Lexi Holdings Plc ((in Administration)) v Luqman
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE HENDERSON,MR JUSTICE EVANS-LOMBE,THE HONOURABLE MR JUSTICE HENDERSON,The Honourable Mr Justice Henderson,MR JUSTICE BRIGGS,Mr Justice Briggs,Mr Justice Henderson |
| Judgment Date | 16 July 2008 |
| Neutral Citation | [2006] EWHC 3442 (Ch),[2007] EWHC 2652 (Ch),[2007] EWHC 2355 (Ch),[2007] EWHC 2497 (Ch),[2007] EWHC 2496 (Ch),[2007] EWHC 646 (Ch),[2008] EWHC 151 (Ch),[2007] EWHC 1508 (Ch),[2008] EWHC 1639 (Ch) |
| Docket Number | Case No: HC06C04067,Case no: HC06C0407,06C4067,Case No:,Case No: HC06C 04067,Case No: HC 06 C04067 |
| Court | Chancery Division |
| Date | 16 July 2008 |
[2006] EWHC 3442 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Briggs
Case No:
MR MARSHALL QC appeared on behalf of the Claimant.
MR CHASTY QC appeared on behalf of the Defendant.
Approved Judgment
: This is my judgment on part of an application by the administrators of Lexi Holdings plc for the continuation of freezing orders until trial and for certain unless orders against a specific number of defendants, and I am here dealing with the question of continuation of freezing orders against the 2nd, 3rd and 4th Defendants and the application for unless orders in relation to asset disclosure in relation to those three defendants.
The continuing of the freezing order against the 2nd Defendant is not opposed by Mr Chaisty QC who appears for the 2nd, 3rd and 4th Defendants and accordingly it should continue until trial. The continuation of the freezing order against the 3rd and 4th Defendants is opposed. In relation to them they are both sisters of the 1st and 2nd Defendants and the evidence shows at least an arguable case of the commission of a series of breaches of duty by them against the company of which they were directors and, further, the commission of serious frauds involving millions of pounds in relation to the company's affairs.
The cause of action asserted against the 3rd and 4th Defendants is that as directors of the company at the material time they failed to discharge their fiduciary duties in relation to the conduct of its affairs and thereby by their omission permitted or enabled the misconduct of the 1st and 2nd Defendants to take place. Mr Chaisty on their behalf does not today seek to persuade me that there is not an arguable case in that respect, but points out, perfectly correctly, that these are allegations of non-feasance rather than allegations of dishonesty or positive acts of misconduct.
The claimant's case that freezing orders should be continued until trial against the 3rd and 4th Defendants is based upon this proposition. Mr Marshall QC who appears for the claimants points out from the evidence, correctly, that there is a powerful case, indeed a case which has more or less been admitted by the 3rd and 4th Defendants during interviews conducted by the administrators under section 236 of the Insolvency Act, that they have both accepted appointment as directors and acted in all respects as such directors as the nominees or puppets or, as Mr Marshall would have it, stooges of one or both of the 1st and 2nd Defendants in circumstances where the court ought to conclude that there is at least a risk that they will continue to do so between now and trial. Since, as he says, there are serious allegations of fraud disclosed in the materials against their brothers, the 1st and 2nd Defendants, there is a real risk that they may be persuaded while continuing to act as puppets or stooges of the 1st and 2nd Defendants to do things such as dissipate any assets of theirs or assets in their control before trial if no freezing order is continued against them.
Mr Marshall also relies upon a number of detailed instances where, as he submits, the 3rd and 4th Defendants have when replying to questionnaires ordered to be answered by them by Lightman J on 1st December given answers that as a result of the section 236 interviews, conducted shortly after they gave their answers in draft, have turned out to be wrong and in certain instances, looking at the interviews transcripts under section 236, have turned out to have been wrong to their own knowledge. He also relies against both of them on the fact that after the conduct of those interviews at which it appeared both to them and to the administrators conducting the interview that certain answers in those questionnaires were wrong, they nonetheless exhibited those questionnaires to witness statements served for the purposes of today without correcting them or adverting to the fact that they were not correct.
As to that, and as to those two bases for the court being invited to conclude that there is a risk of dissipation of their assets by the 3rd and 4th Defendants, Mr Chaisty says first that as to the risk that they will continue to act as puppets there is all the difference in the world between acting as puppets in relation to aspects of the company's affairs in relation to which it is not alleged that they knew they were doing anything improper and acting as puppets in relation to dissipation of their assets before trial. As to the second, he points out that in relation to most of the examples of departures from the answers given by them in questionnaires as revealed by the 236 interviews most of their answers do not disclose that their draft questionnaires were completed in a manner known by them to be wrong, but he does acknowledge that there is at present before the court no explanation why after the completion of those interviews and the revelation of those differences between their evidence on oath at the interviews and their answers to the questionnaires they were not subsequently corrected before being confirmed by being exhibited to witness statements.
In my judgment, there is a continued risk that unless restrained by freezing orders between now and trial the 3rd and 4th Defendants may dissipate their assets. I say that both because, as they acknowledge, they have some assets to dissipate, but more importantly because I accept the substance of Mr Marshall's submission that the history of acting at the direction and as puppets—and I do not mean that necessarily pejoratively—of their brothers in the conduct of the affairs of this company is such that the court cannot conclude that, notwithstanding that they are now defendants to serious litigation alleging very substantial wrongs against them, that tendency to continue to act up their brothers' directions will not continue. I do not thereby express any conclusion that this will occur or even that it would probably occur if they were not restrained by continued freezing orders. The correct test is whether there is a sufficient or real risk and in my judgment, notwithstanding Mr Chaisty's able submissions, there is such a real risk.
In that context I place no great reliance on the departures between their answers to the questionnaires ordered by Lightman J said and the differences revealed on the hearing of the section 236 interviews, although, as will appear, it seems to me that those are matters which need to be sorted out by further orders for affidavits from them.
I turn, therefore, to the second question which is whether as against all the 2nd, 3rd and 4th Defendants there should be unless orders for compliance with orders already made both by David Richards J on the without notice application on 13th November and by Lightman J in relation to answers to the questionnaires. In my judgment, putting the matter shortly having regard to the time of day we have now reached, this is a case where the departures—I am dealing here with the 3rd and 4th Defendants—between what they admitted on oath in their section 236 interviews and what they stated in the questionnaires which have not yet been corrected, departures which are as yet unexplained, need to be put right and that this should be done by further affidavits from each of the 3rd and 4th Defendants putting those matters right and so as to bring them in all respects into compliance with the orders made for disclosure as to their assets and for answers to the questionnaires to which I have already referred.
I do not however consider that the court should at this stage impose the conditional sanction of an unless order in the form sought by the administrators which is to the effect that unless full compliance is achieved by them within a very short time they will be, without further application to the court, debarred from defending. This is a matter in which the 3rd and 4th Defendants have been subjected at one and the same time to freezing orders requiring substantial asset disclosure and to searching section 236 interviews under the Insolvency Act and I am prepared to assume that the pressure under which they have been placed may have caused the disparities to which I have referred and also have led to a failure by them properly to explain those disparities when exhibiting the answers to their questionnaires to witness statements. Be that as it may, it seems to me that the court should order, in a form which I invite counsel to agree, that the particular matters outstanding (and I have in mind in particular the provision of bank statements and mortgage statements and explanation as to the whereabouts of the proceeds of the sale of 9A Maldeth Road) should be dealt with on affidavit in a relatively tight time frame, but not with the penal conditional sanction of an unless order.
I must also deal with the application for an unless order against the 2nd Defendant. This is based upon the fact that he has not so far provided an affidavit of assets at all pursuant to the order of David Richards J and that there is in the disclosure which he has so far made, which consists of a form of letter disclosure and answers to questionnaires and answers given on oath in the section 236 interviews, no disclosure of dealings by him with certain specific property, namely the proceeds of an alleged sale in January 2005 to the 11th Defendant for a property which he then owned and an alleged interest of his in an apartment at Rutland Gardens London SW7 which he instructed...
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