: and Others
| Jurisdiction | England & Wales |
| Judge | JOHN JARVIS QC |
| Judgment Date | 27 March 2006 |
| Neutral Citation | [2006] EWHC 782 (Ch) |
| Docket Number | No: 1872 & 1873 of 2005 |
| Court | Chancery Division |
| Date | 27 March 2006 |
[2005] EWHC 782 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Court of Justice
Strand, London WC2A 2LL
Mr J M Jarvis Qc
Sitting As A Deputy High Court Judge
No: 1872 & 1873 of 2005
Khawar Qureshi (instructed by the Treasury Solicitor) appeared for the Petitioner
Jonathan Russen (instructed by Judge Sykes Frixou) appeared for the Respondents
I direct pursuant to CPR PD 39, para 6, that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
On 21 March 2005, the Secretary of State for Trade and Industry (the Secretary of State) presented petitions against two companies, Portfolios of Distinction Limited (POD) and Turning Point Seminars Limited (TPS) seeking an order for their compulsory winding up pursuant to s.124A of the Insolvency Act 1986. On 9 March 2004 in civil proceedings involving a related company CM2 Services Limited (CM2) Laddie J referred the conduct of POD and CM2 to the Secretary of State with a view to an investigation of the affairs of these companies. On 13 May 2004 Mr Gordon Stevenson and Mr Clayton Ruthven, both accountants, were appointed to investigate the affairs of the companies. The Secretary of State's investigation ended in November 2004.
On 7 April 2005 provisional liquidators were appointed over POD and TPS pursuant to the order of Park J, following a without notice application by the Secretary of State. It was the Official Receiver who was appointed the provisional liquidator in each case.
The primary complaint of the Secretary of State is that POD was carrying on business in a way that was inherently objectionable. The complaint is that it induced members of the public to participate in its scheme for an annual fee of some £50,000 on the basis of a representation that the client would acquire a portfolio of property worth £1m within 12 months. It is said that this representation was deliberately false and can be shown to have been so by the small number of clients who achieved that result. It is also said that POD and TPS were so inter-connected with CM2 that its wrongdoing has "tainted" POD and TPS.
On the second day of the hearing of the petitions, Counsel for the Secretary of State, Mr Qureshi, sought to amend the POD petition to plead a number of allegations relating to directors' loan accounts. In the face of objection by the Respondents that these serious allegations were being raised by way of pleaded case at the last moment and the fact that it would require forensic evidence to deal with them, Mr Qureshi withdrew the application to amend in relation to the directors' loans.
The Secretary of State's case against TPS is that it diverted its clients to POD and CM2 knowing the nature of the business of those companies. In addition, the Secretary of State alleges that irregular payments were made out of the funds of TPS.
POD resists the petition on the basis that the Secretary of State has failed to make out a case of mis-selling. POD says that there is no evidence to show that it did not provide the services for which the client contracted. It asserts that, although its association with CM2 can be severely criticised, it took steps to rectify the position and there is no longer any public risk in relation to CM2. It also asserts that over a period of one year before the presentation of the petition, it had instituted real improvements to the way in which its business was conducted and the Secretary of State had failed to take into account these improvements.
TPS resists the petition by reiterating the points made by POD but also on the basis that the business of TPS was the giving of seminars about which no complaint has ever been made by a member of the public. It rejects the claims in respect of financial irregularity.
I must set out in more detail the background of the companies.
Background
POD was incorporated on 28 March 2002. Its shareholders were Mr Alan Churchill and Ms Wendy Dowling. Mr Churchill and Ms Dowling were appointed directors of POD on 1 June 2002 and remain directors of POD. Ms Dowling was also appointed company secretary on 1 June 2002 and resigned on 4 January 2005. At that time, Mr Churchill and Ms Dowling were married but have since divorced. Although divorced, they are currently living in the same accommodation in Florida. TPS was incorporated on 18 January 2001. Ms Dowling has been the sole director since 18 January 2002. Mr Churchill has been the company secretary of TPS since 18 January 2002.
CM2 was incorporated on 29 January 2003. Although there is no formal documentation, it appears to be common ground that POD owned 49% of the shares of CM2 whilst Mr Donald Ian Laird owned the remaining 51%. Mr Laird was appointed a director of CM2 on 29 January 2003 and resigned on 16 December 2003. Mr Churchill was appointed director of CM2 on 12 November 2003 and resigned on 8 December 2003.
Mr Churchill and Ms Dowling started the business of TPS in February 2001. They held residential courses lasting four days with a view to educating participants on the techniques of investing in property. Delegates paid a fee of £4,000 which was increased to £6,000 after the first year. Initially TPS did not offer any properties to the delegates at the seminars but in March 2002 they met Mr and Mrs Kieran Connolly who attended a TPS seminar. The Connollys told Mr Churchill and Miss Dowling that they had got into "a bit of a mess with their investments" and they would like to be involved with the business of TPS. The Connollys had an existing company called Quicksell Limited (Quicksell) and it was agreed that Quicksell could be used to offer a property sourcing service.
TPS put its clients in contact with Quicksell and allowed the Connollys to rent office space at TPS's offices at Portfolio House.
In April 2002, Mr Churchill and Miss Dowling started the business of POD and, for that purpose, they employed Mr Connolly to help in the sales side of the business. Mr Connolly was featured in the sales brochure. Unfortunately, in February 2003 Mr Churchill and Miss Dowling discovered that Mr Connolly was holding himself out as a director of POD and receiving money intended for POD either himself or through Quicksell. In March 2003, Mr Churchill discovered that Mr Connolly was using the alias of Mr Waterfall. Mr Connolly's employment was terminated and a petition to wind up Quicksell was presented, and a freezing order made.
In March 2003, Mr Churchill and Ms Dowling met Mr Ian Laird who at that stage was acting as a bodyguard for them. Mr Laird had established CM2 and said that he was experienced in debt purchase and debt collection. Mr Churchill and Ms Dowling took a 49% shareholding in CM2 and claimed to be impressed by the CM2 scheme. They started marketing CM2 to the POD and TPS client base and to the general public.
However by September 2003 they became suspicious of Mr Laird who had not produced documentation to support the transactions which were supposed to have taken place. At a meeting on 8 September 2003 between Mr Churchill and Ms Dowling and Mr Laird requests for further information were made which were reinforced at a meeting on 27 October 2003. During the course of the audit in November 2003 Mr Laird refused to make any documents available to POD's auditors, Kingston Smith. Mr Laird, who had operated CM2 from Portfolio House was ejected from the premises in December 2003. On 21 January 2004 POD started proceedings against CM2.
There seems little doubt that the business of CM2 was conducted fraudulently and that investors were deprived of their money.
Until the appointment of the provisional liquidators, TPS and POD had continued in business. There is an issue whether TPS had held any seminars since March 2005, although it still maintains a website. On the basis of the schedule produced in court by Mr Churchill, POD had some 118 clients, of which some 80 were still active. The schedule demonstrates that POD had procured offers of property to a substantial number of its clients.
The grounds in the petitions
(a) POD
I set out the grounds relied upon by the Secretary of State in paragraph 36 of the petition:
"36. For reasons detailed above and in the affidavits of Mr Stevenson and Mr Ruthven filed in support, and summarised below it is the Petitioners case that POD acted with a lack of commercial probity to the significant detriment of its clients and that, therefore, it is in the public interest that POD be wound up.
i) Having reviewed the client files held by POD and after speaking with POD directors, Mr Ruthven's investigations did not reveal a single instance of a client who had achieved a £1m property portfolio within 12 months, in contrast to the clear and unequivocal representations made in this regard.
ii) Further, representations on the closing costs were considerably understated. The client's (sic) never appreciated the full financial burden until too late in the purchase transaction and purchased (sic) were aborted as a consequence with loss to the client.
iii) Inevitably, the rental returns promised were not achieved.
iv) POD purported to breach its contract with its clients after providing unsuitable premises for purchase or asking the client to decide on purchase without sufficient information or time.
v). By virtue of the interconnectedness between POD/TPS and/or Services, the business operations of the three companies became intertwined through intermingling of funds and/or transfer of funds without justification.
vi). Further or in the alternative, POD and/or TPS promoted Services purported debt...
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