The court may determine issues of disputed ownership raised in defence to an application for the delivery up of property to which a company is entitled under section 234 of the Insolvency Act 1986.
The court has considered the scope of the provision in Kendall and another v Ball and another [2024] EWHC 746 (Ch); [2024] PLSCS 63.
The applicants were administrators of Sherwood Oak Holdings Ltd and its wholly owned subsidiary Sherwood Oak Homes Ltd. The principal trading activity of the companies was the development of land south of Clipstone Road in Mansfield. Phase 1, owned by Sherwood Oak Homes, was the site of 30 completed homes. Phase 2 was owned by Sherwood Oak Holdings and had planning permission for 313 homes. Timothy Ball was a director of both companies and sole shareholder in Sherwood Oak Holdings. Carol Ball, his wife, had been a past director of Sherwood Oak Homes.
The case concerned a small piece of land acquired by the respondents from Mansfield District Council in May 2023 for just under £157,000 with funds provided by Sherwood Oak Homes. The land comprised a bus stop which formed an access route between the development site and the highway and was intended to be dedicated as a highway.
The administrators argued that the land was either held on resulting trust for Sherwood Oak Homes, which provided the purchase price, or on constructive trust for both companies because it was acquired by the respondents in breach of their statutory duties as directors under the Companies Act 2006.
The respondents argued that the funds used to buy the land had been lent to Sherwood Oak Holdings by Timothy Ball and that the administrators’ claims were defeated by an express declaration of trust in the transfer from the council that they held the land as tenants in common.
The judge concluded from the evidence that the parties clearly intended that the respondents would acquire and own the land rather than the companies, so the claim for a resulting trust failed. Although the purchase price was paid by Sherwood Oak Homes, it was not paid in the character of a purchaser.
However, the land was a valuable, integral part of the development project. The respondents were bound to protect the companies’ interests and to act in their best interests. Instead, they put themselves in a position where their interests and those of the companies were in sharp conflict.
The court imposed a constructive trust. The beneficial interest in the land vested in the companies on transfer, and so the declaration of trust in the form TR1 was ineffective: Princess Tessy of Luxembourg v Prince Louis of Luxembourg [2018] EWFC 23; [2019] 1 FLR 1203 considered.
Louise Clark is a property law consultant and mediator
