BL-2022-000438 - [2025] EWHC 2212 (Ch)

Fecha: 22-Ago-2025

Limitation Issue 3: Was the Company in default more than 6 / 12 years before the issue of the claim?

G.3.

Limitation Issue 3: Was the Company in default more than 6 / 12 years before the issue of the claim?

96.

For the purposes of this analysis, I have proceeded on the basis as set out in Section G.1 above that the limitation period is 12 years. Accordingly, the question is whether the Company was insolvent and had defaulted on repayment more than 12 years before the issue of the Claim Form (10 March 2010).

97.

I agree with the suggestion that it would likely have been unattractive for the Company to sell the villas in an uncompleted state. By late 2009 / early 2010, the villas were sufficiently in sight of completion that it was possible for the Company to seek to sell the villas as completed, albeit that the purchasers might have had to wait a few months for the completed villas to be handed over.

98.

The JVA envisaged that the villas might be sold off-plan or ahead of final completion because the obligation to sell arose from the start of the development, not its completion. Clause 14(1) provided for the Company to use “all reasonable efforts” to dispose of the villas as “[a]s soon as is practicable after the commencement of the Development” (emphasis added).

99.

By the beginning of March 2010, the villas were not finished but the majority of the major building works had been completed and the project was nearing completion. In these circumstances, in assessing the asset value of the villas, there is good reason to look to the expected sale price with the villas being transferred on completion rather than the likely lesser value of a sale of the villas “as is”.

(1)

This is in my view necessary to approach the question in a commercial realistic manner as Eurosail envisages, and is supported by Cresta Estates v MPB Developments [2025] EWHC 198 (Ch) at [33(iii)] which says that “an inquiry into the nature of the present assets will also include their future profit or loss generating potential (Carton-Kelly v Darty Holdings SAS [2023] BPIR 305, [2022] EWHC 2873 (Ch) per Falk J (as she then was) at [126])”.

(2)

If, contrary to my view expressed above, that is not the approach envisaged by Eurosail, then I consider that it remains appropriate as a matter of construction of the insolvency test under the JVA to look at the price of the villas on completion. The JVA was put in place to “acquire and exploit the Property” and I consider that for the purposes of assessing whether the Company is insolvent, it is appropriate to value the villas on the basis that the Company would seek to maximise the value of any sale. This means that they could be sold to purchasers off-plan on terms that the Company would ultimately be delivering the villas to the purchaser in a completed state.

(3)

I do not consider that the test of whether the Company was insolvent means that the future expected sale price must be ignored and instead that the villas must be valued solely on the assumption that the development will be sold on an immediate basis “as is”. Given that in the early stages of the project, the funds expended would likely have outweighed the incremental increase in value of the site, adopting that latter construction would lead to the odd result that the Company would likely have been insolvent (and thus Mr Dunn’s loan repayable) from an early stage in the project, even if the expected sale values of the villas were well in excess of the anticipated liabilities (including any contingent liabilities). I do not regard clause 5(c) to operate in that way.

(4)

Further, I do not regard it as permissible either under the Eurosail approach (or if different on the construction of the JVA) for any balance sheet assessment of the Company’s solvency to assume that the Company is permitted to wait beyond the completion of the development for the property market to recover or improve. Further, given the high compounded interest rate attracted by Mr Dunn’s loan, it seems highly unlikely that waiting to sell the villas would improve the balance sheet position of the Company.

100.

The financial statements of a company can be a starting point for assessing the value of a company’s assets and liabilities. However, the focus must ultimately be on their commercial value, see Cresta Estates at [33(iii)]. As regards the financial statements, I address the following points:

(1)

The Company’s financial statements record the Company’s assets materially exceeding its liabilities from 2008 onwards (for the prior years, the assets were slightly below liabilities).

(2)

For the years from 2009 onwards, the Company had two major assets recorded in its financial statements; the value of the villas and VAT reclaims.

(3)

The financial statements record the value of the villas within inventories. The notes state that “Inventories are stated at cost”. For the reasons explained above, I consider that when assessing the solvency of the Company at the beginning of March 2010, regard should be had to the likely sale price of the villas rather than their historic costs.

(4)

In relation to the VAT reclaims, these appear to be purported claims for the recovery of VAT on the construction of the villas. The claims appear to have been included at Mr Stylianou’s direction and as a result of him registering the Company for VAT. It is doubtful that these VAT claims had any real prospect of success. The view of Mr Timinis, whose firm prepared the Company’s financial statements and audited them, was that the correct VAT position was that the Company should never had been registered for VAT. He said that the land was VAT exempt and I note that the Company’s own marketing materials for the villas described it as a ‘VAT exempt project’. The Company itself looked to Mr Timinis for advice on the VAT claims and, as recorded in a 2013 email from Mr Heyes, Mr Timinis’ view was that the chances of the Company actually receiving a VAT refund were remote. Mr Heyes described the VAT refund as “pie in the sky”. Notwithstanding Mr Timinis’ view, the VAT reclaims were included in the Company’s accounts. For the purposes of assessing the solvency of the Company, I consider that the likely value of those claims was zero.