Barclays Bank Plc (Trading as Barclays Global Payment Acceptance) (Petitioner) v the Registrar of Companies and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Norris |
| Judgment Date | 07 October 2015 |
| Neutral Citation | [2015] EWHC 2806 (Ch) |
| Docket Number | Case No: 34 of 2015 |
| Court | Chancery Division |
| Date | 07 October 2015 |
[2015] EWHC 2806 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
LEEDS DISTRICT REGISTRY
Manchester Civil Justice Centre
1 Bridge Street West
Manchester
M60 9DJ
Mr Justice Norris
VICE-CHANCELLOR OF THE COUNTY PALATINE
Case No: 34 of 2015
Steven Fennell (instructed by Eversheds) for the Petitioner
Louis Doyle (instructed by Saints Solicitors) for the Third Respondent
Hearing dates: 6 July 2015 (at Liverpool)
The question to be answered in this case is what steps (if any) are open to a creditor to get in additional assets belonging to a dissolved company that was formerly in administration. In particular is it open to the creditor (a) to restore the company to the register (b) then to seek a winding up order and (c) as part of that application to ask for the winding up petition to be treated as presented as at some earlier date?
Client Connection Limited ("the Company") was incorporated in July 2008. Its two directors were Ryan Stanton and Norman Stanton. The business of the Company was the claims management of PPI claims: it traded under the names "Life Style Claims" and "Money Claiming Experts". Its business model was to canvass potential clients by telephone, assess over the phone whether they might have a PPI claim, obtain the clients' verbal agreement to allow the Company to handle the claim on a "no win, no fee" basis and then (notwithstanding that agreement) to charge an "upfront fee" of £359.00 (irrespective of the amount of the claim itself).
This "upfront fee" would generally be paid by credit card. In the event that the client was dissatisfied with the service provided or in the event that the claim failed the client would seek repayment of the "upfront fee". This claim was generally made against the card issuer (not the Company) and if allowed was then the subject of a "chargeback" by the card issuer to the Company. Originally about 40% of the claims managed by the Company failed, so the volume of "chargebacks" was already fairly high. The volume increased when (as a result of challenges to the claims management industry and of the Ministry of Justice making a regulation which forbade the collection of "upfront fees") the business of the company stumbled, its service deteriorated and the number of dissatisfied customers grew.
Because of the cash flow problems thereby generated the directors decided to put the company into administration. This they did on the 9 October 2012. They appointed Ms Gagen Dulari Sharma ("Ms Sharma") of Sharma & Co as the administrator. The object of the administration was to achieve a better realisation for the creditors than if the Company had immediately gone into liquidation: and Ms Sharma assumed certain obligations in pursuing that objective.
First, by paragraph 3(2) of Schedule B1 of the Insolvency Act 1986 ("the 1986 Act") Ms Sharma was obliged to perform her functions "in the interests of the company's creditors as a whole". Although she had been appointed by the directors, her duties lay towards the creditors.
Second, according to Statement of Insolvency Practice 2 ("SIP2") she undertook obligations to conduct investigations into the Company's affairs. As part of her initial assessment her professional obligations required her to do the following:-
"9. Notwithstanding any shortage of funds, an office holder should consider the information acquired in the course of appraising and realising the business and assets of a company together with any information provided by creditors or gained from other sources, and decide whether any further information is required or appropriate. The office holder should make enquiries of the directors… by sending questionnaires and/or interviewing them…
10. In every case, an office holder should make an initial assessment of whether there could be any matters that might lead to recoveries for the estate and what further investigations may be appropriate.
11. An office holder should determine the extent of the investigations in the circumstances of each case, taking account of the public interest, potential recoveries, the funds likely to be available to fund an investigation, and the costs involved.
12. An office holder may conclude that there are matters (for example, the conduct of management, prior transactions susceptible to challenge…) that require early investigation, either as a matter of public policy or because there are real prospects of recoveries for the estate. It is for the office holder to decide whether investigation and subsequent legal action should proceed as quickly as possible, without consultation with or sanction by creditors…".
Upon taking office Ms Sharma immediately that day effected a "pre-pack" sale of the Company's ongoing claims book and of its modest goodwill to Redhawk Legal Limited (an unconnected party) for a small premium and a deferred consideration of 10% of the claim values. Any continuing liability under this provision was later commuted to a single payment of £1000. Only 62p was collected by way of realisation of the Company's book debts. Total realisations were £70,000. Ms Sharma's fees and disbursements as administrator amounted (as billed) to £141,000.00. There was therefore no return at all for the 2683 creditors with claims totalling £3.196m.
In her initial proposals to the creditors Ms Sharma explained:-
"My investigations into the affairs of the Company and the events leading up to my appointment are still at an early stage and I will report my conclusions to the appropriate bodies in due course. In the meantime if creditors have any specific matters regarding the running of the Company and/or the conduct of its directors that they feel warrant investigation please provide full details in writing."
In fact as at the date of proposal it appears that Ms Sharma had expended no chargeable time at all upon investigations.
In her progress report to the Creditors for the period 9 October 2012 to 8 April 2013 Ms Sharma reported:-
"Investigations have been completed into the failure of the Company as required by Statement of Insolvency Practice 2"
She told creditors that she had reported upon the director's conduct but that as the report was confidential she could not disclose its contents. The entire investigation process had taken 3.6 hours of the time of a senior professional, for which a time cost charge of £990.00 was made.
It is apparent from her final report (undated but probably issued on 23 September 2013) that the investigations for which she had charged for 3.6 hours of time covered the SIP 2 review, the CDDA reports and an investigation of "antecedent transactions". In her final report Ms Sharma said that no further realisations were anticipated in the administration in respect of the sale or otherwise, and that as there were insufficient realisations to make any distribution to unsecured creditors she proposed to move from administration to dissolution of the Company under paragraph 84(1) of Schedule B1 to the 1986 Act. It appears that notice of that intention was registered by the Registrar of Companies on 26 September 2013: and that the Company was dissolved on the 26 December 2013 by the operation of paragraph 84(6) of Schedule B1.
In none of her reports to creditors had Ms Sharma given any details of any of the investigations which she had undertaken or of their outcome. It is not possible to be confident that Ms Sharma got to the bottom of events so that she could explain to the creditors why they were getting nothing in respect of their debts.
The most significant creditor in the insolvency was Barclays Bank Plc which had a claim of just over £2m in respect of "chargebacks" due to it. Barclays thought that there were certain transactions which required investigation. These were summarised in a letter dated the 12 September 2014 (9 months after dissolution) sent by Mr Wood of Grant Thornton to Barclays by way of advice. His advice was based on a consideration of "the trial balance provided along with the Statement of Affairs by the former administrator", a reference to a document and attachment prepared by Ryan Stanton on the 23 October 2012 (after the commencement of the administration). From this material it seemed to Mr Wood that a lot of money had gone out of the Company which could potentially be clawed back for the benefit of its creditors. He identified four transactions which he thought required further investigation:-
a) £5.4m paid to Cellcom Communications Limited ("Cellcom") in the year to October 2012 (which company itself had some connection with the Company through common participators and had subsequently entered into a creditors' voluntary liquidation);
b) "Upfront sales" of £4.4m shown in the year to October 2012;
c)"Sales done on Phantom" of £2.5m shown in the year to October 2012;
d) Dividends of £395,000.00 paid in the year to October 2012.
Grant Thornton's letter of the 12 September 2014 was not the first that Barclays knew of some of the transactions referred to. Indeed as early as the 22 October 2012 (within days of the commencement of the administration) dealings between the Company and Cellcom had been raised by Barclays at a meeting with Ms Sharma. It was suggested by Barclays that the Company outsourced its claims handling to Cellcom and was continuing to do so immediately before the administration commenced, and Ms Sharma confirmed that she would investigate all such transactions since the 7 September 2012 along with details of any claims that had been passed to third parties and any connected party transactions. I have summarised her investigations and reports to creditors. It is the evidence of...
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