Bloomsbury International Ltd &Ors v Holyoake and Others
| Jurisdiction | England & Wales |
| Judge | THE HON MR JUSTICE FLOYD,Mr Justice Floyd |
| Judgment Date | 21 May 2010 |
| Neutral Citation | [2010] EWHC 1150 (Ch) |
| Docket Number | Claim No HC 10C00890 |
| Court | Chancery Division |
| Date | 21 May 2010 |
[2010] EWHC 1150 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Before: The Hon Mr Justice Floyd
Claim No HC 10C00890
Case Nos: 1461,1462,1463 AND 1464 OF 2010
In the Matter of Bloomsbury International Limited
And In the Matter of British Seafood Limited
And In the Matter of Seafood Intermediate Company 1 Limited
And In the Matter of British Seafood Holdings Limited (all Four Companies In Administration)
And In the Matter of the Insolvency Act 1986
Robert Howe QC and Brian Kennelly (instructed by SJ Berwin LLP) for the 1 st, 2 nd,12 th 13 th and 16 th to 19 th Defendants in the action
Charles Hollander QC and Tony Singla (instructed by SJ Berwin LLP) for the Applicants in the Administration proceedings
Ewan McQuater QC, Sonia Tolaney and Sandy Phipps (instructed by Freshfields Bruckhaus Deringer LLP) for the Claimants in the action and the Respondents in the administration proceedings
Hearing dates: 13 th, 14 th, and 17 th May 2010
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Floyd:
The claimants are companies engaged in the seafood trade, which I will refer to as “the Four Companies”. The Four Companies were placed in administration by order of Morgan J on 19 th February 2010. The administrators, who are partners in the firm of Deloitte LLP, claim, subsequent to their appointment, to have uncovered a significant fraud on the Four Companies. They commenced the present proceedings on their behalf against two of the directors, Mr Holyoake and Mr Wells, the first and second defendants, and also against numerous other companies said to be involved. On March 16 2010 I granted a worldwide freezing order and a search order on the application of the claimant companies in administration against the first eleven defendants, freezing assets up to the value of £210 million. On 23 rd March I granted a further such order against the 12 th to 14 th Defendants. On 29 th March I granted a yet further order against the 15 th to 19 th Defendants. The first of the two applications before me is an application made on behalf of the defendants for fortification of the cross undertaking which was required as a condition of the freezing orders. The second application, which is made by Mr Holyoake and Mr Wells, is an application in the administration proceedings and seeks the appointment of additional administrators, on the grounds that Deloitte LLP and its predecessor entities have acted as personal tax advisors to Mr Holyoake, and are therefore in a position of conflict in relation to the fraud proceedings. I shall refer to the two applications as “the Fortification Application” and “the Conflict Application” respectively. A third application, concerned with reducing the sum secured by the freezing order, has been adjourned with liberty to restore.
The defendants are said to have been involved in various ways in a conspiracy to defraud the claimant companies of very large sums of money. It is said that Mr Holyoake and others arranged for the Four Companies to borrow large sums of money from banks, remitted these sums to suppliers in Hong Kong on the basis that they were purchasing seafood products for the Four Companies, when in fact no such product was to be supplied. The Hong Kong suppliers are companies of which Mr Holyoake is the ultimate beneficial owner. Initially at least, the matter was presented to me on the basis that the defendants were wholly responsible for an excess of liabilities over assets in the company of the order of £200 million. Subsequent investigations revealed that sums paid to the Hong Kong suppliers were remitted to companies in this country with which Mr Holyoake was also connected, leading to the joinder of the 12 th to 14 th defendants. In short, it was being said that Mr Holyoake had misappropriated significant sums from the company, leaving the company with a significant excess of liabilities over its assets.
These allegations are hotly contested by Mr Holyoake and Mr Wells. They point out that the 12 th to 14 th defendants have in turn remitted large sums of money back to the claimants, and over a particular period have in fact paid more money to the first claimant than the first claimant has paid out. Of course, at this stage, much of what is alleged by the administrators remains unexplained by Mr Holyoake and Mr Wells. In particular no real sense is made of the overall movement of funds in this way. The administrators are far from satisfied by Mr Holyoake's explanations, and some aspects of their allegations are not yet the subject of any explanation from Mr Holyoake. It is fair to note, however, that the scale of the fraud, if there was one at all, may turn out to be more limited than that which it was originally presented to be. In the meantime all Mr Holyoake's very substantial asset portfolio remains frozen.
The Fortification Application
The cross undertaking which was included in the worldwide freezing order which I made was in the following, limited, form:
“If the Court later finds that this Order has caused loss to a Respondent, and decides that a Respondent should be compensated for that loss, the Applicants will comply with any order that the Court may make, subject to any order being limited to the sums from time to time held within the administration estates of the Applicants.”
It will be seen that that undertaking was not given by the administrators personally but by the companies in administration. Moreover it is limited to the sums for the time being in the estates being administered.
Mr Matthew Smith, a partner in Deloitte, and one of the joint administrators with Nicholas Edwards and Louise Brittain, acknowledged in his first Affidavit that the Four Companies were heavily insolvent. He estimated that the assets of the Companies (before liabilities in the region of £250 million) were likely to be in the region of £15 million. This was “prior to the payment of any professional fees, which will clearly be significant in a case of this sort”.
In his second witness statement, Mr Holyoake said:
“Given the size of the professional services teams working on the current litigation … it is in my view fanciful to think that there will, following the trial of the action, be any assets in existence upon which the undertaking may “bite”. In any event, I would only become one of a number of creditors of the administration estates, which in practice could be worthless.
Mr Smith explained in his second witness statement that at the date of the administration the total liabilities were estimated at £273.6 million. The only significant assets were debtors and stock. Figures presented to the creditors meeting on 20 th April 2010 showed stock at £10.6 million, debtors at £4.8 million and other assets at £0.6 million. Beyond this explanation Mr Smith did not venture any comment as to the value of the cross-undertaking, or specifically take issue with Mr Holyoake's opinion that the undertaking was likely to be worthless.
An interim report by the administrators prepared for the 20 th April meeting shows that in a period of less than one month from 19 th February to 15 th March 2010 more than £800,000 has been expended by the administrators. The initial investigation of the fraud took approximately 450 man hours (excluding legal advisers). Mr Smith explains in a number of places in his evidence that the investigation is continuing and is likely to continue for a significant period.
The figure of £800,000 relates to Deloitte's employees, and excludes the costs of the solicitors in the present action which will undoubtedly be substantial. I invited Mr McQuater QC on two occasions to give me an estimate of the total costs to date, but he was unable to do so. These solicitor costs are also likely to be substantial. Simply by way of example the claimants’ solicitors have presented bills on the various applications before me as follows: for the Conflict Application £139,000, and £112,000 for the Fortification Application.
The defendants for whom Mr Howe QC appears say that this cross undertaking is insufficient and should be fortified by the provision of a bond in such sum as the court considers appropriate, and which they tentatively suggest should be £10 million. They submit that the present cross undertaking is effectively worthless.
There is no dispute that the cross undertaking is the normal price which a litigant pays for obtaining a restraining order at a stage of the litigation before that litigant has established any rights. The court makes the litigant give a cross undertaking in damages against the possibility that it may turn out at trial that the order should not have been made. In a case where it does turn out that an order...
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