(1) Mark John Wilson (in his capacity as liquidator of 375 Live Ltd ((in Liquidation))) (1) First Claimant/Respondent) (2) 375 Live Ltd ((in Liquidation)) (2) Second Claimant) v (1) SMC Properties Ltd (1) First Defendant/Applicant) (2) Unitguide Ltd (2) Second Defendant) (3) Vincent Clegg (3) Third Defendant)
| Jurisdiction | England & Wales |
| Judge | Mr. Registrar Briggs |
| Judgment Date | 02 April 2015 |
| Neutral Citation | [2015] EWHC 870 (Ch) |
| Docket Number | Case No: 1520 of 2014 |
| Court | Chancery Division |
| Date | 02 April 2015 |
[2015] EWHC 870 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr. Registrar Briggs
Case No: 1520 of 2014
Case No: 6097 of 2014
Christopher Harrison (instructed by Wedlake Bell LLP) for the Claimants/Respondents
Hugh Sims QC (instructed by Hausfield Solicitors LLP) for the First Defendant/Applicant
Hearing dates: 17 March 2015–20 March 2015
Introduction
Before the court is an application that a contract dated 6 March 2014 (the "Transaction") made between 375 Live Limited (the "Company") and SMC Properties Limited ("SMC") be validated pursuant to section 127 of the Insolvency Act 1986 (the " IA 1986"). The court also has before it a Part 8 Claim form seeking a declaration that the Transaction is void and relief against Mr. Vincent Clegg who was at all material times the sole de jure director of the Company intimately involved in the Transaction. This judgment deals with the validation application and by extension the claim for a declaration that the Transaction is void.
The factual matrix
Most of the factual background is common ground. The Company was incorporated on 21 December 2010 and carried on business as a scrap gold and silver merchant. The Company purchased 58G Hatton Garden, London, EC1N 8LX (the ' Property') on 4 August 2011 for £1.2 million. In the same month on 12 August 2011 it purchased the freehold development property known as Broadhey Farm ("Broadhey") for £370,000. Broadhey provided a development opportunity for 4 barns. The title was divided and on 28 th February 2014 three of four barns were sold with the last barn being sold on 2 April 2014.
On 7 February 2013 the Company obtained a short term loan for £600,000 from Unitguide Limited (' Unitguide'). Unitguide secured the loan by means of a charge which was registered over the Property. The short term loan was extended, in October 2013, through to April 2014. As indicated, the Property was sold to SMC on 6 March 2014 for £850,000.
The Company defaulted on its VAT. It also defaulted in filing VAT returns from the period ending 31 January 2013. In December 2013, HMRC raised an assessment for £98,000. That was followed in January 2014 by a further assessment for £86,000. The Company placed the Property on the market with Richard Susskind & Co in early November 2013 at an asking price of £1.5 million. A board minute dated 5 November 2013, signed by Mr Clegg records a decision to sell the Property on that date at a price of £1.1m.
Sometime presumably shortly thereafter, Mr Clegg, for the Company, signed a contract for sale to Zea Solution Ltd for £1.1 million. A note produced by the Company's solicitor (Wiseman Lee) dated 13 November 2013 and sent to Mr. Clegg, records that he had requested the return of documents from Zea Solution Ltd as "I understand that you have now successful [sic] resold the property for an increased price of £1,300,000".
In the event, two offers were received, for £1.1 and £1.3 million. At some point in about November 2013, Mr Clegg, for the Company, signed a contract for sale to Warren Properties for £1.3 million.
On 26 February 2014, HMRC presented a petition in respect of a VAT debt for some £280,000. There is some suggestion that the Company may have been involved in a MTIC VAT fraud. However the matter before me does not concern this issue nor does it concern Broadhey.
The sale to Warren Properties did not proceed. In the meantime a creditor holding a fixed charge over the Property was pressing for payment. In these circumstances the Company sold the Property to SMC for £850,000.
On 14 April 2014, a winding-up order was made on HMRC's petition. On 6 May 2014, Mark Wilson (the "Liquidator") was appointed by the Secretary of State.
A firm of solicitors, Coldham, Shield & Mace (' CSM'), acted for SMC in relation to the Transaction. The relevant fee earner who dealt with the conveyancing at the firm was Mr Jan Kayani (' Mr Kayani'). Completion took place on 4 April 2014.
The proceeds of sale received by the Company were distributed in the following way:
11.1. £631,049·05 was remitted to Unitguide. This repaid the debt owed by the Company to Unitguide and released the charge.
11.2. £217,366·95 was paid into Mr Clegg's personal bank account.
At completion, Mr Clegg purported to execute a form TR1 for and on behalf of the Company to transfer title to the Property to SMC. On 2 May 2014 HM Land Registry raised a requisition in respect of the TR1. On a date sometime after 2 May 2014 (but before 18 June 2014, when the TR1 was re-submitted to HM Land Registry), it appears that someone at Wiseman Lee attested Mr Clegg's signature on the TR1. By that time, Mr Clegg had ceased (by reason of the winding-up order of 14 April 2014) to have any authority as a director of the Company.
On 10 June 2014, Ms Saunders (at the time a member of the Liquidator's team) visited the Property. On 13 June 2014, agents instructed by the Liquidator visited the Property, found it occupied by builders, and were told that it had been purchased by SMC.
Mr Green (director of SMC) told Mr Kayani of CSM about the petition and liquidation on 13 June 2014. On 17 June 2014, Ms Saunders called Mr Kayani and told him that a winding-up order had made been made on 14 April and that the sale to SMC was void. The file note records as follows:
"[Ms Saunders] introduced herself to [Mr Kayani]. Mr Kayani informed [Ms Saunders] that his client Mr Steve Green of SMC Properties … had been in touch and explained that there was an issue with the purchase of the Property.
[Ms Saunders] explained that Mark Wilson had been appointed Liquidator of 375 Live Limited … on 6 May 2014 following a Winding up Order dated 14 April 2014.
[Ms Saunders] explained that she understood that SMC had purchased the Property on 4 April 2014 however this was after the date of the Winding up Petition … and in accordance with Section 127 of IA86, the transfer of the Property is void. […]"
Nevertheless on 18 June 2014 CSM lodged the TR1 at HM Land Registry. HM Land Registry then registered SMC as the legal proprietor.
The factual issues fall into two areas of dispute. The first concerns good faith at the time SMC negotiated and entered into the Transaction. The second is the value ( price) obtained by the Company for the Property.
I heard oral evidence from Mr. Green who said that the Transaction was at arm's-length. Mr. Kayani who gave evidence about his state of knowledge regarding the petition stated "there is …no way that I or my client could have known about the petition before the purchase was completed other than by reviewing the London Gazette ….and in any event there is certainly no way that I would have known about the petition when contracts were exchanged on 6 th March 2014….". Mr. Kaye of Unitguide gave evidence regarding the pressure that he put on the Company to repay the debt "Had the amount owing to Unitguide not been discharged by the sale, Unitguide would have entered into possession of the Property and sought to sell it to recover its debt." Mr. Franks of Richard Susskind & Co estate agents gave evidence about the marketing of the Property undertaken and the interest he had from prospective purchasers, and in particular an offer of £1.3m made by Rachel Munro-Peebles. I heard from Rachel Munro-Peebles of Warren Properties, about her offer and how she would still purchase the Property if it were available. Mr. Davey had been in the property business for over 20 years, acted as a sales and letting agent as well as undertaking small refurbishments. Mr. Green asked his opinion about the Property prior to agreeing to purchase it. I also heard from Mr. Pett (Mr. Green's brother-in-law who carried out some repairs at the Property after the date of the Transaction) and Mr. Liassides who works as an administrator for SMC and Mr. Green. Mr. Clegg provided a witness statement but did not attend court for cross-examination. The Liquidator and SMC rely on his statement for different reasons. I shall therefore take account of his evidence giving it the appropriate weight.
In addition to the witnesses of fact I heard from two experts regarding valuation, and had the advantage of reading a third expert report. Mr. Hewetson gave expert evidence for the Liquidator contending that the Property should be valued on an owner occupier or investment basis and Mr. Wolfenden gave evidence for SMC contending that the Property should be valued on an investment basis only. Mr. Garfinkel was SMC's original expert but took no part at the final hearing. He produced a draft statement of agreed facts with Mr. Hewetson but that has been superseded by a joint statement provided by Mr. Hewetson and Mr. Wolfenden. Mr. Hewetson was asked questions by SMC following the joint statement and has provided answers to clarify his position. I take account of Mr. Garfinkel's report but give it less weight on the basis that he was not called and his evidence is untested.
Section 127 IA — analysis
The first provision which concerned the security of an insolvent estate in the vulnerable period between petition and order has been traced back to 1571 (13 Eliz, c7, section 2(12)) and was explained by Lord Coke in The Case of Bankrupts 2 Co Rep 25a in the following terms:
"if, after a debtor becomes a bankrupt, he may prefer one it would be unequal and unconscionable, and a great defect in the law, if after...
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