Summary

A judge's declaration that a breach of the Insolvency Act 1986 s.216 had occurred was premature and could pre-empt consideration of that allegation being an abuse of process at trial.

Facts

The applicant (C) applied for permission to appeal against a declaration that he had breached the Insolvency Act 1986 s.216. C's wife (W), a director of the company, cross-appealed against the striking out of parts of her cross-petition.

W and another (H) were shareholders in the company. W claimed to hold the share registered in her name in trust for her husband, C. H brought unfair prejudice proceedings under the Companies Act 1985 s.459 and named as respondents, amongst others, C and W. H made an application for summary judgment. The judge made a declaration that C had been directly or indirectly concerned with the ongoing management of the company and was therefore in breach of the prohibition imposed by s.216 of the 1986 Act. Under s.459 of the 1985 Act, W presented a cross-petition to strike out H's petition. H applied to have that cross-petition struck out. The judge found that the cross-petition could not survive the finding that C had breached s.216, and struck it out in part.

C submitted that it had been an abuse of process of the court for H to seek a declaration in relation to s.216 of the 1986 Act, as H had advanced those claims only to embarrass C. W submitted that the judge was wrong to conclude that the cross-petition was unsustainable.

Held

(1) It was wrong for the judge to make a declaration in the terms he did because (a) in making his declaration, he had pre-empted the outcome of a trial on the issue that the presentation of H's petition was an abuse of process; and (b) the declaration went further than was necessary to serve a useful and proper purpose in the proceedings. In making the declaration, the judge's objective had been to ensure that the facts he had decided in relation to the issue of whether C had acted in contravention of s.216 would not be re-litigated at trial. That objective should have been met by the judge giving a direction that the trial be conducted on the basis of the findings of fact in his judgment. (2) The cross-petition as it stood was not sustainable. The judge had been entitled to strike out certain parts of the prayer for leave as the cross-petition pleaded, among other things, a failure by H to consult C on the affairs of the company; acts which, were they to have occurred, would have been contrary to s.216(3).

Appeal allowed, cross-appeal dismissed