Marios Georgallides v The Secretary of State for Business, Energy and Industrial Strategy

JurisdictionEngland & Wales
JudgeBarber
Judgment Date03 April 2020
Neutral Citation[2020] EWHC 768 (Ch)
CourtChancery Division
Docket NumberCR-2006-000006
Date03 April 2020

[2020] EWHC 768 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

INSOLVENCY AND COMPANIES LIST (ChD)

IN THE MATTER OF SOIRAM LIMITED AND MEZZANINE GROUP PLC

AND IN THE MATTER OF THE COMPANY DIRECTORS DISQUALIFICATION

ACT 1986

Royal Courts of Justice

7 The Rolls Building

Fetter Lane

London

EC4A 1NL

Before:

ICC JUDGE Barber

CR-2006-000006

Between:
Marios Georgallides
Applicant
and
(1) The Secretary of State for Business, Energy and Industrial Strategy
Respondent

Catherine Doran (instructed by DMH Stallard) for the Applicant

Tiran Nersessian (instructed by Womble Bond Dickinson) for the Respondent

Hearing date: 9, 10 and 11 December 2019

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.

ICC Judge Barber

1

This is the hearing of Mr Georgallides' application for an order

(1) that the seven year disqualification undertaking accepted on 16 February 2010 by the Respondent (‘the SoS’) from the Applicant in respect of his conduct as a director of Mezzanine Group Plc (‘Mezzanine’) and as sole director of Soiram Limited (‘Soiram’) (‘the first undertaking’) be rescinded pursuant to the court's inherent jurisdiction with effect from 16 February 2010 or such other date as the court deems appropriate;

(2) that the twelve year disqualification undertaking accepted on 18 November 2015 by the Respondent from the Applicant in respect of his conduct as a shadow or de facto director of Eastzest Limited (‘Eastzest’) (‘the second undertaking’) be rescinded pursuant to the court's inherent jurisdiction or the period reduced under Section 8A of the Company Directors Disqualification Act 1986 (‘ CDDA’); and

(3) that the Applicant be granted permission pursuant to s.216(3) of the Insolvency Act 1986 to use a prohibited name ‘Nozomi’, such permission to take effect from 23 February 2006 or such other date as the court thinks appropriate.

Overview

2

The application raises a novel issue as to the application of the maxim “fraud unravels all” to disqualification undertakings given pursuant to CDDA and to prohibited names restrictions under s.216 IA 1986.

3

The Applicant maintains that Mezzanine and Soiram were victims of fraud at the hands of the ‘highly leveraged’ division of the Reading branch of Halifax Bank of Scotland (‘HBOS’). The head of the Reading branch, Mr Lyndon Scourfield, and a former banker, Mr David Mills, conspired with a number of associates to take control of a number of distressed businesses with a view to dishonest personal gain. Mezzanine and Soiram both banked at the Reading branch of HBOS.

4

Mr Mills swore an affidavit in support of the SoS's case in the first disqualification proceedings against the Applicant issued on 23 November 2006. Two individuals who often worked with Messrs Scourfield and Mills, Mr Alessi and an accountant called Mr Cohen, also swore affidavits in support of the SoS's case in those proceedings. The Applicant maintains that these affidavits influenced his decision to offer the first undertaking.

5

The first undertaking has now expired. Nonetheless, the Applicant wants the first undertaking rescinded with retrospective effect, for ‘fraud’. I will return in due course to how he puts his case on that.

6

The second undertaking is in part based upon breach of the first undertaking. The Applicant contends that, if the first undertaking is rescinded for fraud, he should be permitted to resile from his agreement that he acted in breach of the first undertaking, and that the second undertaking should be rescinded in its entirety. As an alternative, he seeks an order that the period of the second undertaking be reduced under s.8A CDDA to the four years of it already served.

7

In relation to his s.216 application, the Applicant seeks retrospective permission to use a prohibited name, ‘Nozomi’. He contends that, but for the fraud of certain individuals, the company Tropeo Knightsbridge Limited (‘Tropeo’) (which traded as ‘Nozomi’) would not have become insolvent, and Nozomi would not have become a prohibited name. He maintains that ‘because Tropeo's insolvency was caused by the fraudsters’ non-payment of £500,000 it is not right that the Applicant should have been subsequently prohibited from acting in the management of Nozomi, and the court ought to relieve that injustice by granting permission’: Applicant's skeleton argument, paragraph 64. In the alternative, the Applicant sought permission to use the prohibited name ‘Nozomi’ from such date as the court thinks fit.

8

The SoS opposes the application. Whilst the SoS accepts that numerous frauds were committed through the HBOS Reading branch, she contends that there is no proper evidential or legal basis for the same to lead to the rescission of the undertakings or the granting of retrospective permission to the Applicant for use of a prohibited name.

Preliminary Issue ruling

9

On 23 November 2017, Mr Deputy Registrar Baister heard the following preliminary issues:

(1) Whether the court had jurisdiction to order that the first and second undertakings be rescinded or varied with retrospective effect; and

(2) Whether the court had jurisdiction to give permission for the use of a prohibited name with retrospective effect.

10

On 15 December 2017, the learned deputy ruled (1) that the court had no jurisdiction under s.8A CDDA or rule 12.59 IR 2016 to rescind or vary disqualifications undertakings with retrospective effect but that (2) in cases of fraud, the court enjoyed an inherent jurisdiction to rescind undertakings with retrospective effect and to grant retrospective permission to use a prohibited name. He further directed that ‘the matter’ be listed for trial. No directions for pleadings were sought or given.

Background

11

The Applicant was called to the Bar in 1980 but after a brief period in practice decided to join the family business, working in nightclubs and restaurants in France. The family business was sold in 1989/90. Following this, in 1991, the Applicant and his brother acquired a chain of nightclubs in the UK through a company known as First Continental Limited. First Continental Limited eventually went into administration. Some of its assets were sold to Pembertons Group Plc. By 1998, the Applicant and his brother had gone their separate ways.

12

On 4 December 1998, the Applicant was appointed a director of Pembertons Group Plc, which owned and operated wine bars and restaurants. The company changed its name to Mezzanine Group Plc (‘Mezzanine’) on 6 November 1999. On 3 December 1999, the Applicant was appointed as its chief executive officer. Under the Applicant's stewardship, Mezzanine made various acquisitions including several nightclubs and the restaurant known as ‘Smollensky's on the Strand’.

13

The Applicant's plans for Mezzanine entailed expenditure funded, in significant part, by loans from HBOS.

14

By early 2000, Mezzanine's loan book exceeded £5 million. As this was above its existing bank manager's limit, Mezzanine's account was transferred to the highly leveraged assets division of HBOS, based in Reading and run by Mr Lyndon Scourfield.

15

In or around November/December 2000, the Applicant met with Mr Scourfield of HBOS and applied for a loan facility of £10.5m. This was approved in June 2001 at an interest rate of 1.5% above the Bank of England base rate.

16

In the second half of 2001, the foot-and-mouth outbreak and the terrorist attacks of 11 September had an adverse effect on business. This, coupled with anticipated costs for a new restaurant, led to Mezzanine applying for a further loan from HBOS. HBOS did not grant the increased loan facility immediately. Instead, it commissioned a report by Smith & Williamson. The Smith & Williamson report reached adverse conclusions about prospects for Mezzanine. The Applicant disagreed with the report, however, and, following further discussions, Mr Scourfield agreed to increase Mezzanine's loan facility to £12 million.

17

In January 2002, Mezzanine required further funding. Mr Scourfield agreed, but this time only on condition that Mr Mills was appointed a non-executive director of Mezzanine. Mr Mills was a former banker who claimed to specialise in assisting highly leveraged companies in need of additional capital. Mr Mills was appointed as a de jure director of Mezzanine on 27 February 2002 and a monthly retainer for consultancy services was paid to his company, Quayside Consultants Ltd (‘Quayside’). Mezzanine's loan facility with HBOS was increased to £16m.

18

In the summer of 2002, a problem emerged with regard to the tax treatment of remuneration paid to the Applicant by Mezzanine. Both the Applicant and Mezzanine were potentially in the firing line for unpaid PAYE and NIC in respect of the Applicant's remuneration for three tax years totalling £605,135 (‘the PAYE issue’). Mezzanine initially deferred action to allow the Applicant time to consult his accountants and provide further information.

19

In or about November 2002, following a deterioration of relations between members of the Mezzanine board, the Applicant decided that he wished to purchase one of Mezzanine's nightclubs, ‘Attica’, through a corporate vehicle known as Soiram Limited, and focus his energies on that. Negotiations as to the terms of the purchase ensued.

20

By February 2003, the Special Compliance Office of the Inland Revenue (the ‘SCO’) had commenced an enquiry into the PAYE issue. In or by February 2003, Mezzanine instructed WJB Chilterns to liaise with the SCO and to undertake a detailed review of Mezzanine's operation of the PAYE/NIC system to confirm the issues that needed to be addressed. In the interim, it was agreed that the Applicant, and one other director also affected, Mr Sutherland, should provide...

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