High Court Finds Defendant Bank Did Not Dishonestly Assist Company Restructure To Put Assets Beyond Reach Of Creditors

• Published date: 08 September 2023
• Law Firm: Herbert Smith Freehills
• Author: Damien Byrne Hill, Ceri Morgan and Sarah Mccadden

The High Court has rejected an allegation of dishonest assistance against a bank, in circumstances where the claimants argued that the restructuring of the bank's customer was a scheme to defraud its creditors and avoid the customer paying its liabilities. The court held that the customer's directors had not breached their duties to the company, and so no question of accessory liability in dishonest assistance on the part of the bank arose. However, the court also found that the bank had not acted dishonestly in any event: Henderson & Jones Ltd v Ross & Ors [2023] EWHC 1276 (Ch).

This judgment will be of interest to those in the banking sector, as claims for dishonest assistance are a fairly common cause of action against financial institutions, albeit this was a novel scenario. By way of reminder, such claims involve an allegation that the defendant dishonestly assisted a fiduciary (such as a director) to commit a breach of fiduciary duty (such as the general duties of directors under the Companies Act 2006). For financial institutions, it is important to note that such liability, if established, may result in vicarious liability for the employer in respect of the acts of individual employees.

In this case, the claimant argued that a senior employee in the bank's restructuring unit had turned a "blind eye" to the detrimental impact of the restructure on the company and its underlying purpose to defraud creditors. In support of this allegation, it was suggested that, because the bank was sufficiently secured in terms of its exposure, it was only interested in refinancing its loan to the business.

Having considered the evidence, and noting there were a number of problems with the bank's purported motive, the court confirmed it would have rejected the dishonest assistance claim against the bank (even if it had found the directors acted in breach of fiduciary duty), as it could not be said that the bank failed to act as a reasonably honest person by not asking further questions. Indeed, the evidence indicated that the bank "took a significant interest in its customer" over an extended period to ensure the business was turned around and, where an issue was identified, the bank took specific legal advice and proposed actions consistent with maintaining the company's business.

The decision highlights the importance of the enquiries made by the bank and the fact that these were contemporaneously documented. The judgment also provides a good summary of the...