First Independent Factors & Finance Ltd v Mountford
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE LEWISON |
| Judgment Date | 23 April 2008 |
| Neutral Citation | [2008] EWHC 835 (Ch) |
| Docket Number | Case No: 7BM30487 |
| Court | Chancery Division |
| Date | 23 April 2008 |
[2008] EWHC 835 (Ch)
The Honourable Mr Justice Lewison
Case No: 7BM30487
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM CIVIL JUSTICE CENTRE
Priory Courts,
33 Bull Street
Birmingham
Mr Ian Clarke (instructed By Downs Solicitors, Of Dorking) For The Claimant.
Mr John Stenhouse (instructed by Lee & Chadwick Solicitors, of Witney) for the Defendant.
Hearing dates: 16 th April 2008
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.
Mr. Justice Lewison:
Introduction
Classic Conservatories & Windows Ltd went into creditors' voluntary liquidation on 19 January 2005. The estimated deficiency as regards unsecured creditors exceeds £251,000. Its unsecured creditors included two suppliers, Nicholas Gray Building Plastics and Genesis PVCU Ltd. First Independent Factors and Finance Ltd has bought their debts at a deep discount, and now seeks to recover those debts from Mr Ian Mountford, who was a director of Classic Conservatories & Windows Ltd when it went into liquidation. The basis on which Mr Mountford is said to be liable is that he has incurred personal liability for the debts of Classic Conservatories & Windows Ltd under section 217 of the Insolvency Act 1986, because he has been in breach of section 216 of that Act.
Mr Stenhouse, who appeared for Mr Mountford, took a preliminary point. He submitted that a claim made by a company such as the claimant, which has simply bought the debts of two creditors, and has never traded with the failed company, is outside the mischief against which sections 216 and 217 are directed. He submits that it is an abuse of process for an assignee of a debt who has never traded with the defunct company, and who has taken his assignment of the debt after the entry into liquidation of the defunct company, to sue a former director under section 217. He says that the court should dismiss the claim as being an abuse of process. I have no hesitation in rejecting this submission. Debt factoring is a perfectly legitimate business decision for any creditor. I cannot see that it makes any difference whether the debt was acquired before or after the defunct company went into liquidation. The creditor is, in my judgment, entitled to salvage what he can out of a bad trade debt. If the only way of salvaging anything is to sell the debt to a debt factor, that is entirely within his right. The assignee of the debt will stand in the shoes of the assignor. If the assignor could have made the claim, so can the assignee.
The facts
Mr Mountford began trading as a sole trader in 1998. His trading name was “Classic Conservatories & Windows” or “Classic Conservatories”. At first he worked from his home address at 9 Duke Road, Burntwood, Staffordshire. On 8 July 1999 he bought two companies off the shelf. One was called Wavelength Concerts Ltd; the other was called Classic Conservatories & Windows Ltd. Mr Mountford was appointed a director of each company upon its incorporation. On 23 July each of the two companies changed its registered office to 9 Duke Road (which was Mr Mountford's home). Mr Mountford bought the companies on the advice of his accountant. He had been advised to incorporate his business (hence the acquisition of Classic Conservatories & Windows Ltd). He also had in mind the possibility of setting up another business (hence the acquisition of Wavelength Concerts Ltd). However, Mr Mountford decided that the time was not right to act on his accountant's advice by incorporating his business.
As Mr Mountford's personal business grew he took premises at Hednesford Road, Heath Hayes, Cannock, in Staffordshire. Mr Mountford's personal business consisted of the construction of conservatories for private individual home owners. His client base at that time was largely within 20 miles of his trading base. His method of operation consisted of buying in parts from manufacturers or fabricators and then erecting conservatories for clients. His profit came from a mark up on parts and the labour charges. The conservatories that Mr Mountford built were usually made of PVCU, but typically they had brick or concrete bases. Although Mr Mountford said that his trading name was “Classic Conservatories & Windows”, the business was also known as “Classic Conservatories”. His accounts described him as trading as “Classic Conservatories” and many invoices addressed to him also use that trading name.
Although Mr Mountford had bought Wavelength Concerts Ltd in 1999 it remained dormant until 2002. On 19 June 2002 Wavelength Concerts Ltd changed its name to Classic Roofs Ltd. It began trading in about July 2002. The business of Classic Roofs Ltd was the manufacture of roofs for the trade: building companies, building firms and construction companies. Mr Mountford himself, in his capacity as sole trader under the name of Classic Conservatories & Windows, was one of its customers. The majority of the roofs that it manufactured were conservatory roofs; but a substantial proportion (perhaps exceeding 30 per cent) consisted of other types of roof. The directors of Classic Roofs Ltd were Mr Mountford and Mr Paul Tooth. Mr Mountford and Mr Tooth were also the sole shareholders in the company. Mr Tooth had been employed by Mr Mountford in his personal business and, according to the records, continued to draw a salary from that business even after Classic Roofs Ltd began trading. Mr Mountford was also the company secretary of Classic Roofs Ltd. Classic Roofs Ltd also operated in Staffordshire, but over a wider area than Mr Mountford himself. In addition it operated in Leicestershire, Lancashire, Shropshire and the West Midlands. Its customers were trade customers rather than individual private home owners.
Mr Tooth and Mr Mountford found premises at Canal View Business Park, Wheelhouse Road, Rugely in the summer of 2002. They were acting on behalf both of Classic Roofs Ltd and also for Mr Mountford's personal business. Mr Mountford took Unit 2 on the Canal View Business Park, and Classic Roofs Ltd took Unit 11. The landlord of both units was the same; and the deal reflected the fact that the two businesses were taking two units simultaneously.
Classic Conservatories & Windows has a letter head which incorporated a logo. The logo consisted of the single word “Classic” within a diagrammatic representation of a conservatory surmounted by a finial with two wings projecting from each side of the conservatory. On the letterheads I have seen the address is given as 9 Duke Road, Burntwood, Staffs rather than the unit at Canal View Business Park. However, I have not seen a letterhead that post-dates Mr Mountford's move to Unit 2. A telephone number, fax number and e mail address (classicconservatories.co.uk) were also given. The letterhead also showed Mr Mountford as proprietor. I have not seen any letterhead used by Classic Roofs Ltd, but I have seen examples of its invoices. The invoice bears the words “Classic Roofs Ltd” in a fancy font which is similar to that used for the word “Classic” on the Classic Conservatories & Windows letterhead. Those words are placed within a diagrammatic representation of a conservatory, whose roof is also surmounted by a finial which is strikingly similar to the roof and finial on the Classic Conservatories & Windows letterhead. Beneath the words “Classic Roofs Ltd” are the words “Conservatory Roof Fabricators”. Its address is given as Unit 11 on the Canal View Business Park. A telephone number and fax number are also given. They differ from the telephone number and fax number given for Classic Conservatories & Windows (even the STD code differs). Some of the invoices show Mr Mountford and Mr Tooth as directors of the company.
Up to and including the year ending 31 July 2003 Mr Mountford signed off the accounts of Classic Windows and Conservatories Ltd. They were in the form appropriate for a dormant company, and the directors' report stated that the company had not traded during the year. On 27 January 2004 Classic Conservatories & Windows Ltd changed its registered office to Unit 2, Canal View Business Park.
On 16 February 2004 Classic Roofs Ltd entered into insolvent liquidation. Its creditors included BPK Developments Ltd (the landlord of the unit); Molan (UK) Ltd (a supplier of polycarbonate sheets); and Roof 2000 Ltd (who supplied bar length).
Mr Mountford was concerned by the failure of Classic Roofs Ltd. He decided to act on the advice that his accountant had previously given him and transfer his personal business to Classic Conservatories & Windows Ltd. I have not seen the documentation by which this was done. Mr Mountford says that the transfer took place at the end of the financial year, with effect from 1 May 2004. It is the case that the last set of accounts for Mr Mountford's personal business were made up to 30 April 2004, which tallies with his evidence. On 13 May 2005 Classic Conservatories & Windows Ltd acquired all the plant, machinery, furniture and equipment belonging to Classic Roofs Ltd at book value. It also acquired at least one motor vehicle belonging to Classic Roofs Ltd.
Classic Conservatories & Windows Ltd had a letterhead printed. It adopted the same logo as Mr Mountford had used for his personal business of Classic Conservatories & Windows. The address of the company was given as Unit 2, Canal View Business Park. Its telephone and fax numbers were given. They differed from the telephone and fax numbers that had been used by Classic Roofs Ltd (but this time the STD codes were the same). The letterhead showed Mr Mountford as managing director. With the aid of...
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