KK v MA and Others
| Jurisdiction | England & Wales |
| Judge | Charles J |
| Judgment Date | 29 March 2012 |
| Neutral Citation | [2012] EWHC 788 (Fam) |
| Court | Family Division |
| Docket Number | Case No: HG04D00192 |
| Date | 29 March 2012 |
[2012] EWHC 788 (Fam)
Mr Justice Charles
Case No: HG04D00192
IN THE HIGH COURT OF JUSTICE
FAMILY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Miss Julia BEER (instructed by Makin Dixon Solicitors) for the Applicant
MA appeared in person and as a McKenzie Friend and spokesman for Respondents 2 and 6
Mr Gary TURNER represented the Official Receiver
Hearing dates: 13/14 February, 2012
I gave a fact finding judgment in May 2011. I have given two further judgments on 20 December 2011 and 14 February 2012, which show some of the procedural history that has followed. In this judgment, I consider the legal consequences flowing from my fact finding judgment. I shall use the same abbreviations and references herein to numbers in brackets (e.g. (10)) are to the paragraphs in that fact finding judgment.
Background
Southend and AA. The relevant chain of events relating to the shareholdings in Southend and AA is as follows:
The first stage relating to Southend.
i) In July 1988, Southend was incorporated. 99 shares were issued to the husband and one share to a Mr A (no relation).
ii) On 23 December 1988, the husband transferred all his shares to his sister (AS). I have found that the purpose of this transfer was to avoid his creditors, and that it was made on the basis that his sister would hold the shares for the husband. This was an unlawful purpose.
iii) In November 1991, a bankruptcy petition was issued against the husband.
iv) On 1 st March 1992, Mr A(no relation) transferred the share in his name to the husband's sister (AS).
v) On 31 st March 1992, the husband was adjudicated bankrupt.
vi) During the bankruptcy, the husband did not disclose to his trustee (the Official Receiver) that he had any interest in the shares of Southend and asserted (as he did to me) that he was an employee of the family business. On 31 st March 1995, the bankruptcy was discharged.
vii) A central issue is whether the beneficial interest in the shares in Southend vested in the Official Receiver.
The second stage relating to Southend.
viii) The parties married in February 1996, and the wife came to the UK in June 1996.
ix) In 1997, the husband's sister (AS) transferred 25 shares to each of the husband, the wife, the husband's mother and another sister (S).
x) The oral evidence given by Mr B, and the husband, was that these transfers were made to reduce the total tax payable on the dividends, and so each of these shareholders were, and were intended to be, the owners of the shares. The latter part of that explanation introduced a change in the case of the husband and his family, and I rejected it, and found that the intention was that the husband remained the beneficial owner. It follows that the expressed intention to reduce tax on dividends, by purportedly dividing the ownership of the shares, was an unlawful purpose.
xi) Issues arise as to the ownership of the shares at this stage and as to the impact of any vesting of a beneficial interest in the shares in the Official Receiver. Tax issues also arise.
The third stage relating to Southend and AA.
xii) AA was incorporated in November 2001, and the ice cream business and related assets of Southend were transferred to it for no consideration, (9) and (78). The shares in AA were issued to match the shareholdings in Southend.
xiii) In 2002, the shares in both companies were held in the following names: 35 the husband, 35 the wife, 15 the husband's mother and 15 his sister S. The reason given by the husband and Mr B for the change in Southend from 25/25/25/25 was that his sister and mother did not wish to be involved in the paperwork related to matters concerning exchange control (78).
xiv) Issues arise as to the beneficial ownership at this stage of the shares of AA (and Southend although they are rendered academic by the later dissolution of Southend) and as to the impact of any vesting in the Official Receiver pursuant to the Insolvency Act. Tax issues also arise.
The fourth stage relating to Southend and AA
xv) In March 2003, the 35 shares in AA in the husband's name were transferred into the name of his sister S (83).
xvi) In March and April 2003, the 35 shares in Southend in the husband's name were transferred into the name of his mother (83) (although there is some confusion on the annual or draft annual returns about whether this transfer was to his sister S, rather than his mother).
xvii) I found that the essential reason for these transfers in April 2003 was a wish by the husband to distance himself from his ownership, so as to put these shares out of the way of his wife (83).
xviii) In April 2004, the parties separated.
xix) In September 2004, Southend increased its share capital and issued shares to members of the husband's family.
xx) In December 2004, AA increased its share capital and issued ordinary and ordinary A shares to the husband's mother and his sister S. I have found that the driving reason for this (and the similar exercise in respect of Southend) was to dilute the wife's shareholding having regard to the divorce proceedings (88).
xxi) In March 2005, Southend sold its computer business and effectively ceased to trade.
Dividends and the family loan accounts. From 1997, dividends were declared by Southend and then possibly by AA (10). The evidence did not establish, what the total of such declared dividends that have been paid out to, or at the direction of, the shareholders was, and what, if any, tax returns have been made and tax paid in respect of these dividends. But, it was common ground that, a significant amount of the declared dividends were not paid out in cash as income and were retained by the companies and credited in the books to family loan accounts. The documents include only two records of such loan accounts one in AA and one in Properties. Debits from that account kept by Properties can be linked to the purchase of properties that are the subject of these proceedings.
There was no suggestion in the evidence that dividends that form the basis for the credits to these family loan accounts were declared by any company other than Southend, and possibly AA. The fact finding hearing proceeded on that basis and so does this judgment.
Mr B told me, and I accepted that, there were no allocations made of the moneys credited or debited to the loan accounts by the companies as between the shareholders. On my findings, there was no need for this because, subject to any claim by the husband's Trustee in Bankruptcy, or the wife, the registered shareholders of Southend and AA, other than the husband, held the shares, and any right to, or in respect of, declared dividends, as trustees for the husband.
The family loan account kept by AA, could represent dividend declared but not paid out by that company. But the majority of the credit entries on the one page of that account that is available, which runs from 22 May 2002 to 31 January 2006 are entered as: "transfers from other loan account". The only identified source was Southend (see paragraph 4 above). In so far as credits to that account represent dividend declared by Southend the arrangements and agreements, relating to the transfer of such sums to Properties, and upon which such credits were based, were not covered by the evidence.
The family loan account in Properties cannot represent dividends declared by that company (Properties) because it has not declared any. So the sums credited to that account represent, on the evidence, money owed in respect of dividends declared by Southend, and possibly AA (13). The arrangements and agreements relating to the transfer of such sums to Properties, and upon which such credits were based, were not covered by the evidence.
The existing evidence from Mr B and the husband would indicate that the arrangements and agreement upon which credits to the family loan accounts were based may well not have been clear at the time, but the theme of their evidence was that they represented declared dividend, and so moneys owed by the company to its shareholders. Choices include:
i) in respect of Properties that:
a) the shareholders in Southend and AA and so effectively, on my findings, the husband agreed either (a) to lend the sums to Properties, or (b) that Properties would hold such sums for him as a nominee. Both of which would seem to involve a payment, or deemed payment, of the dividend, followed by the creation of such a loan or trust, or
b) the company that declared the dividends (i.e. Southend and AA) and so owed them to the shareholders agreed either (a) to lend the sums to Properties, or (b) that Properties would hold such sums for it as a nominee.
ii) in respect of AA that:
a) the sums credited to the account represent dividend declared and retained by AA,
b) the shareholders in Southend and so effectively, on my findings, the husband, agreed either (a) to lend the credited sums to AA, or (b) that AA would hold such sums for him as a nominee. Both of which would seem to involve a payment, or deemed payment, of the dividend declared by Southend, followed by the creation of such a loan or trust, or
c) the company that declared the dividends (i.e. Southend) and so owed them to its shareholders agreed either (a) to lend the credited sums to Properties, or (b) that Properties would hold such sums for it as a nominee.
The evidence does not indicate that there were inter company loans, or inter company nominee...
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