Jonathan David Bass v MS Bronia Rachel Buchanan
| Jurisdiction | England & Wales |
| Judge | Burton |
| Judgment Date | 14 October 2021 |
| Neutral Citation | [2021] EWHC 2740 (Ch) |
| Docket Number | Case No: CR-2020-004373 |
| Year | 2021 |
| Court | Chancery Division |
[2021] EWHC 2740 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (CHD)
IN THE MATTTER OF BRONIA BUCHANAN ASSOCIATES LIMITED (IN LIQUIDATION)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
The Rolls Building
EC4A 1 NL
INSOLVENCY AND COMPANIES COURT JUDGE Burton
Case No: CR-2020-004373
Samuel Parsons (instructed by Isadore Goldman) for the Applicants
Amit Gupta (instructed by T W Drew & Co) for the Respondents
Hearing dates: 29 July 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.
This judgment will be handed by email to the parties representatives. The time and date of judgment shall be 10.30am on 14 October 2021
INSOLVENCY AND COMPANIES COURT JUDGE Burton
ICC Judge
This is an application commenced by the joint liquidators of Bronia Buchanan Associates Limited (the “Company”) against Ms Bronia Buchanan by application notice dated 30 November 2020. Directions were given for a trial of the issues raised in the application. Ms Buchanan was the sole director of the company during the period when it traded. By the application, the liquidators seek the following relief together with interest and costs:
i) A declaration that Ms Buchanan is a debtor of the Company in the amount of £286,421.45, or such other sum as the Court shall think fit.
ii) A declaration that the reclassification of the sums outstanding on the director's current account on 10 September 2014 as ‘drawings’ was ineffective to release Ms Buchanan's liability to the Company.
iii) Alternatively, a declaration that if Ms Buchanan's act on 10 September 2014 was effective to transfer anything and/or to reduce or release any liability due and owing from her to the Company, it was a transaction at an undervalue within the meaning of section 238 of the Insolvency Act 1986 (the “ IA1986”) and/or a breach of her duties as a director (brought via section 212 of the IA1986).
iv) An order for payment of such amount by Ms Buchanan to the Applicants as the Court shall think fit, whether pursuant to IA1986 sections 212(3), 234, 238(3), 241, or at common law.”
The application is supported by:
i) two witness statements of the first Applicant, one of the Company's liquidators, Jonathan Bass, the first made on 30 November 2020 and the second on 4 June 2021 (primarily to correct various cross referencing errors in his earlier statement);
ii) a witness statement made on 3 June 2021 by Barry David Lewis who, together with Mr Bass, was appointed joint liquidator of the Company on 2 December 2014 and was formerly the senior partner of the firm of insolvency practitioners in which Mr Bass is a partner. Mr Lewis was replaced as joint liquidator by the Second Respondent by a block transfer order made on 9 December 2019.
The Respondent's defence to the claim is set out in her witness statement dated 19 April 2021 together with a statement by her husband and solicitor, Mr Terence William Drew dated 19 April 2021.
Background
The Company was incorporated on 13 June 2003 and carried on business providing client representation for actors. It has a share capital of £100 divided into 100 ordinary shares with a nominal value of 1 pound each.
Ms Buchanan was appointed as sole director of the Company with effect from 23 June 2003 and remained its sole director until 29 October 2014. Between 13 June 2003 and 1 July 2003, 98 ordinary shares in the Company were issued and following transfers of subscriber shares, by 26 March 2013, Ms Buchanan held all of the shares in the Company.
The Company's articles of association incorporated Table A to the Companies (Tables A to F) Regulations subject to the express variations set out within the articles filed at Companies House.
In her witness statement dated 19 April 2021, Ms Buchanan states that the Company traded profitably for several years and that as the business grew, it became her principal source of income.
In 2007, she was introduced to Keith Cunningham who traded under the name “Harley Street Computing” (“HSC”). He provided book-keeping services and despite being introduced to the accountants whose services Ms Buchanan states she was very happy with, he encouraged her to switch to a new firm of accountants, Blinkhorns. He told her that they could provide attractive tax structures specifically tailored to the theatrical industry. Ms Buchanan states that between 2007 and 2010, she was very busy working both for the Company and various other agencies. She provides this information, she says, to explain why she became increasingly reliant upon HSC's services. Throughout this period, Mr Cunningham always assured her “that all was well financially”. However, and notwithstanding that Mr Cunningham informed her that the Company was in credit, in late 2012 Ms Buchanan received demands for unpaid tax from HMRC and “it became apparent that there were problems with the accounting carried out by [HSC]”. She dismissed HSC and employed a new bookkeeper, Kerrie Cronin. HSC refused to provide relevant electronic files “without my paying them a substantial sum which I refused in view of the difficulties we were facing as a result of their actions”. Ms Cronin received bags of unsorted, out-of-order paperwork. She advised Ms Buchanan that the records were incomplete.
The accounts for the year ended June 2013 were produced by Blinkhorns. Ms Buchanan states that she “considered it best to continue using them as part of the year was under [HSC's] remit and they obviously had a good relationship with Keith Cunningham”. She states:
“…at the time I was asked to sign off the account in March 2014 I was heavily pregnant and had been diagnosed with Pre-eclampsia and was in significant pain and on medication. I was advised by the hospital to become an inpatient in February but instead I attended hospital on an almost daily basis to be monitored. If my blood pressure was considered too high they would keep me in for a few days until it reduced. As a result I was not able to devote time to considering matters in great detail and I signed off the accounts prepared by Blinkhorns for 2013 without having met them or discovered if they had received input from Keith Cunningham as had always been the case.”
By now, HMRC was demanding monies which Ms Buchanan says she was not aware were due. She sought to agree a repayment schedule:
“However, HMRC then changed their approach without warning and demanded payment in full of £127,541.04 within 7 days by letter dated 18/8/2014”
Clearly the Company could not meet that demand in that time frame and I immediately instructed my solicitor to advise. His clear advice was that in the current circumstances the Company was insolvent and so we took steps to consider how best to proceed and my solicitor sought the advice of Harris Limpan. That resulted in the Company ceasing trading in September 2014 and thereafter entering liquidation”.
The solicitor whose advice Ms Buchanan sought, was her husband, Mr Drew. Mr Drew states in his witness statement:
“Initially my thoughts were that the company was a prospect for administration as it appeared to be trading profitably on a day-to-day basis. It was only after investigating the position more closely with the company's bookkeeper that the historic directors loan/drawings were identified as problematic.”
Mr Drew sought the professional advice of Mr Lewis with whom he had worked previously. On 20 August 2014, he sent a formal memo instructing Harris Lipman, stating inter alia:
“The balance sheet shows a directors loan has been in existence since 2007 and currently has a balance of £201,562”.
Mr Drew's witness statement explains that on 4 September 2014, he met Mr Lewis at the Ivy Club in Covent Garden. This meeting takes on some importance, and I shall refer to it as “the Ivy Meeting”. He recalls that Mr Lewis's advice was that a creditors' voluntary liquidation appeared more realistic than the administration originally proposed by Mr Drew, “but we agreed to consider further”. Mr Drew continues:
“On the question of the directors loan/drawings Mr Lewis's advice was to identify these as drawings rather than loans as it appeared that was what they were, given the minimal salary the Company had paid the Respondent. It was recognised this would raise separate issues with the Inland Revenue and which would have to be dealt with separately when the matter arose.
I continued to consider the matter further and in view of the pressure being placed upon the Company by the Inland Revenue I filed at court notice of intention to appoint an administrator on 8 September 2014 whilst we continued to consider matters.
Following further consideration of the matter generally it was agreed that the appropriate course of action was to seek to place the Company in creditors voluntary liquidation and I was instructed by the Respondent to proceed on that basis.
On the question of the directors loan/drawings I again sought Mr Lewis's advice which remained as that he had provided at our meeting on 4 September 2014.
After relaying Harris Lipman's advice to the Respondent, with which she agreed, and discussing the same with the Company's bookkeeper from a recording viewpoint the appropriate entries were made into the Company's accounts to correct the outstanding “loans” as drawings. This was done to regularise the position prior to liquidation whilst updating the financial records as much as possible and in accordance with the factual matrix and the professional advice...
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A Director Cannot Recreate History ' Re Bronia Buchanan Associates Ltd (In Liquidation)
...takes a look at Re Bronia Buchanan Associates Ltd (in liquidation) [2021] EWHC 2740 (Ch) Introduction In Re Bronia, ICC Judge Burton had to consider whether a director could retrospectively re-characterise a director's loan as 'drawings' in order to release the director from liability to th......
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A Director Cannot Recreate History ' Re Bronia Buchanan Associates Ltd (In Liquidation)
...takes a look at Re Bronia Buchanan Associates Ltd (in liquidation) [2021] EWHC 2740 (Ch) Introduction In Re Bronia, ICC Judge Burton had to consider whether a director could retrospectively re-characterise a director's loan as 'drawings' in order to release the director from liability to th......