Article / 1 Oct 2025
In this month’s update we:
The High Court has held that the sellers of a company were liable to the buyer for damages for breach of warranty after the Education and Skills Funding Agency (the Agency) found that the company had over-claimed funding due to breaches of the Agency’s funding rules, resulting in a clawback.
The case (Learning Curve (NE) Group Ltd v Lewis & anor [2025] EWHC 1889 (Comm)) contains some useful insights on the notification of warranty claims and the measure of damages for breach of warranty.
In this case, the buyer acquired the entire issued share capital of a company whose business was focused on education and training for young people. This was significantly funded by the Agency. The purchase price was based on a maintainable EBITDA of c£2.5m and a multiplier of 5.5.
Within a year of the acquisition, an audit by the Agency revealed that the company had over-claimed more than £1.2m in funding for the previous academic year due to breaches of its Funding Regulations. This resulted in the Agency clawing back funding of £783,325 from the company.
The sellers initially paid this sum to the buyer under an indemnity clause in the sale agreement. But they later asked for it to be returned on the basis that the claim under the indemnity was time-barred.
The buyer brought a warranty claim against the sellers alleging that, as a result of the funding breaches, the company’s true value was substantially less than the buyer had paid for it.
When the case came before the Court, there were a number of different issues to be considered:
The agreement required a notice of warranty claim to be notified by a specific date, and for any related legal proceedings to then be both “issued and served … by 14 February 2023”. In fact, the relevant claim form was hand-delivered to the sellers on 14 February 2023.
The Court held that service “by” a specified date meant on or before that date and therefore included service on the date specified. In addition, the reference to “served” meant served in accordance with the requirements of the Civil Procedure Rules and so was satisfied by hand delivery of the claim form to the sellers’ addresses. It did not require the proceedings to be brought to the actual attention of the sellers as they had argued.
The agreement required a notice of warranty claim to include “details...of the nature of the claim, the facts and circumstances giving rise to it”. The sellers argued that this meant each warranty under which the buyer was claiming had to be specifically identified in the warranty claim notice. The Judge rejected this argument, finding that there was nothing in the language of the relevant provision which required any warranty to be identified by number in the notice of claim.
The Court confirmed that the damages for breach of warranty would be based on the difference between the “warranty true” value (i.e. the price paid by the buyer) and the “warranty false” value (i.e. the actual value of the company, taking into account the breach of warranty).
In accordance with the method originally used by the parties, the appropriate valuation means was a multiple-based approach, using the company’s maintainable EBITDA and an appropriate multiplier. In this case, the Judge reduced the company’s maintainable EBITDA by the clawback amount and then applied a lower multiplier (5x), reflecting the risks that would have been perceived by hypothetical negotiating parties aware of the breaches. This resulted in total damages of over £5m, substantially more than the original clawback amount recovered under the indemnity.
As noted above, the funding overpayment was covered by a specific indemnity in the agreement and the buyer had in fact made a claim against the sellers under that indemnity for the clawback amount.
The agreement also stated that the buyer could not recover more than once in respect of the same facts or circumstances. The sellers said this meant the buyer could not now bring a warranty claim arising out of the same matter – i.e. the funding clawback.
The Judge also rejected this argument, stating that the relevant provision prevented double recovery, but not a double claim. The buyer effectively had to elect between recovery under the indemnity and recovery under the warranties. Unsurprisingly, it chose the higher damages award.
It is surprising how often buyers serve a warranty claim notice right at the contractual deadline. Although it is helpful to know that “service by” a particular date includes that date itself, the buyer could have avoided that particular argument by simply serving its notice a few days earlier.
It was useful to see the Court’s approach to calculating damages and its acknowledgement that warranty breaches can impact both quantitative earnings (i.e. the maintainable EBITDA) and qualitative aspects (e.g. reputation, risk profile, etc) that justify adjusting the valuation multiplier.
In Manolete Partners Plc v Whiteley [2025] EWHC 1544 (Ch) the High Court held that various payments made by a company to its former directors were either transactions at an undervalue or preferences. The payments had purportedly been made to repay directors’ loans or in payment of management fees.
This case usefully highlights the risks to directors where payments made to them by their company are not properly documented and the company subsequently becomes insolvent.
Transactions at an undervalue and preferences are both types of reviewable transaction under the Insolvency Act 1986 – i.e. transactions that can be set aside once a company is in liquidation or administration.
The Court may set aside a transaction as a transaction at an undervalue if a company makes a gift or enters into a transaction for significantly less consideration than it provides. The transaction must also have been entered into during the two years before the company became insolvent.
A company may have given a preference to a creditor if it does anything which, in the event of the company going into insolvent liquidation, results in that creditor being in a better position than they would otherwise have been. The company must also have been influenced by a desire to prefer the relevant person and the preference must have been given during the six months before the onset of insolvency (or within two years where the creditor was connected with the company).
This case concerned a company that had been used as the vehicle to purchase a property and then develop it into two flats. The project was financed by a bank loan and by personal loans from the company’s directors. Due to delays in completing the property development, the company obtained additional bridging finance to refinance the bank loan.
The development finally completed in September 2018, with the sale of the second flat. The company then entered into creditors’ voluntary liquidation in April 2019.
The liquidators’ claims were assigned to Manolete Partners Plc (Manolete) which then brought claims against the directors in relation to the following key transactions that took place within two years of the liquidation:
Manolete claimed that each of the above transactions was either a transaction at an undervalue or a preference under the Insolvency Act 1986. The directors disputed that the company was insolvent at the time of the transactions and also claimed that they were legitimate repayments of sums due to them. None of the relevant agreements between the parties was properly documented.
In relation to the May 2017 payment, the Court found in favour of the directors, holding that it was neither a transaction at an undervalue, nor an unlawful preference.
Despite the arrangements not being formally recorded, the directors had credibly demonstrated that their loan to the company had been made on the same short-term basis as the original bank loan and fell due for payment within a year. This meant that the May 2017 payment had been made to repay sums properly due to the directors. Critically, the company was not found to be insolvent at this time. The fact that their loan to the company was on similar terms to previous projects also helped the directors to rebut the presumption of a desire to prefer themselves over other creditors.
In contrast, the payments between 2018 and 2019 were largely found to be transactions at an undervalue or preferences. The “management costs” were held to be transactions at an undervalue as there was no record of any agreement requiring the company to pay them. The Court viewed these as retrospective attempts to justify withdrawals when the company faced insolvency.
As regards the repayments of outstanding directors’ loans, these were made to the directors in their capacity as creditors of the company. The Court held that these payments amounted to preferences as the company was already insolvent when they were made (or became so as a result). There was also no evidence to rebut the presumption of a desire to prefer the directors.
Whilst this case does not entail any new law, it highlights the importance of clear and robust documentation for all financial arrangements between directors and their companies.
Undocumented director loans or remuneration agreements, such as management fees, are highly susceptible to challenge by liquidators if the company subsequently enters insolvency. Even if directors genuinely believe they are entitled to these payments, a lack of formal records (including explanatory board minutes) makes it difficult to defend against claims of transactions at an undervalue or preferences.
The new “failure to prevent fraud” offence under the Economic Crime and Corporate Transparency Act 2023 (ECCTA) is now in force as of 1 September 2025. This marks a significant development in UK corporate criminal liability, with wide-reaching implications for large organisations, their advisers and clients.
The offence applies to “large organisations” if an “associate” (such as an employee, agent or subsidiary) commits a specified fraud offence intending to benefit the organisation or its clients, and the organisation does not have reasonable fraud prevention procedures in place. “Large organisations” are those that meet at least two of the following criteria: (i) more than 250 employees; (ii) more than £36m turnover; and (iii) more than £18m in total assets. The list of relevant fraud offences is set out in a schedule to ECCTA and includes offences under the Fraud Act 2006, Theft Act 1968 and fraudulent trading under the Companies Act 2006.
This is a strict liability offence: it is not necessary to prove that senior management knew about the fraud. But, it will be a defence for an organisation to show that it had reasonable procedures in place to prevent fraud.
The Serious Fraud Office and Crown Prosecution Service have now published updated joint guidance for prosecutors on the approach to corporate offending, including the new offence. Key points include:
The new offence makes it significantly easier to prosecute organisations for fraud. The focus is now on prevention, not just detection. Even if the offence technically applies only to large organisations, the principles in the guidance represent good practice for all businesses who would be well advised to review and update their fraud prevention policies and procedures, ensuring they are tailored to their specific risks and communicated throughout the business.
On 26 August 2025, the Financial Conduct Authority (FCA) announced that it had approved the London Stock Exchange (LSE) as the first operator of a PISCES platform, a new type of private stock market.
On the same day, the LSE confirmed that its new Private Securities Market (PSM) will operate as a PISCES platform and published a consultation on its draft rules.
PISCES is intended to increase the liquidity of shares of participating companies, give investors easier access to growth companies, and offer additional opportunities for investors (including employee shareholders) to realise their investments.
PISCES (Private Intermittent Securities and Capital Exchange System) is a new regulatory framework that allows specified investors to intermittently buy and sell existing shares in private companies.
PISCES is being developed using a financial markets infrastructure “sandbox”, and the FCA published the rules for the sandbox – the PISCES Sourcebook – in June 2025. Eligible firms can apply to the FCA to operate a trading platform within the PISCES sandbox.
Although the FCA’s rules set out a framework for the operation of a PISCES platform, much of the detail is left to operator discretion, meaning that the specific rules that apply to participating companies are likely to vary between individual PISCES platforms.
The LSE is the first organisation to be approved to operate a PISCES platform.
The LSE’s PISCES platform will be known as the Private Securities Market (PSM).
Ahead of its launch later in 2025, the LSE has published for consultation its draft rules (Private Securities Market Rules) for companies seeking to join the new market. Key points for companies include the following:
The consultation on the LSE’s draft rules ended on 9 September 2025 and it is anticipated that the new Private Securities Market will be open for business before the end of 2025.
First published in Accountancy Daily.
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