Microcredit Ltd v Andrew Rosler
| Jurisdiction | England & Wales |
| Judge | Baister |
| Judgment Date | 02 June 2021 |
| Neutral Citation | [2021] EWHC 1627 (Ch) |
| Date | 02 June 2021 |
| Court | Chancery Division |
| Docket Number | No: CR-2015-001250 |
[2021] EWHC 1627 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES (ChD)
INSOLVENCY AND COMPANIES LIST
IN THE MATTER OF MICROCREDIT LIMITED (COMPANY NUMBER 06677980)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Deputy ICC Judge Baister
No: CR-2015-001250
Reuben Comiskey & Hartley Foster (instructed by South Bank Legal Ltd) for the Applicant
Christopher Brockman (instructed by Freeths LLP) for the Respondent
Hearing dates: 19 & 20 May 2021
This judgment was handed down remotely by circulation to the parties' representatives by email. It will also be released for publication on BAILII. The deemed date and time for hand down is 18 June 2021 at 2 pm.
Background
Microcredit Limited was incorporated in England and Wales on 20 August 2008. It is not the same as the applicant company which has the same name but is incorporated in Malta. Following the lead taken by counsel in their skeleton arguments I shall call the English company “the Company” and the Malta company “Malta.”
Until 31 October 2014 the Company's sole shareholder was Kristjan Valdmann who was also a director until 30 June 2012. His brother, Andres Valdmann, was a director until 27 February 2015. On 31 October 2014 Kristjan Valdmann sold his shares in the Company to Anatoly Maximov who was appointed as a director on 4 December 2014.
The Company was a payday lender. Its back-office functions were provided by two Estonian companies, Figone OÜ and MC Office OÜ. Figone and MC Office were and still are both owned and controlled by Andres Valdmann (to whom I will now refer as Mr Valdmann). Figone provided its services pursuant to a contract dated 10 September 2008; MC Office provided its services pursuant to a contract dated 20 September 2013.
In March 2014 the FCA began an investigation into the Company. By September 2014 it appeared likely that it would revoke the Company's licence to carry on regulated activities. The Company already had an arrangement with a company called Opos Limited for the collection of overdue loans. Mr Valdmann says that the withdrawal of its licence was likely to make its loans irrecoverable, so the Company transferred part of its loan book to Kapama Limited, a company under common control with Opos Limited, and the remaining loans were written off. On 10 December 2014 the Company applied for permission to have its licence to carry on regulated activities withdrawn. Thereafter, on 15 December 2014, the Company assigned its rights under the Kapama agreement to Malta.
In October 2012 the Company appointed iTax UK Business Solutions Ltd to advise it on disputes with HMRC concerning corporation tax. On 14 April 2015 iTax notified HMRC that it was likely that the Company would make losses during its last year of trading. Those losses were then thought likely to be around £24m. The Company accordingly claimed terminal loss relief (“TLR”).
Notwithstanding the TLR claim, on 21 April 2015 HMRC presented a petition to wind up the Company based on indebtedness of some £2m said to be due in respect of corporation tax, and a winding up order was made on 15 June 2015. The respondent was appointed as liquidator by the Secretary of State on 20 April 2016. He instructed iTax as his agent to pursue the TLR claim which resulted in HMRC withdrawing their claim against the company and making a payment to the Company of just under £110,000.
The administration of the liquidation started with Mr Valdmann's completion of the official receiver's questionnaire on 21 July 2015 (a task to which he appears to have taken a minimalist approach) and the provision of the limited books and records he says he had. He says that he handed the rest to Mr Maximov when he took over as director. Since the appointment of the liquidator there have been arguments about Mr Valdmann's failure to produce proper books and records to which the liquidator believes he must have access, there has been a challenge to the liquidator's remuneration and there have been disputes about the liquidator's approach to the Company's creditors and the proofs they have submitted. The last of these areas of disagreement has become important because the liquidator has issued an application against Malta, Mr Valdmann and his brother challenging a number of transactions entered into by the Company by which it transferred its right to receive income from its loan book to Kapama and the benefit of realisations arising under that agreement to Malta for £50,000, seeking, variously, repayment of an overdrawn loan account, alleging breach of trust and knowing receipt, and relief under ss 239 and 423 Insolvency Act 1986. In aid of his application the liquidator sought and obtained from Penelope Reed QC, sitting as a High Court judge, a freezing injunction which was granted in the face of opposition on the basis that the liquidator had not made full and frank disclosure to the court.
Other facts and dates relevant to the background appear from the short chronology appended to this judgment. It does not purport to be comprehensive. Nor do I intend in this judgment to cover all the many facts and matters to which I was taken in the course of submissions, since, in my view, the issue at the heart of this application can be decided on a simple basis.
I have mentioned just some of the applications that have been brought so far in broad terms to give the context in which I have heard the application I have to decide. A note of them prepared and agreed by the solicitors to the parties is appended to this judgment with my thanks.
The application
The application (as amended) seeks an order directing the respondent to initiate a decision-making procedure for the purpose of considering removing him as liquidator of the Company, alternatively an order removing him as liquidator of the Company. It is supported by witness statements of the applicant's solicitor, Michael Czechyra, and Mr Valdmann himself as the sole director and shareholder of the applicant, while the liquidator relies on a number of witness statements made by him. The parties have not sought cross-examination, so I have heard no oral testimony. There is, however, a considerable amount of documentary evidence to which I have been taken, although I do not intend to refer to it in anything like the detail with which it was examined in the course of the hearing.
In his skeleton argument Mr Comiskey says that the application is not made to stymie the proceedings brought against Malta by the liquidator but by Malta qua creditor, motivated by concern that the liquidator may be misapplying assets of the Company by embarking on unnecessary investigations. I take that with a pinch of salt. That said, this is a liquidation that has taken some odd turns, and it is not difficult to understand why Malta might have real concerns about the way the liquidator has acted in relation to creditor claims and a possible appeal against HMRC's claim in the liquidation.
Mr Comiskey says in paragraph 5 of his skeleton argument,
“A key area of dispute between the parties relates to the identity and value of the Company's creditors: the Applicant claims to be the holder of all, or substantially all, of the valid creditor claims against the Company, as well as being its sole shareholder. The Liquidator claims to have rejected the vast majority (£2.94m worth) of the Applicant's claims. By contrast the Liquidator claims to be bound to accept a proof of debt recently submitted by HMRC, in the sum of £2,595,337.32, in relation to which the Applicant says there are good grounds for an appeal.”
This indeed is a key issue. It is important for a number of reasons. First, it is important in itself, because the role of a liquidator is to realise the assets under his control and make a distribution to the creditors in accordance with the statutory priorities. For that purpose he invites them to prove and must adjudicate on their claims. Secondly, it has implications for what he might do or not do in order to fulfil his obligations to the creditors. If the creditors decide it is not in their best interests for the liquidator to bring or continue proceedings or embark on certain courses of investigation, that is something a prudent liquidator should take into account. He would also have to consider whether it was appropriate to bring proceedings against a party who was also a creditor if any recovery would largely result in accounting to the very creditor he has sued. In this case, he has to decide whether it is in the interests of the creditors to appeal assessments raised by HMRC. He has formed the view that he should not appeal; Malta thinks he should. The decision is important, because HMRC are a substantial creditor. Rejection of their claim would potentially increase the dividend to other creditors and, arguably, affect the conduct of the substantive application against the Malta parties.
I turn first, then, to the creditors and the contentions of the parties about their claims and the liquidator's treatment of them.
The creditors and their claims
When Mr Valdmann completed the official receiver's questionnaire on 28 July 2015 he showed the Company's only liability as £1.4m to HMRC. He also showed the TLR claim as an asset. In fact, various creditors have claimed in the liquidation and continue to do so. Many are members of the public who have lost out as a result of the way the Company ran its business, but their claims are relatively small, so although no doubt significant to them, they are not significant for the purposes of this application. I shall deal only with the claims that are.
HMRC are at present creditors in the sum of £2.5m odd. They have proved, and my understanding is that their proofs have been accepted, as they...
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