deposits and/or instalment payments. However, the further income received by the Company would have given rise to a further immediate debt, or one due in a very few days, so that, in my view, it could not be said that the Company was able to pay its debts as they fell due. The new monies received would not, properly, have been available to pay the old debts at all."
The main arguments
Eurosail
i) The tests of insolvency in section 123 (1) (e) and 123 (2) were not intended to make a significant change in the law as it existed before the Insolvency Act 1986: para [37].
ii) The cash-flow test looks to the future as well as to the present: para [25]. The future in question is the reasonably near future; and what is the reasonably near future will depend on all the circumstances, especially the nature of the company's business: para [37]. The test is flexible and fact-sensitive: para [34].
iii) The cash-flow test and the balance sheet test stand side by side: para [35]. The balance sheet test, especially when applied to contingent and prospective liabilities is not a mechanical test: para [30]. The express reference to assets and liabilities is a practical recognition that once the court has to move beyond the reasonably near future any attempt to apply a cash-flow test will become completely speculative and a comparison of present assets with present and future liabilities (discounted for contingencies and deferment) becomes the only sensible test: para [37].
iv) But it is very far from an exact test: para [37]. Whether the balance sheet test is satisfied depends on the available evidence as to the circumstances of the particular case: para [38]. It requires the court to make a judgment whether it has been established that, looking at the company's assets and making proper allowance for its prospective and contingent liabilities, it cannot reasonably be expected to meet those liabilities. If so, it will be deemed insolvent even though it is currently able to pay its debts as they fall due: para [42].
i) Cash-flow solvency or insolvency is not to be ascertained by a blinkered focus on debts due at the relevant date. Such an approach will in some cases fail to see that a momentary inability to pay is only the result of temporary illiquidity. In other cases it will fail to see that an endemic shortage of working capital means that a company is on any commercial view insolvent, even though it may continue to pay its debts for the next few days, weeks, or even months: para [51].
ii) Even if a company is not cash-flow insolvent, the alternative balance-sheet test will afford a petitioner for winding up a convenient alternative means of proof of a deemed insolvency: para [57].
Discussion
Cash-flow solvency
"The fact that the Company made its other payment obligations on time does not rebut the presumption that the company intended to prefer Mrs Bucci. On a cash-flow basis the Company was regularly receiving substantial sums of money but those monies belonged to investors: they were not sums that the Company was entitled to use to discharge its own liabilities. They should therefore be ignored when calculating whether or not the Company was cash-flow insolvent. If they are left in then its is unsurprising that the Company was able to meet cash-flow obligations at those points, through the misuse of investors' money."
Balance sheet solvency
"The result of the Dubai crash is that [Casa UK's] liabilities towards depositors, which would but for the crash have been dealt with in the ordinary course of business, have come to fruition, without any possibility of recoupment from Casa Dubai, which seems to have evaporated."
The presumption
Result
Lord Justice McFarlane:
Lord Justice Sullivan: