In The Matter Of Overnight Ltd (2010)
It was appropriate for the court to make a separate assessment of the contributions to be made by a company director and by a company secretary to the insolvent company's assets under the Insolvency Act 1986 s.213.
The applicant liquidator applied under the Insolvency Act 1986 s.213 for a declaration that the respondents were liable to make contributions to the insolvent company's assets. It was alleged that the company (X) was engaged in missing trader fraud in purchasing computer processing units for importation into the United Kingdom from Germany, so that no VAT was payable on the purchase, and then re-selling the goods within the UK at a price including VAT. X accrued a large VAT liability, but VAT was never paid to Revenue and Customs. The second respondent (C) was the director of X, and the first respondent (H) was the company secretary. H operated in his own name the bank account where all monies were received by X or paid out by X. X's activities ceased when Revenue and Customs obtained a freezing order against its assets. X was wound up and the only creditor was Revenue and Customs. H did not respond to the proceedings, but had submitted in an affidavit that he was never involved in X's affairs except for the operation of the bank account and that he had no awareness of what was really going on in the making of those payments. C gave evidence that he was an informant for Revenue and Customs via an intermediary and that he acted like a delivery boy for X, earning £500 per week. The third respondent (Z) had not been traced.
(1) Since the only transactions in which X was engaged would have been carried out at a loss if VAT had been duly accounted for to Revenue and Customs, X's business must have been carried on with intent to defraud a creditor or with a fraudulent purpose within the terms of s.213(1). On that basis s.213(2) was engaged. On the basis of the undisputed facts regarding the movement of monies in and out of H's account, the court was satisfied that H either knew much more than he was prepared to admit or, at the least, deliberately chose not to make enquiries as to the basis on which those payments were being made and which he must have realised had the appearance of engagement in dishonest transactions. Accordingly, H's state of mind met the requirements of s.213(2). Based on all the evidence, C's story that he was an informant was incredible and untrue. C's account of his role within X was fundamentally inconsistent with the accounts given by other witnesses who said that C was heavily involved in setting up the transactions. C had also signed a questionnaire stating that he was involved in the day-to-day running of the business. The court concluded that C had the requisite knowledge that X's business was being carried out in a fraudulent manner. The case against Z was not established, as evidence against Z was lacking. (2) On the question of what contributions H and C should be ordered to pay pursuant to s.213(2), the court had a wide jurisdiction under s.214, Singer v Beckett (2007) 2 BCLC 287 Ch D considered. It would be surprising if the 1986 Act sought to prescribe a different approach in a fraudulent trading case within s.213 from that in a wrongful trading case within s.214. The fact that immediately-adjacent provisions in the statute adopted almost identical wording was a strong indication that no such distinction was intended. It was clearly possible for the court to determine that several respondents should all be jointly and severally liable for the full loss caused to the creditor. However, it was appropriate to make a separate assessment of the contribution of H and of C on the facts. C was paid only £500 a week but H drew large sums. It was appropriate for H to be liable to contribute to X's assets the full loss caused to Revenue and Customs as a creditor. The proper contribution from C was on a joint and several basis for 50 per cent of that loss.
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25 Mar 2010
LTL 25/3/2010 :  EWHC 613 (Ch)
Richard Morgan QC