Mr Robert William Leslie Horton (as Trustee in Bankruptcy of Moses Kraus) v Eurobeam Services Ltd
| Jurisdiction | England & Wales |
| Judge | Barber |
| Judgment Date | 01 February 2023 |
| Neutral Citation | [2023] EWHC 173 (Ch) |
| Docket Number | BR 2021 000038 |
| Court | Chancery Division |
[2023] EWHC 173 (Ch)
ICC JUDGE Barber
BR 2021 000038
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST
IN THE MATTER OF MOSE KRAUS (IN BANKRUPTCY)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
7 The Rolls Building
Fetter Lane
London
EC4A 1NL
Dawn McCambley (instructed by Ince Gordon Dadds LLP) for the Applicant
Stephen Innes for the First and Third Respondents
Hearing date: 21 November 2022
Approved Judgment
This judgment was handed down remotely by email. It will also be sent to The National Archives for publication. The date and time for hand-down is 9.30a.m. on 1 February 2023.
ICC Judge Barber
This judgment concerns the costs of an application brought by Mr Horton as Trustee in Bankruptcy of Moses Kraus (‘the Debtor’) pursuant to s.366 of the Insolvency Act 1986.
Evidence
For the purposes of this judgment, I have read and considered the following witness statements and their respective exhibits:
(1) Witness statement of Mr Horton dated 16 December 2016;
(2) Witness statement of Mr Kandler dated 18 January 2017;
(3) Witness statement of Mr Roth dated 19 January 2017;
(4) Second Witness Statement of Mr Horton dated 5 June 2017;
(5) Witness Statement of Mr Goldstone dated 2 August 2018;
(6) Second Witness Statement of Mr Roth dated 6 December 2018;
(7) Third Witness Statement of Mr Horton dated 15 February 2019;
(8) Third Witness Statement of Mr Roth dated 12 December 2019;
(9) Witness Statement of Mr Cassidy dated 4 May 2022;
(10) Fourth Witness Statement of Mr Roth dated 20 May 2022;
(11) Second Witness Statement of Mr Goldstone dated 26 August 2022.
I have also read and considered the other documents contained in a 654-page bundle agreed for the purpose of the hearing before me, to which reference will be made where appropriate.
Background
The Debtor was adjudicated bankrupt on 12 January 2016 on the petition of Swiss Life AG presented on 14 September 2015 in connection with outstanding costs orders made in proceedings between the parties (‘the Swiss Life Proceedings’). The Swiss Life Proceedings sought the enforcement of various substantive judgments obtained against the Debtor in the US.
The Trustee was appointed on 23 March 2016. As a result of investigations into the Debtor's affairs, the Official Receiver and the Trustee became aware of an alleged loan of £300,000 to the Debtor from the First Respondent, Eurobeam Services Limited (‘Eurobeam’) (‘the Eurobeam Loan’). This was purportedly secured upon the Debtor's matrimonial home (‘the Property’) by way of a second charge (‘the Charge’).
The ‘Facility Agreement’ said to relate to the Eurobeam Loan was made between (1) Eurobeam and (2) the Debtor and his wife. Whilst undated, it appeared to have been executed on 30 April 2015, less than five months before the Petition was presented and nine months before the Debtor was adjudicated bankrupt. The Charge was granted in favour of Eurobeam on 21 July 2015, less than two months prior to presentation of the Petition. The bank statements relating to the Debtor's bank accounts did not evidence receipt of the Eurobeam Loan.
At the material time, a very old friend of the Debtor, Mr Roth, was the sole director of Eurobeam (albeit it appears that he is no longer a director) and was an equal shareholder in Eurobeam, together with his wife. The Second Respondent, Bude Nathan Iwanier (‘BNI’) was a firm of solicitors who initially acted for Eurobeam in connection with the Eurobeam Loan.
Enquiries were made of the Debtor concerning the Eurobeam Loan and the Charge, but the results of such enquiries were unsatisfactory.
On 10 February 2016, the Debtor provided replies to questions put to him by the Official Receiver (‘OR replies’). In relation to the loan, he stated as follows (with emphasis added):
‘Originally I approached the company around 2011 or a little earlier to borrow money and help me finance the building of an extension to my wife's property in order for my parents to live with us. The £80,000 was originally provided on an unsecured basis, interest was rolled up so that the loan debt increased to £122,000 by April 2015. At that time, I wanted to raise £250,000 to fund my Defence from Swiss Life AG Unjust Claim and so to cover my solicitors and barristers' fees. However, Eurobeam Services Limited would only lend a total of £300,000 including the outstanding £122,000 and requested that this be secured by a second Charge over the property.’
Later, at page 5 of the OR replies, the Debtor altered what he had stated earlier, claiming that the additional £170,000/180,000 was used to repay ‘my other creditors proportionately’ instead of funding his defence. He also stated that although he had wanted to pay his legal expenses, after his children had obtained professional advice, he was told that he could not prefer some of his creditors over others.
In April 2016, the Debtor filed an objection to registration of the bankruptcy restriction against the Property. In his statement in support, the Debtor stated that in the spring of 2015, Eurobeam had agreed to lend him £350,000 as funding to defend himself in litigation and that the maximum funding was subsequently reduced to £300,000 following a valuation of the Property.
On 5 May 2016, the Trustee met with the Debtor to discuss various matters, including the Eurobeam Loan and the Charge. Following the meeting, on 18 May 2016 the Trustee wrote to the Debtor asking for the following information in relation to the Eurobeam Loan:
(1) the dates that monies were transferred to the Debtor by Eurobeam;
(2) details of the bank account to which the monies were paid to the Debtor by Eurobeam;
(3) how the payment was made (i.e. by cheque, direct transfer, etc); and
(4) how the monies advanced by Eurobeam had been utilised by the Debtor.
The Debtor replied by email on 8 June 2016 in which (in summary) he responded as follows:
(1) his children had managed the transaction and had instructed Eurobeam's solicitors about payment of the funds advanced;
(2) none of the money was paid into any account of his;
(3) the solicitor for Eurobeam who paid the £300,000 was a Mr Kandler of Bude Nathan Iwanier (‘BNI’). Mr Kandler would know how he paid the money, the Debtor did not know himself;
(4) all the money was used to pay his (unparticularised) debts. A ‘proportional ratio’ was applied.
On 16 June 2016, the Trustee wrote again to the Debtor asking that he provide (i) contact details for those of his children who had handled the transaction and (ii) a detailed schedule of the creditors said to have been paid with the loan funds, including name, address, amount and date paid. The Debtor replied by email on 3 July 2016, confirming the names and partial addresses of his children who handled the transaction. He failed to provide the requested schedule of creditors said to have been paid from the loan funds.
Subsequent attempts by the Trustee to obtain from the Debtor and various of his children full details of (and documentation relating to) receipt of the Eurobeam Loan monies and their later distribution proved unsuccessful, notwithstanding the confirmation given in the Debtor's statement to the Official Receiver dated 2 March 2016 that he would ask his children ‘to provide a schedule of the payments made to various creditors out of the loan finance received from Eurobeam Services Ltd around May 2015’.
It was against that backdrop that the Trustee came to make enquiries of Eurobeam (acting by Mr Roth) and Eurobeam's solicitors at the time, BNI.
Enquiries of BNI
By letter dated 16 June 2016, the Trustee wrote to Mr Kandler of BNI, stating:
‘I have been seeking information from both the bankrupt and Eurobeam Services Ltd in relation to this transaction and in particular the payment of the £300,000 to the bankrupt. The bankrupt has informed me that these monies were not actually paid into any account in his name and that you, using the bankrupt's terminology “knows how he paid it”. The bankrupt also states that he does not know who received the funds notwithstanding that the bankrupt and his wife were the borrowers and they entered into the loan agreement with Eurobeam Services Ltd. I should therefore be grateful if you would clarify the position and provide full details of the recipient(s) of the monies paid out under the loan agreement’.
By letter dated 6 July 2016, BNI responded:
‘We have taken instructions from our client.
The writer's recollection is that this was a case where there was a grant of time and credit facilities in relation to monies loaned by Eurobeam Services Limited to Mr Krausz. The source of monies was from a Director of Eurobeam Services Limited and so the whole thing was tied up in one. The monies were assigned to Eurobeam for the purpose of the loan.
If you have specific questions we will be happy to deal with them.’
By letter dated 20 July 2016, the Trustee reiterated his request for details of the recipients of the funds. The letter continued:
‘The bankrupt has indicated that you dealt with this matter on behalf of your client Eurobeam Services Limited. Please therefore let me know the following and provide supporting documentation:
1. Date of the advance by your client
2. The amount advanced by your client
3. The recipient (s) of the funds’.
The letter of 20 July 2016 sought the requested information within seven days and concluded with a reference to s.366 of the Insolvency Act 1986.
A chaser was sent on 11 August 2016. By email dated 17 August 2016, BNI responded to state that Mr Kandler was away on holiday until 1...
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