Northern Powerhouse Developments Ltd ((in Liquidation), Acting by its Joint Liquidators Robert Armstrong and Andrew Knowles) v Gavin Lee Woodhouse
| Jurisdiction | England & Wales |
| Judge | Claire Jackson |
| Judgment Date | 20 December 2023 |
| Neutral Citation | [2023] EWHC 3124 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: BL-2019-001329 |
[2023] EWHC 3124 (Ch)
HER HONOUR JUDGE Claire Jackson
Sitting as a Judge of the High Court
Case No: BL-2019-001329
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
The Rolls Building
London
Mr Paul O'Doherty (instructed by Hewlett Swanson Limited) for the Claimants
Mr Max Cole (instructed by Preiskel & Co LLP) for the Defendant
Hearing dates: 10 th to 20 th November 2023
APPROVED JUDGMENT
This judgment was handed down remotely at 2pm on 20 December 2023 by circulation to the parties or their representatives by email and by release to The National Archives.
The four Claimant companies, who act by their joint liquidators, Robert Armstrong and Andrew Knowles (as agents of the Claimants without personal liability) each bring claims against their sole director, Gavin Lee Woodhouse, for breach of his directors' duties and/or for repayment of sums owed to them by him pursuant to overdrawn directors' loan accounts operated by him in each of the Companies.
The claim of the Third and Fourth Claimants is brought as a debt claim for £20,000 per Claimant. The Defendant admits these claims and judgment will be entered accordingly.
The claims of the First and Second Claimants are admitted by the Defendant to an extent. The Defendant admits that he operated a director's loan account with each Claimant (together “the Loan Accounts”), that each loan account is overdrawn and that this is recoverable as a simple debt. The Defendant however puts the First and Second Claimants to proof of the sum due to each of them. The Defendant further denies that the sums are recoverable as a result of a breach of duties he owed to each respective Claimant.
This judgment follows the trial of the claim and deals with what sums are payable by the Defendant to the First and Second Claimants and on what basis (i.e. as a debt claim or as compensation for breach of duty). It does not address the remedies or form of Order the First and Second Claimants are entitled to as a result (e.g. tracing remedies, equitable compensation and/or continuation or dismissal of an extant freezing injunction). If this is not agreed by the parties following handing down of this judgment, then the form of the Order will be considered at a hearing listed on 6 February 2024.
Background
The Defendant was a joint founder of a business, the MBi Group, with a Robin Forster. The MBi Group operated within the care home, student housing and hotel sectors. The MBi Group raised money for its properties by promoting and selling rooms in properties to individuals (a process known as “unitised sales” or “fractional ownership”). The individuals were promised a yearly return on their monies (usually 10%) together with a full repayment with a bonus payment (usually 25%) at a future date (usually 10 years). The individuals had the option of paying less than 100% of the purchase price for the room by utilising the first three to four years' return to pay any deficit in the sums paid for the room (“developer deferred option”). The MBi Group schemes were a mixture of existing operational businesses and off-plan property development projects. Commission of 10% was paid to unregulated sales agents.
That business operated from 2012 to around 2016. In 2016 Mr Forster and the Defendant had a falling out and determined that they did not wish to continue in business together. The business of the MBi Group was therefore divided between them with the Defendant taking control, as sole director and member, of three of the companies which had formerly operated within the Group: MBi Hawthorn Care Limited (“Hawthorn”), MBi Clifton Moor Limited (“Clifton Moor”) and MBi Smithy Bridge Limited (“Smithy Bridge”). Each of these companies was an off-plan care home project, with construction having started only on Smithy Bridge. Despite this returns were already being paid to those who had purchased rooms in the three developments. Clifton Moor was balance sheet insolvent as at 31 March 2016.
The Defendant then founded the Northern Powerhouse Developments Group (the “NPD Group”). An organisation chart of the Group and other companies operated by the Defendant is attached to this judgment at Appendix A.
At all material times, the Defendant was in control of, and was the ultimate beneficial owner of, the NPD Group. NPD Group operated from 2016 to July 2019. It operated, mainly, in the hotel and leisure sector, although its business model (i.e. unitised sales) was the same as the MBi Group. Ultimately the NPD Group operated or proposed to operate twenty-four hotels on this business model together with a leisure park. Each site was owned by a special purpose vehicle (“SPV”).
The First Claimant is a company within the NPD Group used to promote and own the SPVs for hotels. For some hotels, the operation was conducted by a separate SPV, which was a wholly owned subsidiary of Giant Hospitality Limited (“Giant”), a sister company of the First Claimant. The Defendant was appointed the sole director of the First Claimant on incorporation on 6 January 2016 and remains the sole director. The First Claimant was placed into Interim Management on 7 July 2019, administration on 16 August 2019 and liquidation on 18 August 2022.
The three MBi companies were not initially, on paper, part of the NPD Group, however they did receive funding from it. Indeed, so far as Clifton Moor and Hawthorn were concerned, from 2016, the only means of paying returns to those who had bought rooms was through the NPD Group given that neither property had been constructed. By 31 March 2017 Clifton Moor owed the First Claimant £203,104 and Hawthorn owed the First Claimant £10,600 (debts entirely incurred in the year 1 April 2016 to 31 March 2017). The First Claimant was therefore funding the returns to individuals owed by those companies. Yet as at 31 March 2017 both Clifton Moor and Hawthorn were balance sheet insolvent, with millions due to creditors in the next year. Despite this, in Spring 2018 the Defendant told those who had bought rooms through those two companies that: “I am delighted to report we are now back on track and still in a position to deliver Hawthorn and Clifton Moor Care Homes, on time and on budget.”.
In 2018 Smithy Bridge became a wholly owned subsidiary of the First Claimant. This transaction is considered in detail later in this judgment.
The Second Claimant is a company which was set up to hold investments for the Defendant and his family. It is not part of the NPD Group. The Defendant was appointed a director of the Second Claimant on its incorporation on 6 October 2015 and is now the sole director. The Defendant's wife, Charlotte Hannah Woodhouse, was also a director of the Second Claimant from 6 October 2015 but resigned on 28 June 2019. The Second Claimant was placed into administration on 29 July 2019 and liquidation on 23 July 2022.
The Third Claimant is a company which was formed for and participated in the operation of Llandudno Bay Hotel & Spa, one of the NPD Group hotels. The Defendant was a director of the Third Claimant from 20 July 2017 to 15 July 2019. The Third Claimant is a subsidiary of Giant. The Third Claimant went into administration on 13 August 2019 and liquidation on 3 December 2020.
The Fourth Claimant is a subsidiary company of the First Claimant. It was formed to promote and own the Fourcroft Hotel in Tenby, one of the NPD Group hotels. The Defendant was a director from 30 March 2017 to 9 July 2019. The Fourth Claimant went into administration on 8 August 2019 and liquidation on 3 December 2020.
Each of the Claimants is insolvent. Indeed, all the NPD Group companies are now in liquidation. The Claimants say that approximately £73 million was received by the NPD Group from individuals in relation to unitised sales up to July 2019.
At the date each of the Claimants entered into Interim Management or Administration the Defendant was indebted to them by way of overdrawn directors' loan accounts. In these proceedings the Claimants each seek to recover the sum showing in their respective account as due and owing to them.
I note that the bundles in this case were lengthy (exceeding 9,500 pages) with numerous additional pages of evidence or analysis handed up during the course of the hearing. As a result it is not possible for this judgment to refer to every piece of evidence submitted by the parties. I have however in preparing this judgment considered all documents the parties asked me to read or to which the Court or witnesses were referred during the trial. This includes Counsels submissions, the pleadings and the witness statements. A failure to refer to a document herein does not mean it was not considered by the Court.
The Claimant's Case
In his skeleton argument Mr O'Doherty, Counsel for the Claimants, summarised the claim as follows (cross-references removed for ease of reading):
“ This case is centred around and about D's conduct in operating the businesses of NPD Ltd and WFL. … Cs contend that D was in wholesale breach of his directors' duties. These breaches can be summarised as follows:
i) D was the sole director of NPD Ltd, a business which promoted, operated and managed a series of collective investment schemes (the Schemes) through...
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