Key Takeaways
- When your co-director buys the business back from the liquidator, Padun v Dickinson (2026) shows that an arm’s-length purchase from an independent liquidator will rarely found an unfair prejudice claim.
- Once a liquidator is appointed in a creditors’ voluntary liquidation, directors’ powers cease, so the liquidator’s asset sales usually fall outside section 994 of the Companies Act 2006.
- Challenge a suspected undervalue sale while the assets are being marketed. Request information, make an offer and record objections in writing.
- If the liquidator acted improperly, the remedy usually lies against the liquidator, not the former director who bought the assets.
- Shares in an insolvent company are ordinarily worthless unless you prove a surplus for shareholders or that wrongdoing destroyed their value.
- Disclosure requests must be narrow, relevant to pleaded issues and aimed at documents the other side actually controls. Courts refuse fishing expeditions.
- Directors buying assets should document an arm’s-length process and obtain permission before acting for a company using a name associated with the insolvent business.
- Go Legal is rated Excellent with over 300 five-star reviews and 5/5 on Trustpilot and Google, placing our solicitors among the best-reviewed litigation lawyers in England and Wales.
Can a Co-Director Buy Assets from a Liquidator Under Padun v Dickinson?
Yes. A co-director can buy company assets from an independent liquidator, and the purchase will not usually amount to unfair prejudice. In Padun v Dickinson & Anor (Re Interactive Media Group Ltd) [2026] EWHC 2308 (Ch), the High Court held that, on the petition as pleaded, a former director’s purchases from a liquidator after the company entered creditors’ voluntary liquidation were not conduct of the company’s affairs by him under section 994 of the Companies Act 2006.
The court also applied the principle that shares in an insolvent company are ordinarily worthless, and refused a sweeping disclosure application that the shareholder had hoped would rebuild his case after the event.
For a minority shareholder, the lesson is about timing and target. Act while the sale is happening, and direct any complaint about the sale process at the liquidator. Our London-based commercial litigation solicitors can assess whether you have an unfair prejudice claim, a challenge to the liquidator’s conduct or another remedy. If a sale is proposed or has already completed, call 0207 459 4037 or book a free consultation before evidence or commercial opportunities are lost.
What Happened Before the Co-Director Bought Assets From the Liquidator?
The dispute arose from a group in serious financial distress, a fallout between its two director-shareholders and a series of £100 asset purchases from the liquidator.
Interactive Media Group Ltd (IMG) was incorporated in 2009 and supplied and installed audio-visual equipment. Mr Dickinson had been a director and shareholder since incorporation. Mr Padun joined as a director and shareholder in May 2017. IMG later became a non-trading parent, with the business run through subsidiaries including Arcstream Limited. In April 2021 IMG bought Philharmonic Audio Visual Limited for an initial £170,000 plus three annual payments of £85,000.
By September 2021, IMG was in serious financial difficulty. It owed around £370,000 to Funding Circle, which had issued a demand in May 2021, and £255,000 in deferred consideration to the sellers of Philharmonic, secured by debentures. Tax liabilities were accumulating. Management accounts showed consistent cashflow shortfalls from July 2021, reaching a cumulative £119,402 by February 2022. By then IMG had hit its overdraft limit and its payroll had moved to Arcstream Limited.
Mr Padun’s pleaded case was that in September 2021 he, Mr Dickinson and the group’s external finance director formulated an “extraction plan”. It involved placing IMG’s shares in Arcstream Limited and Philharmonic into the two directors’ personal names for no consideration, to separate those businesses from the struggling parent. Mr Dickinson said the plan was Mr Padun’s idea. Filings were made at Companies House, but it was common ground that they had no legal effect. IMG remained the legal owner of the subsidiaries.
Both directors took part in early 2022 discussions about liquidating IMG. In January 2022 Mr Padun told a third party in writing that IMG was “in the process of filing for liquidation”.
In March 2022 the relationship broke down and Mr Dickinson excluded Mr Padun from management. Mr Padun remained a director of IMG. IMG entered creditors’ voluntary liquidation on 17 June 2022. In an earlier 2024 ruling in the same proceedings, the court found that IMG was cashflow insolvent on the date Mr Padun was excluded.
Around three months after the liquidation, on 23 September 2022, Mr Dickinson bought IMG’s shares in Philharmonic and in Arcstream Systems Limited from the liquidator for £100 each. Over the following months he bought Arcstream Limited’s name, website and goodwill after it entered its own liquidation, Integrated Logic’s website and goodwill for £100, and, on 3 April 2023, around ten months after IMG’s liquidation, IMG’s website and goodwill for £100. The liquidator’s reports recorded no third-party interest in these assets.
Arcstream Systems Limited had not traded at first but began trading around April 2022, with Mr Dickinson as sole director. Mr Padun’s unfair prejudice petition alleged that Mr Dickinson orchestrated the insolvency of IMG and its trading subsidiaries to divert their business to that company, and sought a buyout of his shares. To value those shares, he applied for specific disclosure of documents from Mr Dickinson. That application is what the court decided.
What Questions Did the Court Consider About Unfair Prejudice and Insolvency?
The court had to decide four linked questions. Each is one that any shareholder in Mr Padun’s position would face.
Can a former director’s purchase from a liquidator amount to conduct of the company’s affairs?
Section 994 only bites on conduct of the company’s affairs. Mr Padun relied on the alleged pre-liquidation plan and argued that what happened in the subsidiaries could count as conduct of IMG’s affairs. Mr Dickinson argued that once IMG entered liquidation, control passed to the liquidator. The later sales were therefore acts of independent liquidators, or of Mr Dickinson in his personal commercial capacity, not his management of IMG.
Can an unfair prejudice petition produce a buyout if the company is insolvent?
In Re Tobian Properties Ltd [2012] EWCA Civ 998, the Court of Appeal held that shares in an insolvent company are ordinarily worthless. A petitioner must generally show either that there are claims large enough to clear the deficit and leave a surplus for shareholders, or that the shares would have had value but for the wrongdoing complained of.
Mr Padun relied on an alleged Arcstream Limited EBITDA of just under £1m in September 2021, Philharmonic’s £425,000 historic acquisition price and the later profitable trading of the successor business. He also argued that the court could value his shares at a different date or on an “add-back” basis. Mr Dickinson said none of this addressed the group’s liabilities or followed any recognised valuation method.
Was the disclosure request tied to pleaded issues and to documents Mr Dickinson controlled?
Mr Padun said the documents would show where the value in IMG’s subsidiaries had gone and allow an expert valuation. He argued that documents held by the liquidator should not defeat the application because IMG was a respondent. Mr Dickinson said disclosure cannot be used to investigate or build an unpleaded case, and that many documents either did not exist or were controlled by the liquidator.
Would ordering disclosure be proportionate?
Mr Padun described the request as targeted financial records that would be easy to search electronically. Mr Dickinson pointed to hundreds of items spanning several companies and several years.
What Did the High Court Decide About the Asset Purchases?
The High Court dismissed Mr Padun’s specific disclosure application. It did not make final findings on the unfair prejudice petition itself, but its reasoning sets clear limits on claims of this kind.
Why were the post-liquidation sales not conduct of IMG’s affairs?
Under section 103 of the Insolvency Act 1986, the directors’ powers cease when a liquidator is appointed in a creditors’ voluntary liquidation, except so far as the liquidation committee or, if there is none, the creditors sanction their continuance. The court held that, when the liquidator was appointed, control of IMG’s affairs passed to him. There was no allegation that Mr Dickinson kept or asserted directorial control afterwards.
Each company was represented by its liquidator when it sold to Mr Dickinson. He dealt with them as a purchaser at arm’s length, not as a director managing IMG. The alleged secret plan did not change that:
“Even taking the Petitioner’s case at its highest, the alleged secret ‘plan’ as pleaded supplies no mechanism by which the post-CVL acts of an independent liquidator in selling given assets to the First Respondent can properly be treated as conduct of IMG’s affairs by the First Respondent.”
No wrongdoing was pleaded against the liquidator, and he was not a party. The court also noted that the liquidation was not covert, because Mr Padun knew of and took part in the plans. The petition did not allege that he was prevented from bidding or that any offer he made was wrongly rejected.
The court criticised the petition for lumping together four different things: Mr Dickinson’s acts as an IMG director, his acts as a subsidiary director, the liquidators’ acts and his own later personal purchases. In the judge’s words, “Such conflation is unacceptable.” If the real complaint is that assets were sold too cheaply or improperly, that is a complaint about the liquidator’s conduct, not unfair prejudice by the purchasing director.
Why did Mr Padun’s shares appear to have no value?
Applying Re Tobian, IMG’s cashflow insolvency when Mr Padun was excluded meant his shares were prima facie worthless at that date. IMG entered liquidation with an estimated deficiency to creditors of £655,011, and its trading subsidiaries also had net liabilities.
The court accepted that it could, in principle, value shares at a different date or on an add-back basis, meaning as though the wrongdoing had not happened. Before disclosure could be ordered on that footing, Mr Padun had to identify the conduct said to have affected share value, how it did so and, at least in summary, the method for turning that into a valuation adjustment. As the judge put it:
“An add-back approach without (i) to (iii) above (in some shape or form) is simply meaningless.”
Turnover, EBITDA, a historic purchase price and a successor’s later profits did not show net value after IMG’s debts.
Why was the disclosure application refused?
Mr Padun failed to show a prima facie case that documents beyond those already disclosed were relevant to a pleaded issue and within Mr Dickinson’s possession or control. The court said:
“The disclosure sought must be anchored to the pleadings, not used as a ‘fishing’ tool, for fact-finding or constructing a case.”
The application was “impossibly wide”. Given a final chance to narrow it, Mr Padun produced a list of 735 items. Of those, 315 concerned documents that did not exist, 159 concerned documents outside Mr Dickinson’s control and 217 related to companies not pleaded in the operative parts of the petition. Management accounts and bank statements for the key period had already been provided, and many accounting records were held by the liquidator, not Mr Dickinson.
The court applied the overriding objective, CPR Part 31, Practice Direction 31A paragraph 5.4 and Soriano v SEBDO [2022] EWHC 3370 (KB), under which the applicant must show a prima facie case that documents are relevant to a pleaded issue and any order must be proportionate. It found the request “plainly not proportionate given the sums at stake”. It also refused documents about employment losses, holding that disclosure is not ordered “to enable a claimant to construct a head of loss that has not yet been identified.”
Even if the threshold had been met, the court would have refused relief because Mr Padun’s conduct of the application, including his failure to engage constructively with a Scott Schedule designed to narrow the dispute, was “unreasonable and vexatious”.
How Does Padun v Dickinson Affect Shareholders, Directors and Creditors?
The decision makes early action essential, and it means the right remedy depends on who made the decision and when.
What should shareholders and co-directors do when a sale is proposed?
Your ability to challenge a co-director’s purchase from a liquidator by unfair prejudice petition is severely limited. Act while the liquidator is still marketing the assets:
- Ask what is for sale and how it is being marketed.
- Request focused information about valuations, offers and proposed terms.
- Make your own offer where you can fund one.
- Put any objection to the process in writing before completion.
- Keep complaints about pre-liquidation conduct separate from complaints about the sale.
Negotiating an exit or buyout before insolvency crystallises is the most reliable way to preserve value. Once debts exceed assets, a later buyout claim may be worth little or nothing. To learn more about the options available, read our article on director and shareholder disputes.
What should a director buying assets from a liquidator do?
The decision offers some reassurance: an arm’s-length purchase from an independent liquidator will not automatically be treated as unfair prejudice. The process should still be transparent, properly documented and commercially justified. Keep independent valuation material, evidence of how the liquidator marketed the assets, records of competing offers and communications showing the liquidator decided independently.
Check section 216 of the Insolvency Act 1986 before you start trading. It prohibits a person who was a director or shadow director of a company that has gone into insolvent liquidation from being a director of, or directly or indirectly taking part in the promotion, formation or management of, a company with the same name or a name suggesting an association with it, for five years, unless the court gives permission or a statutory exception applies. Breach is a criminal offence and can make you personally liable for the new company’s debts.
Mr Dickinson obtained retrospective permission in January 2026 to act as a director of Arcstream Systems Limited, which had been trading since 2022. The Insolvency Service and Arcstream Limited’s liquidator did not object. Relying on retrospective permission is risky. Apply before trading, or choose a name with no association to the insolvent company.
What should creditors do if assets appear to have been sold too cheaply?
A creditor’s remedies lie against the liquidator, not the purchasing director. If you believe a sale was at an undervalue, you can write to the liquidator for information about the sale process and valuation, request a creditors’ meeting, apply to court to remove or replace the liquidator, or bring a misfeasance claim.
Section 212 of the Insolvency Act 1986 allows the court to examine the conduct of liquidators and other officers, and to order them to repay, restore or account for money or property, or contribute to the company’s assets, where they have misapplied or retained money or property, or been guilty of misfeasance or breach of fiduciary or other duty. Secured creditors, such as the sellers of Philharmonic in this case, should ensure their security is properly registered and that they are consulted before secured assets are sold.
What should liquidators record when selling to a former director?
Liquidators must obtain the best realisable value for creditors, and sales to directors or connected parties attract scrutiny. Obtain independent valuations, market the assets appropriately, document every offer and your reasons for accepting or rejecting it, and consider any conflict of interest. Where one exists, seek directions from the court or creditors. If a director or shareholder objects, respond in writing. Records of marketing and third-party interest, like those in this case, are what defend a sale years later.
What does the decision mean for disclosure in shareholder disputes?
A disclosure application must be built document by document, or by carefully defined class, around the pleaded issues. It must account for what has already been disclosed, what does not exist and what a third party such as a liquidator controls. Seeking records for periods when a company did not exist, did not trade or was in liquidation invites refusal and an adverse view of your conduct. Waiting until after a sale and then using disclosure to build a case is unlikely to succeed.
Frequently Asked Questions
Get Expert Help With Your Unfair Prejudice and Insolvency Dispute
When a co-director buys assets from a liquidator, the right response depends on whether your complaint concerns conduct before the liquidation, the liquidator’s sale process or the value of your shares. Each points to a different remedy against a different party, and choosing the wrong one can waste years and significant costs, as Padun v Dickinson shows.
