In brief
- The High Court has granted a 'double-barrelled' order (i) restoring a dissolved company to the register; and (ii) immediately winding it up, in the context of a 20-year trade mark dispute between easyGroup and the Hanley family over UK and EU 'EASIRENT' marks.
- easyGroup's standing as petitioner was based on an assignment to it of a debt. The assignment was valid as an equitable assignment and therefore easyGroup had standing as a contingent creditor, even though it was not a creditor when the company was dissolved.
- Even though it was likely easyGroup had an ulterior motive to restore the company, i.e., to obtain the 'EASIRENT' marks, the petition was not an abuse of process because there was also a legitimate purpose for the benefit of the creditors as a whole (albeit this was not the principal purpose).
- There were legitimate grounds to investigate the company's alleged transfer of the EASIRENT marks to a connected company just weeks before administration, given there was no consideration for that transfer and restructuring advisers were already involved.
Background
Since 2000, there has been substantial litigation between easyGroup and the Hanley family concerning registered EU and UK trade marks for 'EASIRENT' in class 39 for car hire. The ownership of the marks has shifted through various corporate entities owned by the Hanleys over the years.
ER Travel Services Limited (the Company) was incorporated in May 2009 and adopted the 'EASIRENT' mark during its trading life. In February 2020, the Company's directors appointed administrators, and the assets of the business were sold to another company owned by the Hanleys, Easy Capital Limited, by way of a pre pack sale (the Pre Pack Sale). The Company was subsequently dissolved in June 2022.
In August 2024 easyGroup presented a winding up petition against the dissolved Company, seeking a 'double-barrelled' order to: (i) restore the Company to the register under section 1029 Companies Act 2006 (CA2006); and (ii) immediately wind it up. The petition was founded on easyGroup's status as creditor, derived from an assignment of a debt of £175,286 from a prior Company creditor to easyGroup in July 2024 (easyGroup provided consideration of £30,000 for the assignment of the debt).
Mr Hanley was joined to the petition as a contributory (a person liable to contribute to the assets of a company during its winding up) and shareholder of the Company. He raised three grounds of opposition to the petition: a lack of standing by easyGroup; that the application did not fall within the legislative purpose of section 1029 CA2006; and/or that the petition was an abuse of process.
Can a dissolved company's debt be assigned?
Mr Hanley argued that easyGroup lacked standing to bring the petition because it was not in fact a creditor of the Company. He argued that, at the time of the alleged assignment of the debt to easyGroup, there was in fact no debt capable of being assigned because it had been extinguished upon dissolution of the Company. As a result, Mr Hanley argued the assignment was not effective, and easyGroup could not bring a petition on the basis of it.
This raised a novel legal argument. However, the court held that what is important is not the identity of the debt's claimant, but the existence of the debt. If the debt was genuine, then easyGroup could stand in the shoes of the original creditor, with a right to maintain the petition as a contingent creditor. Upon restoration of the Company, it would gain the status of an actual creditor under section 1032 CA2006 (which provides that, upon restoration, a company is deemed to have continued in existence as if it had not been dissolved or struck off the register).
The court concluded that there was a bundle of rights which had all passed to easyGroup, including the right to petition. The court found it would be "simply perverse" for the only proper petitioner to be the original creditor, having assigned all its rights to easyGroup.
Abuse of process: multiple purposes
Mr Hanley argued the petition had been presented for an unjustifiable collateral purpose; i.e., not for genuinely pursuing the interests of the Company's unsecured creditors as a whole, but rather for easyGroup's own, illegitimate, purposes.
The court rejected this argument. It accepted that easyGroup had its own private purposes for the petition, but that this purpose sat alongside the legitimate purpose of protecting the interests of the wider creditor group. The judge held that a petitioner may have multiple purposes for bringing a petition. It is not necessary that the legitimate purpose should be their only, or even their principal, purpose.
In this case, easyGroup claimed that there had not been a proper investigation into the affairs of the Company by the administrators. It therefore argued, and the court accepted, that there would be a benefit to all creditors in restoring and winding up the Company. Doing so would allow an investigation into the Company's position at the time of the administration. In particular, there were questions to be answered in relation to the Company's treatment of the trade marks just before and upon administration. There was a discrepancy in the evidence before the court as to whether the trade marks: (i) had been assigned by the Company to a connected company for no consideration between December 2019 and January 2020 (when the business was in difficulty and PwC had already been brought in as restructuring advisers); or (ii) were already owned by Mr Hanley at this point.
The court found these were matters which ought to be investigated: "Either the intellectual property in the mark was the company's or it was not. If it was not, then the December 2019 assignment is most curious". The court held that if the December 2019 transfer was effective, then the Company had received no consideration for what might be a valuable asset (especially considering that Barclays had taken the marks as part of its security). This would therefore represent a potential transaction at an undervalue for the purposes of section 238 Insolvency Act 1986, which might fall to be challenged by the new liquidators. If it was not effective, then the Company potentially remained in control of this asset at the time of the Pre Pack Sale. However, the administrators had said they never sold the trade marks. Accordingly, the trade marks might still be held by the Company, in which case there may be further value to be realised from the Company for its creditors.
The court acknowledged that there had been 20 years of litigation between the parties. Moreover, easyGroup had made attempts to have the Hanleys disqualified as directors, showing "a degree of animus which might be thought to stand outside ordinary commercial practice". However, the court concluded that this did not undermine the proper purpose identified above: "we are left in my judgment with a kernel of proper purpose for the benefit of the creditors as a class". This was particularly so because easyGroup confirmed that, if the Company was placed into liquidation, it intended to fund the investigations by the liquidator.
The court rejected the argument that any particular individual benefit to easyGroup from the liquidation (such as potentially acquiring the trade marks) was a ground for refusing the order. The court noted there were a number of possible outcomes: for example, there might be many other purchasers; or there may be no trade marks to be sold. Further, it was possible the investigations might result in a claim against the directors which, whilst it might satisfy some personal whim of easyGroup, would also benefit the creditors as a whole.
Takeaways
This decision provides important clarification on the mechanics of double-barrelled orders. It also serves as a cautionary tale about informal intellectual property (IP) transfers in the twilight period before insolvency.
- Debts of dissolved companies can be assigned: debts owed by dissolved companies are not extinguished in a way that prevents assignment. Creditors can assign their debts to third parties who can then petition as contingent creditors for restoration and winding up.
- Pre pack sales require careful investigation of IP ownership: administrators must conduct thorough investigations into the ownership and value of IP assets, particularly where there are competing claims or transfers shortly before administration.
- Last-minute IP transfers will be scrutinised: transferring valuable IP to connected companies shortly before administration, particularly without consideration and/or whilst restructuring advisers are already involved, will likely be subject to investigation by liquidators. Such transfers may give rise to claims against directors.
- Multiple purposes do not necessarily defeat a petition: a petitioner may have multiple purposes for seeking a winding up order, including purposes that benefit them individually. Provided there is a legitimate purpose for the benefit of creditors as a class, the petition will not be an abuse of process. This is the case even if the legitimate purpose is not the petitioner's principal purpose.
- Funding commitments support legitimacy: a petitioner's commitment to fund investigations by a liquidator is a significant factor supporting the legitimacy of its petition and countering abuse of process arguments.
How Mishcon de Reya can help
Our Insolvency and Restructuring and Intellectual Property teams have extensive experience advising on complex insolvency matters involving IP assets. We regularly advise administrators, liquidators, creditors and directors on, by way of example, pre pack administrations where IP assets are involved, ensuring proper valuation and transfer procedures are followed to withstand scrutiny. Our team can assist creditors seeking to challenge or investigate suspicious transactions, as well as defending directors and shareholders against applications relating to such issues.
We also advise on the assignment of IP more generally. If you have any questions about IP assets/disputes, insolvency and restructuring, please contact our Insolvency and Restructuring and Intellectual Property teams.