John Patrick Thomson+sheila Isabel Thomson V. Thomas Henry Russell
| Jurisdiction | Scotland |
| Judge | Sheriff Alistair G.D. Thornton |
| Court | Sheriff Court |
| Docket Number | L9/09 |
| Date | 30 August 2013 |
| Published date | 22 November 2013 |
L9/09
SHERIFFDOM OF TAYSIDE, CENTRAL AND FIFE AT KIRKCALDY
| JUDGMENT of ALASTAIR G D THORNTON, ESQ in Note for an order in terms of section 212 of the Insolvency Act 1986 (as amended) by JOHN PATRICK THOMSON and SHEILA ISABEL THOMSON, as trustees of the Dyglen Engineering Limited Pension Scheme No. 2 Noters against THOMAS HENRY RUSSELL, Respondent Relative to the winding up of DYGLEN ENGINEERING LIMITED (Company Number SC084641), a company incorporated under the Companies Acts and formerly having its registered office at 68 Cavendish Way, Southfield Industrial Estate, Glenrothes, Fife, KY6 2SB and now at Allan House, 25 Bothwell Street, Glasgow ("the company") _____________ |
For the noters: G.S. Lindhorst, Advocate; Thorntons, Solicitors, Dundee
For the respondent: G.J. Walker, Advocate; McClure Naismith, Solicitors, Edinburgh
Kirkcaldy, 30 August 2013.
The sheriff having resumed consideration of the cause, FINDS in FACT:
[1] Dyglen Engineering Limited ("the Company") is a company incorporated under the Companies Acts having its registered office formerly at 68 Cavendish Way, Southfield Industrial Estate, Glenrothes, Fife and now at Allan House, 25 Bothwell Street, Glasgow. On 11 May 2009 Mr Graeme Smith of Henderson Loggie, Chartered Accountants was appointed provisional liquidator of the Company on the Petition of the noters. At the first creditors' meeting Mr Douglas Jackson and Mr Stewart MacDonald of Scott-Moncrieff Accountants were appointed as joint liquidators of the Company.
[2] The Dyglen Engineering Limited Pension Scheme No. 2 ("DELPS 2") is a creditor of the Company. The noters, John Patrick Thomson and Sheila Isabel Thomson are the Trustees and beneficiaries of DELPS 2. They are the Petitioners in the winding up proceedings of which the present Note forms part. Mr Thomson was a director of the Company from August 2004 until 1 May 2009.
[3] Thomas Henry Russell was a director of the Company within the meaning of section 250 of the Companies Act 2006 between 16 September 1983 and 11 May 2009.
[4] Following the appointment of the provisional liquidator his senior insolvency manager Christine McTavish attended with colleagues at the Company's premises in Glenrothes on 12 May 2009. She wished to obtain access to the premises and to the Company's books and records therein. Mr Russell would not allow her entry to the premises. He contacted his business adviser Robert Barr who attended at the car park outside the premises and spoke to Ms McTavish. Mr Russell communicated with Ms McTavish by relaying comments through Mr Barr on the latter's mobile phone. Mr Russell advised that there were no books, business or computer records on the premises. Mr Barr told her that the Company's accounts as at March 2008 showed that it was balance sheet insolvent, and that assets had been transferred out of the Company to address the negative balance. It was agreed that Mr Russell and Mr Barr would attend at the offices of the provisional liquidator the following day, 13 May 2009 and would bring books and records with them.
[5] On 13 May 2009 Mr Russell and Mr Barr duly attended at the provisional liquidator's offices and met Mr Smith and Ms McTavish. Mr Russell handed over boxes containing some of the Company's records, bank statements and other papers, and separately a flash drive with financial records from the Company's computerised accounting system. The items provided were not the complete records of the Company. At that meeting Mr Russell told Mr Smith and Ms McTavish that the Company had ceased trading on 30 April 2009 and the utility suppliers had been informed, although it subsequently transpired that the electricity supplier was not aware of this. Mr Russell stated that the Company had no cash and no assets other than title to a single machine.
[6] Subsequently Mr Thomson examined the records provided to the provisional liquidator by Mr Russell. He noted a number of payments or transactions by the Company which caused him concern. These payments were made and these transactions arose while Mr Russell was involved in the management of the Company. They form the basis of the present Note in the winding proceedings in terms of which an order is sought that Mr Russell misapplied monies and assets of the Company, together with decree against him for payment to the Company of the sum ascertained to have been misapplied.
[7] Mr Thomson came to the Company in about July 2004. He and Mr Russell had discussed the possibility that Mr Thomson might buy the Company from Mr Russell. There was no written agreement between them. In particular there was no agreement of any kind between them to the effect that Mr Thomson would pay an agreed price for the Company.
[8] Shortly after Mr Thomson came to the Company he was made a director. He was involved in the management of the employees in the factory and the manufacturing operations, but he had no financial control of the Company, which remained with Mr Russell throughout the whole period until the appointment of the provisional liquidator on 11 May 2009. Mr Thomson was not shown the financial books and records of the Company. Mr Russell kept the books of the Company, was in control of paying bills and receiving money, and controlled the Company's bank accounts.
[9] The Company had earlier set up a pension scheme for Mr Russell ("DELPS 1"). In 2007 the Company agreed to set up a pension scheme for Mr Thomson ("DELPS 2") and paid £100,000 into this scheme. At the same time DELPS 2 loaned £90,000 back to the Company. This loan was to be repaid according to a repayment schedule set out in the relative loan agreement. A similar contribution was made at that time to DELPS 1 and a similar loan arrangement was entered into.
[10] There was no agreement between Mr Thomson and Mr Russell, or between any of the parties to the loan agreement between DELPS 2 and the Company, that the purpose of the creation of DELPS 2 was to assist Mr Thomson in obtaining funding to acquire the Company. There was no agreement that the repayment of the loan was conditional upon Mr Thomson proceeding with a purchase of the Company. Although the loan agreement between DELPS 2 and the Company provided that the loan should be secured by way of a floating charge over the Company's assets , no security of any kind was put in place.
[11] Following upon the creation of DELPS 2 and the said loan agreements, repayments of the loans were made by the Company to DELPS 1 and DELPS 2 for a period. In August 2008 the Company was in a difficult financial position. Mr Russell decided unilaterally to stop repayments to both loans. In November 2008 Mr Russell learned from the Company's pensions adviser via Mr Barr that substantial tax penalties could be imposed if the Company failed to make the payments to the two pension schemes. After August 2008 no further payments were made to DELPS 2, but payments totalling £43,611.55 were made by the Company on the instruction of Mr Russell to DELPS 1 between 24 March 2009 and 7 April 2009. Mr Russell's decision to make these payments to DELPS 1 was motivated by an intention on his part to improve his own position as a beneficiary of the scheme and to prefer that scheme over other creditors of the Company.
[12] During the summer and autumn of 2008 discussions took place in relation to the purchase of the Company by Mr Thomson. These discussions were conducted between Robert Barr on behalf of Mr Russell and Les Livingston CA on behalf of Mr Thomson. Mr Barr had acted as a business adviser to the Company and to Mr Russell since 1998. Mr Livingston was appointed by Mr Thomson specifically to advise him in relation to the possible purchase of the Company and to represent him in the said discussions. Mr Livingston requested financial information to satisfy him that the Company was profitable. This information was not provided to him. The discussions did not bear fruit and no agreement was reached for Mr Thomson to buy the Company. Mr Livingston considered the Company to have been balance sheet insolvent as at 31 March 2008 and to have remained so, and he advised Mr Thomson not to proceed.
[13] On 19 November 2008 the noters served a notice of default demanding immediate repayment by the Company to DELPS 2 of the full outstanding balance of the loan and interest. The balance then demanded remains unpaid.
[14] Between January and April 2009 Mr Thomson had serious concerns about the ability of the Company to pay its debts. In addition to the outstanding loan repayments to DELPS 2, suppliers were not being paid on time and some suppliers were refusing to deliver items to the Company until their invoices were paid.
[15] On 1 May 2009 there was a meeting between Mr Russell and Mr Thomson. By that time the men did not have a good relationship. At that meeting Mr Russell stated that the Company was going through a bad time financially and was to cease trading. He stated that Robert Barr was to be instructed to take steps to wind the Company up.
[16] After that meeting Mr Thomson took legal advice and the noters' Petition for the Company to be wound up was presented to this court.
[17] In addition to the sums due to DELPS 2, as at the date of liquidation the Company had 51 trade creditors who between them were owed in excess of £34,000. The Company was not paying its debts as they fell due.
[18] Between 18 February 2009 and 2 April 2009 Mr Russell caused sums totalling £33,300 to be paid by the Company to Elbalite Ltd ("Elbalite"). Mr Russell is a director of Elbalite, and his son is the company secretary. Mr Russell is the shareholder in Elbalite. These sums were purported to be rental payments due to Elbalite in respect of plant and machinery sold by the Company to Elbalite during the financial year to 31 March 2008 and leased back to the Company by Elbalite. Mr Thomson as a director of the Company was not aware of the purported transaction. No such transaction took...
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