Ceredigion Recycling and Furniture Team v Derek Clifford Pope
| Jurisdiction | England & Wales |
| Judge | Jarman |
| Judgment Date | 30 June 2021 |
| Neutral Citation | [2021] EWHC 1783 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: BL-2019-CDF-000008 |
[2021] EWHC 1783 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN WALES
BUSINESS LIST (ChD)
CARDIFF DISTRICT REGISTRY
Cardiff Civil and Family Justice Centre
2 Park Street, Cardiff, CF10 1EY
HIS HONOUR JUDGE Jarman QC
Sitting as a judge of the High Court
Case No: BL-2019-CDF-000008
Ms Lydia Seymour (instructed by Hugh James Solicitors) for the claimant
Mr Guy Adams (instructed by Redkite Solicitors) for the first defendant
The second defendant in person
No other party appeared or was represented
Hearing dates: 7 to 9 June 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.
HIS HONOUR JUDGE Jarman QC
HH JUDGE Jarman QC:
Introduction
The claimant (the company) was incorporated as a company limited by guarantee in 1998 to take over a project started some years earlier run by volunteers in Aberystwyth to recycle furniture and other domestic items. One of the volunteers was the first defendant, Clifford Pope. Upon incorporation he became one of five directors. Business grew and in 2001 the company bought the freehold of new premises at Station Buildings, Alexander Road, Aberystwyth (the property). The following year the second defendant commenced employment with the company and by 2009 she and Mr Pope were the only directors and members of the company.
After taking accountancy advice from the third and/or fourth defendants, Mr Pope and Ms Cann in 2012 arranged self-invested personal pensions (SIPPs) for themselves funded in part by a transfer of the freehold of the property to SIPP providers, the fifth and six defendants (together referred to as Suffolk Life). The company was to continue to occupy the property with a 15 year lease (the lease) back to the company at a rent ultimately of £60,000 per year. Ms Cann resigned as a director in 2015 and Mr Pope did the same in 2017. The company now claims that the transfer of the property amounted to a breach of their duties as directors and seeks return of the property or alternative and consequential relief. They deny any wrongdoing.
The claims against the third and fourth defendants have been discontinued after settlements have been arrived at. However, three witness statements filed on behalf of these parties were relied upon in the proceedings before me. Notices pursuant to CPR Part 33.2 were served on behalf of Mr Pope on other parties indicating an intention to rely upon the evidence set out in these statements. The other parties could have applied for permission under CPR Part 33.3 to call the makers of the statements to be cross-examined or under CPR Part 33.4 to call evidence to attack the credibly of the makers. No such applications were made. Accordingly, whilst these witnesses have not been cross-examined, the opportunity to do so was there, and their statements should be given due weight in all those circumstances.
One such statement is that of Donald Patterson who is a chartered accountant and a director of the third defendant which trades as PJE Chartered Accountants (PJE). At material times, PJE acted as the accountants and auditors of the company. During that time, Mr Patterson was also a director of the fourth defendant (Cyfri), which provided financial advice and is regulated by the FCA. The second statement is made by Gary Davies, who is a director of both companies and provides financial advice on behalf of Cyfri. The third statement is made by Simon Longworth, a chartered accountant who was a director of and employed by PJE for about five years from April 2009. He was the designated auditor of the company. He assisted the company in the preparation of its year end accounts, abbreviated and full, and was responsible for the company's audit of the financial statements.
Although PJE and Cyfri had common directors and shareholders and shared offices, there was a division of services between the two companies. Mr Patterson and Mr Longworth provided accountancy services for PJE and are not qualified financial advisors. Mr Davies provides financial advisory services for Cyfri but is not a qualified accountant.
Suffolk Life did not take part in the hearing before me.
Before me the company was represented by Ms Seymour and Mr Pope was represented Mr Adams. Ms Cann represented herself. At the nub of the dispute is a fundamental disagreement as to the applicable law. Mr Adams submits that as the only directors and members at the time of transferring the freehold of the property out of the company in order to provide themselves with SIPPS, Mr Pope and Ms Cann were acting lawfully. Ms Seymour for the company submits that that ignores the separate legal identity of the company, and that Mr Pope and Ms Cann had duties to act in the best interests of the company which means taking into account the interests of future, as well as current, members.
Background
There is little factual dispute between the company, Mr Pope and Ms Cann as to the background. Upon incorporation, the volunteers began to receive wages, typically the minimum wage. Furniture and other items were donated to the company, renovated by staff, and then sold. Accordingly, the biggest expense of the company was the wage bill.
Prior to 2006, the company carried on business from old stables in a back street of the town. In 2003 the company acquired the property which then comprised a derelict railway platform at Aberystwyth Railway Station and adjoining waste land. The purchase price was £50,000, £40,000 of which was raised by mortgage advance and the balance out of company funds. The company employed professionals to design an ecologically sustainable building. It was this aspect of the redevelopment that attracted public funding, and included special glazing to keep the property warm in winter and cool in the summer, and a wood chip boiler. Just under £2.7 million was raised for the design and build from public bodies such as the Welsh European Funds Office (WEFO), the local authority and others. The company moved into the new building in 2006, by which time the number of directors had reduced to three. The third director and member resigned in 2009.
By the autumn of 2010 the business of the company had grown significantly. In the last four years turnover had more than doubled to £325,000 and a small loss had been turned into a profit of around £80,000 after accounting adjustments. However, about £15,000 of that profit came from hiring out rooms to the local education authority. This resulted in a liability to corporation tax of up to £20,000. The company was by then employing around 10 people, but there was no pension scheme in place.
Mr Pope had undergone some accountancy training after leaving university and then worked in local government finance departments for several years and then had various jobs before starting to work in what became the company's business. By October 2010, he and Ms Cann, then aged 61 and 52 respectively, had been considering succession planning for some months.
In that month he emailed Mr Longworth about succession planning, and stated that he and Ms Cann were the only directors and members of the company, which would disappear without them. The email included the following:
“We were wondering if we need to start thinking about succession planning, and in particular ways of ensuring that staff, or at least those with a long history of involvement, have [their] interests safeguarded, perhaps financially. We would be quite willing to pay for some consultation and advice on this.”
Mr Longworth took the view that this request was more within the remit of Mr Patterson as senior partner and asked him to consider the request, who agreed, and arranged to meet Mr Pope and Ms Cann later that month. Mr Patterson took notes of the meeting, and says in his witness statement that it was clear to him from his notes that the tone of the meeting was to secure proper succession, to reinforce the not-for-profit ethos of the company and to treat staff and directors fairly.
At the meeting there was discussion under nine topics, including valuation of the property, existing salary structures and succession planning. The property was still being shown in the balance sheet at its historical cost of around £2.5 million. The creditors showed a liability of about the same amount reflecting potential clawback of funding, including by WEFO. Mr Patterson suggested it was sensible to obtain a valuation of the property in order to decide whether the historical cost basis remained appropriate and to obtain confirmation from WEFO that the clawback period had expired. If so, then these creditors could be written off.
Corporation tax was also discussed and Mr Patterson pointed out that renumeration for staff and directors would be allowable deductions if commercially viable. On being informed that no pension provision was in place, Mr Patterson took the view that to provide pensions by monthly contributions would, in the case of the directors, frustrate the succession planning. However, such a scheme would be practical for the staff.
Wages were also discussed. By then Mr Pope and Ms Cann were each in receipt of a salary of £25,000 per year. They accept that until their discussion with Mr Patterson they had thought that that was reasonable remuneration. However, Mr Patterson recalls that they raised the issue of reasonable wages for directors and staff. He responded that the directors could seek a comparison and suggested...
To continue reading
Request your trial
-
Ceredigion Recycling & Furniture Team v Clifford Pope
...BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES BUSINESS LIST (ChD) HIS HONOUR JUDGE JARMAN QC SITTING AS A JUDGE OF THE HIGH COURT [2021] EWHC 1783 (Ch) Royal Courts of Justice Strand, London, WC2A 2LL Before: Sir Julian Flaux, THE CHANCELLOR OF THE HIGH COURT Lord Justice Newey and Lord......