Asertis Ltd v Mr Dale Heathcote
| Jurisdiction | England & Wales |
| Judge | Stephen Davies |
| Judgment Date | 10 October 2022 |
| Neutral Citation | [2022] EWHC 2498 (Ch) |
| Docket Number | Case No: BL-2021-MAN-000043 |
| Court | Chancery Division |
[2022] EWHC 2498 (Ch)
HIS HONOUR JUDGE Stephen Davies
SITTING AS A JUDGE OF THE HIGH COURT
Case No: BL-2021-MAN-000043
IN THE HIGH COURT OF JUSTICE
BUSINESS & PROPERTY COURTS IN MANCHESTER
INSOLVENCY AND COMPANIES LIST (Ch D)
IN THE MATTER OF SERVICO BUILD TEC LIMITED (IN LIQUIDATION)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Manchester Civil Justice Centre,
1 Bridge Street West, Manchester M60 9DJ
Douglas Cochran (instructed by Primas Solicitors, Warrington) for the Claimant
Chelsea Carter (instructed by BBS Solicitors, Manchester) for the Defendants
Hearing dates: 12–14 September 2022
Draft judgment circulated: 3 October 2022
APPROVED JUDGMENT
Remote hand-down: This judgment was handed down remotely at 10:30am on 10 October 2022 by circulation to the parties or their representatives by email and by release to The National Archives.
His Honour Judge Stephen Davies
Contents
Summary
Witnesses
Relevant legal principles
Rewards claim
Payment claim
Summary
This case concerns two separate claims brought by the claimant as assignee of Servico Build Tec Limited (“the Company”) against the first defendant (“Mr Heathcote”) and against the second defendant (“Contract”) in relation to his conduct as director of the Company, of which he was sole director at all relevant times until it went into creditors' voluntary liquidation on 14 December 2018.
The first (“the rewards claims”) concerns two transactions, benefitting Mr Heathcote in the sums of £270,000 (‘the first reward’) and £250,000 (‘the second reward’) respectively, made pursuant to an Employee Benefit Trust tax avoidance scheme (“the EBT Scheme”) promulgated by a specialist business known as Qubic Tax (“Qubic”). The EBT Scheme was designed to allow Mr Heathcote to obtain rewards from the Company without tax becoming payable either by the Company or by him. In summary, the claimant contends that the rewards: (a) were neither authorised nor justifiable as remuneration to Mr Heathcote for his services as director and had no other proper basis and, thus, made in breach of his duties to the Company as its director; and/or (b) represented transactions at an undervalue defrauding creditors under s.423 of the Insolvency Act 1986; and/or (c) were made in breach of what is commonly referred to as the insolvency or creditors' interests duty. Although other claims for other breaches of director's duties are pleaded Mr Cochran did not suggest that they add anything to these three key arguments.
The primary relief claimed is an order that Mr Heathcote repays or restores the rewards to the Company or pays damages or compensation in the amount of the rewards, together with interest. The alternative relief claimed is an order that Mr Heathcote restores the amount of the Company's liability to tax arising out of the EBT Scheme or pays damages or compensation in such amount.
The second (“the payment claim”) concerns a payment (‘the Payment’) of £65,000 made by the Company to Contract on 31 October 2018. In summary, the claimant claims that the Payment was a preference payment under section 239 of the Insolvency Act 1986 (“the s.239 claim”) and that: (a) Contract is liable to restore that payment to the claimant as assignee of the Company; and (b) Mr Heathcote is also liable to do the same because he caused the Payment to be made in breach of his duties as director. Again, it is not suggested that the various other pleaded claims add anything to this key case.
On days one and two of the trial I heard oral evidence from 4 witnesses of fact, followed by oral evidence given concurrently from the two accountancy experts instructed by the parties. On day three I had the benefit of excellent written and oral submissions from both counsel after which I adjourned to produce this judgment. I also allowed the parties the opportunity to adduce short supplemental evidence if needed on a late produced document relevant to the rewards claim, which I admitted into evidence subject to that condition, and to which I refer below.
In short, my decision is that the rewards claims fail but the payment claim succeeds. My reasons follow.
Witnesses
Mr Gareth Howarth is the liquidator of the Company; he was the only witness for the claimant. As often occurs in such cases, he made reference to a large number of contemporaneous documents for no obviously good reason other than to take the court through the claimant's case. He was cross-examined on some in a way which helped me understand the details. The key point where his oral evidence was important related to an argument advanced by the defendants that he had sanctioned the payment the subject of the s.239 claim. I have no doubt that his evidence was reliable on this point when he denied having done so, by reference to the contemporaneous documents and the inherent probabilities.
Mr Dale Heathcote is the first defendant and the sole director of the Company prior to its insolvency. He and his former wife were at the relevant times the directors and shareholders of Servico Holdings Limited (“Holdings”) which was the sole shareholder of the Company. He and his former wife were also the directors of Contract of which Holdings was also the sole shareholder. It is apparent that his former wife took no active part in the affairs of any of these companies and was content to delegate the management of the companies to her husband. There were a number of other companies forming part of the Servico group of companies but there is no need to say any more about them.
The Company specialised in flatpack furniture assembly particularly for the retail sector. It is not seriously contested by the claimant and I am satisfied that at the time the rewards were made the Company was successful and profitable largely, according to Mr Heathcote, because of a profitable contract it had secured with the retail business Next. Nor does the claimant seriously dispute and I am satisfied that the Company later became loss-making largely due to the loss of that contract.
Mr Heathcote came across to me as a perfectly decent and honest man who obviously had a good grasp of his business but little knowledge of financial, accountancy or legal matters. His recollection of events dating from 2013 onwards was in my view lacking in detail and largely impressionistic. I cannot place any weight on his oral evidence as to the details, especially where inconsistent with the contemporaneous documents or the inherent probabilities.
Ms Holly Coleridge was his PA from September 2017 and also helped out in the accounts department due to the frequent absence of the group bookkeeper. As her evidence unfolded it became clear that she had little if any relevant direct knowledge of the key issues relating to the payment claim and no knowledge of the issues relating to the rewards claim.
Mr Neil Jones is an accountant with a Stockport practice, Bennett Verby and has acted on behalf of Mr Heathcote and his companies in connection with their financial and tax affairs since August 2011. He also came across to me as a perfectly decent and honest man who had obviously struck up a good rapport with Mr Heathcote over the years. He came across as being very good at getting and retaining business but someone who tended to delegate the detail to others at the firm, specifically: (a) a former employee, Zoe Evans, in relation to the reconciliation of the inter-company accounting in the run-up to the Payment, who was not called to give evidence; (b) his tax partner, Mr Nick Lowe, who was also not called to give evidence. It was not immediately apparent from the evidence which I did receive whether or not Mr Lowe had a significant role in relation to the entry into and implementation of the EBT scheme, in contrast to the later HMRC investigations, and in the absence of documentary or other evidence to suggest that he did I proceed on the basis that he did not. It seemed to me that Mr Jones was unable to recall with significant reliability key details, not surprisingly given the passage of time. In the circumstances and as with Mr Heathcote I am unable to place very great reliance on his oral evidence where inconsistent with the contemporaneous documents or the inherent probabilities.
The claimant instructed as its accountancy expert Mr David Kitson and the defendant Mr Anthony Tesciuba. As I have said they gave their evidence concurrently and, having asked questions to clarify my understanding of their respective opinions, it became clear that there was little if any difference of any significance between them on the important issues in the case. Counsel agreed that this was so and, in the circumstances, had no need to put any questions to them in cross-examination.
Relevant legal principles
I must summarise the important applicable legal principles. Since counsel were very substantially agreed as to these principles, which are well-established, I do not need to undertake a detailed analysis of every relevant principle.
Justification for the provision of the rewards
Mr Cochran's starting point, from which Miss Carter did not dissent, was that where a company confers a reward upon a director which is challenged it is necessary for the director, as a fiduciary, to explain and to justify the payment as a proper one: see the judgment of Newey J in GHLM Trading Limited v Maroo and Others [2012] EWHC 61 (Ch) at paragraphs 143 to 149.
Since Mr Heathcote justifies the rewards as constituting remuneration provided for his services under what he says he believed was a legitimate tax avoidance scheme it is necessary to say something about remuneration.
Remuneration
It is common ground that under the...
To continue reading
Request your trial