Brian Baker (as Liquidator of TMG Brokers Ltd) v Mr Dennis Staines
| Jurisdiction | England & Wales |
| Judge | Burton |
| Judgment Date | 23 April 2021 |
| Neutral Citation | [2021] EWHC 1006 (Ch) |
| Date | 23 April 2021 |
| Docket Number | Case No: CR-2017-004535 |
| Court | Chancery Division |
[2021] EWHC 1006 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
IN THE MATTER OF TMG BROKERS LIMITED (IN LIQUIDATION)
The Rolls Building
London, EC4A 1 NL
INSOLVENCY AND COMPANIES COURT JUDGE Burton
Case No: CR-2017-004535
Clara Johnson (instructed by Taylor Rose MW) for the Applicants
The Respondents in person
Hearing dates: 19 to 21 January 2021
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.
Introduction
This is the hearing of an application by TMG Brokers Limited (the “ Company”) and its liquidator Mr Baker, seeking declarations in relation to certain payments, pursuant to section 212 of the Insolvency Act 1986 and consequential orders against the First Respondent Mr Staines, and the Second Respondent, Mr Madu, both of whom were directors and shareholders of the Company.
The payments in question were:
i) from the Company's bank account with Bank Frick & Co in Liechtenstein (the “ Frick Account”) to Mr Madu made during the period 12 September 2013 to 1 December 2016, totalling £175,053.32 (the “ Frick Payments”);
ii) cash withdrawals from the Frick Account, which the Liquidator considers were most likely made by Mr Madu of €50,409.11 (the “ Frick Cash Withdrawals”);
iii) £213,791.94 directed to be paid by one of the Company's debtors to the account held by a connected company, TMG Pay Limited (“ TPL”) with Barclays Bank in England, which company and bank account were also under the control of the Respondents (the “ TPL Account”). Of the £213,791.94 paid into the TPL Account which the Applicants seek to recover (the “ TPL Payments”) they refer in particular to the following “ Identified Payments”:
iv) £132,873 paid to Mr Madu;
v) £13,786 paid to Mr Staines;
vi) £6,552 was out in cash in Italy, where Mr Madu resides; and
vii) £53,747.91 used to discharge TPL's liabilities.
This left an unaccounted for balance of £6,831.84 (the “ Balance”).
The Applicants claim that:
i) the Frick Payments and Frick Cash Withdrawals were ultra vires, disguised distributions of capital, or that in causing or permitting the payments, the Respondents acted in breach of the fiduciary duties which they owed to the Company as its directors; and
ii) the TPL Payments were diverted away from the Company in breach of the Respondents' fiduciary duties.
The Liquidator's first witness statement refers additionally, to a payment of US$6,525.28 (the “ US$ Payment”) paid to Mr Madu from the Frick Account. This amount was not included in the Applicants' Application Notice. The Respondents are entitled clearly to know the claim against them. As such the US$ Payment forms no part of the claim now before the Court.
Background
The Company was incorporated on 12 October 2012 with an issued share capital of £20, made up of 10 shares with a nominal value of £2. The Company's most recently filed annual return, made up to 12 October 2015, states that Mr Staines held two shares and Mr Madu held eight shares.
The Company filed dormant accounts for the years ending 31 October 2014, 2015 and 2016.
Despite those accounts, the Company in fact provided online credit card payment processing services which sat between a merchant who was providing goods or services to credit card holders (usually members of the public – the “ End Customer”) and a regulated acquiring bank (or “ acquirer”) who would collect the payments due from the relevant issuer, Visa or Mastercard. It appears from evidence given by the Respondents during recorded interviews on 9 and 23 February 2018 with Mr Alcock, a member of the Liquidator's staff (the “ Alcock Interviews”) that the Company also sought to engage in commodities trading, but that none of the proposed transactions completed.
For the purposes of its card-processing services, initially the Company worked with an acquirer owned by ABN Amro, called European Merchant Services. However, on 14 May 2014, the Company entered into a contract with another acquirer, One Stop Money Manager Limited (“OSMM”). Shortly afterwards, OSMM became the only acquirer working with the Company.
Broadly the arrangement operated, or should have operated, as follows:
i) The End Customer would use the Company's portal to pay the amount claimed by the merchant for the goods or services the merchant was providing, by credit card. The credit card issuer would pay that amount into OSMM's bank account (which, like the Company's Frick Account, was also held with Bank Frick & Co in Liechtenstein).
ii) Once a week, the Company would extract from OSMM's portal, a report of the week's transactions. Once a week, OSMM would retain a 2.8% processing fee as well as an additional 10%, the latter going towards what is described as a “Rolling Reserve” held by OSMM for 6 months to guard against situations where an End Customer requested a “chargeback”.
iii) Two weeks later, OSMM would credit the remaining 87.2% of the payment to the Company's Frick Account.
iv) The Company would then pay the majority of funds, net of its own fee (4.5%) to the merchant.
From October 2014, when the Company was working exclusively with OSMM, the majority of its business was the provision of card processing services to merchants who were in the business of seeking to recover compensation due to End Customers who had been mis-sold payment protection insurance (“PPI”).
The Company worked, in particular, with three such PPI recovery merchants, all either trading names of, or separate companies, associated with Thomson Legal Limited: Versus, Money Advice Centre and Taylor & Taylor (together the “Thomson Legal Merchants”). End Customers were cold-called by one of the Thomson Legal Merchants and generally asked to pay an upfront fee of between £300 and £500 for the merchant to investigate whether any PPI Refund was due to them. The End Customer was informed that if the merchant's investigation revealed that they were not due to receive a PPI Refund, the upfront fee would be repaid to them.
A “chargeback” could arise in circumstances where, for example, an End Customer was found not to be entitled to receive a PPI refund or where an End Customer claimed that it had not purchased or received the merchant's services.
Chargebacks were deducted automatically from the Company's account with OSMM. If OSMM considered the Company was incurring too many chargebacks, it could close the account. However, where the Company received advance notice of a fee needing to be repaid to an End Customer, to avoid a chargeback, the Company could instead directly refund the money to the merchant.
It is not in dispute that in mid-February 2015, Mr Madu, sent an email to OSMM instructing it to make all future payments (which would otherwise have been paid to the Company's Frick Account) to the TPL Account. The email referred to the account simply as “TMG” and provided no other indication to OSMM that the account was in fact held by another company, TPL.
TPL was incorporated on 11 November 2011. From around 18 April 2017, Mr Staines was the holder of 25 of its shares and Mr Madu, 75 shares. A compulsory winding-up order was made against TPL on 24 May 2018.
Both Respondents stated in their witness statements that it was a feature of the PPI compensation business that PPI merchants were only in business for a short period of time. The Thomson Legal Merchants stopped trading in November 2015 after informing the Respondents that following a Ministry of Justice audit, they were told that they could not continue trading as agents under a licence held by a separate company in Manchester. The Respondents state that the Thomson Legal Merchants then informed their End Customers of the customer's right, under section 75 of the Consumer Credit Act 1974, to make a claim against the credit provider. They say that this led almost immediately to an enormous number of chargeback claims. The claims were initially met from the Rolling Reserve held by OSMM, but once that had been exhausted, on 16 June 2017 OSMM presented a winding-up petition against the Company for £158,000.
The Alcock Interviews record that the Company instructed a direct-access barrister and sought an adjournment on the basis of evidence set out in a witness statement made by Mr Madu regarding funds which the Company was due to receive from a pending oil trade. The funds did not materialise. A winding-up order was made on 20 November 2017 and the Liquidator was appointed on 8 December 2017.
On 5 February 2018, Mr Staines attended an interview with the Official Receiver and provided a Preliminary Information Questionnaire (“PIQ”) of the same date. In the PIQ he described his role as “Technical Support Website Admin” and Mr Madu's role as “Sales & Marketing”. He stated that neither he, nor Mr Madu, received any salary or benefits from the Company and that they did not have a service contract or contract of employment. He attributed the Company's failure to the closure of the Thomson Legal Merchants and their decision to tell End Customers to “chargeback all transactions”.
On 22 April 2018, the Liquidator served a statutory demand on Mr Staines claiming £1,267,825.25. He applied to set aside the statutory demand. After he made a payment to...
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