Manolete Partners Plc v Robin Josh Lewis Ellis
| Jurisdiction | England & Wales |
| Judge | Richard Spearman |
| Judgment Date | 26 June 2020 |
| Neutral Citation | [2020] EWHC 1674 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2018-005116 |
| Date | 26 June 2020 |
[2020] EWHC 1674 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST
IN THE MATTER OF BRIGHT FUTURE SOFTWARE LIMITED (Registered No. 07983222)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
Strand, London, WC2A 2LL
Richard Spearman Q.C.
(sitting as a Deputy Judge of the Chancery Division)
Case No: CR-2018-005116
Adam Al-Attar (instructed by Collyer Bristow LLP) for the Applicant
Michael Green QC (instructed by Simon Burn Solicitors) for the Respondent
Hearing dates: 16–20 March 2020
HTML VERSION OF JUDGMENT
Richard Spearman QC:
INTRODUCTION
This is a claim by a litigation funder (“Manolete”), which entered into a Purchase Agreement dated 9 October 2017 whereby it obtained an assignment of the claims of Bright Future Software Limited (“BFS”) and Mr Mustafa Abdulali and Mr Neil Dingley, the liquidators of BFS, against Eudora Thompson (“Ms Thompson”) and the Respondent (“Mr Ellis”), the former directors of BFS, who were and are partners.
BFS was incorporated on 9 March 2012 and began trading in April 2012. BFS was the brainchild of Ms Thompson, she was appointed a director on 9 March 2012, and she was at all times the largest shareholder. Mr Ellis was involved in BFS essentially from its inception, invested substantial sums in it over time, and became a minority shareholder. In particular, pursuant to a Subscription and Shareholders' Agreement dated 23 April 2012, Mr Ellis made an initial investment of £100,000, became a 30% shareholder, and was to be appointed “as a Non-Executive Investor Director”.
Manolete has pursued the assigned claims against Mr Ellis alone because it would appear that Ms Thompson has no substantial assets, and indeed has previously been made bankrupt. BFS went into creditors' voluntary liquidation on 23 February 2016.
There are three principal heads of claim. The first, and much the largest, is for wrongful trading contrary to section 214 of the Insolvency Act 1986 (“the IA”). The claim is for £6,569,168, being the increase in the deficiency of BFS' assets against unsecured claims in the period January 2015 to February 2016. In short, it is contended that if BFS had been liquidated in January 2015 the net deficiency would have been £4,393,747, whereas it was £10,962,916 in the liquidation as happened.
Manolete's pleaded case under this head is that “As at 31 January 2015 Mr Ellis knew or ought to have known that there was no reasonable prospect that BFS would avoid going into insolvent liquidation” (Points of Claim, [41]). During the course of the trial, Mr Adam Al-Attar, who appeared on behalf of Manolete, expounded that case by reference to a board meeting of BFS held on 16 December 2014. The thrust of Manolete's argument is that by the date of that board meeting Mr Ellis knew or ought to have known that BFS had no viable business and should have initiated an orderly winding up, which would have had effect from 31 January 2015. Mr Al-Attar submitted that, on this basis, and although the meeting forms no part of Manolete's pleaded case, there is no tension between the pleaded date of 31 January 2015 and the focus on that meeting which occurred at trial. Indeed, this approach is favourable to Mr Ellis, as the claim is thus limited to the increase in the liabilities and losses of BFS after 31 January 2015, as opposed to some earlier date in December 2014.
The second principal head of claim is for a transaction at an undervalue or preference within the meaning of sections 238 and 239 of the IA. This is based on the payment by BFS to Mr Ellis of £325,000 by bank transfers in May and September 2014.
The third is for a preference contrary to section 239 of the IA. This is based on the payment by BFS to Mr Ellis of £188,769 by bank transfers on 17 March 2015.
There are parallel claims for breach of duty which rely on the same facts and matters. These parallel claims allege, in substance, that Mr Ellis wrongly acted in his own interests which were in conflict with those of BFS, or acted contrary to the interests of creditors of BFS, or acted as a reasonably diligent director with his general knowledge skill and experience ought not to have done (see Points of Claim, [44]).
Mr Michael Green QC, who appeared on behalf of Mr Ellis, submitted that all these claims are without substance. He made, among others, the following points. Neither Mr Ellis nor Ms Thompson can be said to have caused BFS to continue to trade in order to benefit personally to the detriment of BFS' creditors. On the contrary, Mr Ellis has lost over £2 million of his own money which he loaned to BFS in order to support his partner, Ms Thompson, in a highly socially worthwhile venture aimed at providing employment and training in software development to young people in deprived areas of the North West. Further, the whole venture was heavily scrutinised by a host of other persons, none of whom suggested at any material time that it was inappropriate for BFS to continue trading. The joint liquidators of BFS did not interview, and Manolete did not call as witnesses, a number of persons who might be expected to have knowledge of many of the significant matters that are in issue. The liquidators' earlier report to the Insolvency Service resulted in a decision not to pursue directors' disqualification proceedings against either Mr Ellis or Ms Thompson. The liquidators did not investigate the present claims properly, and, further, did not comply with their obligations to act honestly and fairly in assigning these claims to Manolete (which has pursued them vexatiously) because the claims are manifestly hopeless and “If it is clear to the [liquidators] that the claim would be hopeless and that the potential assignee is bent on pursuing a hopeless claim in order to harass the third party, then [they] should normally decline to assign the hopeless claim” ( LF2 Ltd v Supperstone [2018] Bus LR 2303, Morgan J at [66]).
Mr Green made some further points which are not directly related to the merits of the three heads of claim. First, Mr Green pointed out that Manolete acquired the present claim for an up-front payment of only £5,000, and will obtain a substantial share of any recoveries, with the remainder being shared between the liquidators and the creditors of BFS. Mr Al-Attar's response is that there is nothing out of the ordinary about any of these matters: as BFS lacked the necessary funds, the liquidators had to obtain external funding in order to attempt to realise assets for the benefit of creditors; and any attack on the conduct of the liquidators, including in fixing their remuneration and striking a deal with Manolete, would need to be properly formulated and made the subject of separate proceedings, which neither Mr Ellis nor anyone else has sought to do. In light of Mr Ellis' sense of grievance at being made the subject of these proceedings, I understand why these points were made. However, I do not consider that they have any bearing on the issues which I have to decide.
Second, Mr Green complained that the history of disclosure has been unsatisfactory. This complaint breaks down into three main matters. The first is the failure of the liquidators to gain access to BFS' computers and server. As to that, on the basis of the evidence at trial and the materials before me, I accept that there was such a failure, but I do not consider that I am in a position to attach or apportion blame for it. The second is the failure of the liquidators and Manolete timeously to seek or obtain documents from third parties, accompanied by late disclosure of two substantial Supplemental Lists of Documents in the run up to the trial, and followed by Manolete's stance that many of those documents did not need to be included in the trial bundles. As to that, Mr Green did not seek an adjournment of the trial (or any other relief or sanction), and I was not invited to find that any concrete or specific prejudice had been occasioned to Mr Ellis. The third matter concerns the late disclosure on 23 March 2020 (which would have been the sixth day of the trial, if Mr Ellis had not decided not to call Ms Thompson, and the parties had not decided to rely on written closing submissions alone) of a report prepared by the liquidators for the Department of Business, Innovation and Skills (“BIS”) on or about 17 February 2017, which Manolete had previously claimed to be both irrelevant and subject to an overriding obligation of Government confidentiality. As to that, Mr Green was able to include in his closing submissions a number of points concerning the contents of this report, and if and to the extent that it is relevant and ought to have been disclosed earlier (which Manolete continues to deny on the basis that its relevance is not accepted, although Manolete has eventually abandoned its long-maintained claim to confidentiality) I am not satisfied that Mr Ellis has suffered any material prejudice because Mr Green was unable to cross-examine Mr Abdulali about its contents.
The arguments at trial largely revolved around analysis of contemporary documents. This is unsurprising, for the following principal reasons. First, those documents include a number of agreements, the meaning and effect of which are of significance, especially to Manolete's case. Second, those documents are extensive – although it is important to bear in mind that they are not complete, due to the above difficulties in accessing a number of...
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