Corporate Personality and the Registered Company

awarding compensation than under fraudulent trading and they went on to
cite a number of creative methods.138
It has recently become clear that the courts will not take a position that
allows debenture holders first and foremost to benefit from compensation
orders and that, instead, they will hold that proceedings for compensation
under s 214 are analogous to actions by liquidators under s 239 of the
Insolvency Act 1986 to set aside transactions which constitute a fraudulent
preference.139 The issue was considered at length by the Court of Appeal, in
Re Oasis Merchandising Services Ltd,140 a case which actually concerned a
different issue, namely, whether a liquidator could sell the ‘fruits’ of a s 214
application to a third party, who otherwise had no interest in the outcome of
the proceedings, in return for financial support to fund the proceedings. In
English law, such maintenance of a party to proceedings in consideration for a
share of the fruits of the action constitutes a champertous agreement and,
although it no longer gives rise to criminal or tortious liability, it nevertheless
makes the contract contrary to public policy and, therefore, void.
Nevertheless, this agreement could be enforceable, since there is ample
authority to support the proposition that a liquidator’s statutory power to sell
company property, including a cause of action, necessarily precludes any
question of champerty.141
Thus, the central question then arose whether the compensation derived
under a s 214 application was ‘property of a company’. In order to answer this
question, Peter Gibson LJ drew attention to the distinction between property
of the company at the time of the commencement of the liquidation and assets
which only arise after the commencement of the liquidation of the company
and which are recoverable only by the liquidator, pursuant to statutory
powers conferred on him. The former could include rights or causes of action
which might have been pursued by the company prior to the liquidation, such
as breaches of contract or claims against directors for misfeasance. These can
be pursued by the liquidator on behalf of the company or under s 212 of the
Insolvency Act 1986. The fruits of these actions would plainly be property
which was caught by the debenture holders’ charges. Such a cause of action
could be sold or assigned to a third party under the statutory powers of the
liquidator without a challenge on the grounds of champerty. The latter
category would not be ‘property of the company’ and, therefore, would not be
subject to the debenture but, by the same token, an agreement of the sort
entered into in this case would not enjoy the protection from a champerty
challenge. The Court of Appeal therefore upheld the order of Robert Walker J
staying the s 214 action.

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