The case of Kendall & Anor v Ball & Anor (Re Sherwood Oak Homes Ltd – Sherwood Oak Holdings Ltd) addresses important issues of trust law, director duties, and insolvency practice.

This case is significant for insolvency practitioners as it addresses critical issues relating to the recovery of company assets, director duties, and the scope of powers available during insolvency proceedings.

Litigation finance, funding arrangements and insurance allow insolvency practitioners to pursue claims on behalf of their clients whilst reducing financial risks. At Annecto Legal, we can assist clients by helping them secure funding and insurance for insolvency cases.

Kendall & Anor v Ball & Anor (Re Sherwood Oak Homes Ltd Sherwood Oak Holdings Ltd)

The case Kendall & Anor v Ball & Anor (Re Sherwood Oak Homes Ltd – Sherwood Oak Holdings Ltd) [2024] EWHC 746 (Ch) involves the administrators of two companies, Sherwood Oak Homes Ltd and Sherwood Oak Holdings Ltd, seeking a declaration that land bought by the companies was held on trust for them, and an order for its transfer.

The land, purchased for £156,500 in May 2023 from Mansfield District Council, was transferred to Mr. and Mrs. Ball. Mr. Ball, a director of both companies and the sole shareholder of Holdings, used his own funds to buy the land, though this money was previously lent to Holdings. Mrs. Ball had a brief role as a director of Homes but was not involved in day-to-day operations.

The land was initially intended for transfer to Holdings but was never transferred. The administrators argued that the land was held on trust for the companies because the Ball’s actions breached their director duties under the Companies Act 2006, which require directors to act in the company’s best interests and avoid conflicts of interest.

Mr. Ball claimed that due to funding issues, he bought the land personally with the intention of later selling it to Holdings. The judge ruled that the land was not held on resulting trust for Homes, as the purchase did not meet the requirements for such a trust. However, the judge decided the land was held on constructive trust for the companies, as the Ball’s acquisition of the land created a conflict of interest and was not in the companies’ best interests.

The case also clarified the application of s 234 and para 63 of Schedule B1 of the Insolvency Act 1986. The respondents argued that the claims couldn’t be made under these provisions, but the judge found that these provisions could be used for obtaining property or resolving disputes if fair, even in cases where ownership is contested. The judge rejected the respondents’ objections and upheld the administrators’ approach.

Finally, the respondents sought relief under s 1157 of the Companies Act 2006, claiming they had relied on legal advice and intended to resell the land to Holdings. The judge refused this relief, noting that the respondents had breached their duties as directors, creating a conflict of interest that harmed the companies’ creditors, and no relief should be given at their expense.

Why is this case important for insolvency practitioners?

The case of Kendall & Anor v Ball & Anor (Re Sherwood Oak Homes – Sherlock Oak Holdings Ltd) is important for insolvency practitioners for a variety of reasons.

The case highlights the potential for insolvency practitioners to rely on the principles of constructive trust in situations where directors have breached their fiduciary duties, particularly under sections 172 and 175 of the Companies Act 2006. Insolvency practitioners should be aware that when assets are wrongfully acquired by directors, they may be held on constructive trust for the company.

The judgment emphasises that directors who place themselves in a position of conflict between their interests and those of the company could be held accountable. Insolvency practitioners can draw from this case when investigating directors’ conduct, especially in situations where directors may have acted in their own interests at the expense of the company’s creditors.

Insolvency litigation funding options

Litigation funding, the assignment of claims and/or ATE insurance can play a pivotal role in assisting insolvency practitioners (IPs) in meeting their obligations. Insolvency practitioners involved in insolvency litigation can make use of the following methods:

After-the-event (ATE) legal insurance – ATE insurance is generally used to protect from adverse costs risks & Security for Costs requirements. After-the-event (ATE) legal expenses insurance is perhaps best thought as a similar to a ‘swap’. For either no upfront fee or a small upfront fee, the insurer takes on all of the risk of the potential adverse costs award.

The claimant has swapped their obligation to pay the defendants in the event of a loss, with the obligation to pay the insurer in the event of a win. This ‘swap’ is generally an attractive swap as the client is likely to be in a better financial position following a win than following a loss. Also, the payment to the insurer will only be a percentage of the adverse costs rather than the whole amount.

Third party litigation funding – In some cases, third party litigation funders may be willing to provide funding for a claim in exchange for a share of any financial settlement or damages awarded. This option can be attractive when there are no funds to pursue a strong case. ATE insurance is often used in conjunction with this type of funding.

Assignment of litigation – Some types of disputes can be assigned to a third party, usually for an upfront payment and a share of recoveries (after costs). This model can be useful on smaller cases when the ATE and CFA model would not deliver value. But giving up control can sometimes be costly, especially on larger claim disputes.

How can Annecto Legal assist?

When handling insolvency matters, insolvency practitioners are obligated to explore all options available in such cases. At Annecto Legal, we assist a wide range of clients in finding the appropriate insolvency litigation funding, assignment options and after-the-event (ATE) insurance.

Annecto Legal regularly assists licensed insolvency practitioners who are involved in dealing with insolvency and constructive trust matters. If you are in the process of bringing or defending an insolvency dispute and want to find out whether we can assist in helping you fulfil your obligations and secure the right deal, then contact Annecto Legal now.