Re A Company No. 7219 of 2001 and Another
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE ETHERTON |
| Judgment Date | 10 December 2001 |
| Judgment citation (vLex) | [2001] EWHC J1210-5 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 10 December 2001 |
| Docket Number | Nos. 7219 and 7220 of 2001 |
[2001] EWHC J1210-5
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Mr. Justice Etherton
Nos. 7219 and 7220 of 2001
In The Matter Of The City Vintners Limited
In The Matter Of Goldman Williams Limited And
In The Matter Of The Insolvency Act 1986
MR. S. ISAACS Q.C. and MISS L. HILLIARD (instructed by Messrs. Pinsent Curtis Biddle) appeared on behalf of the Applicant.
MR. A. FRANCIS (instructed by the Treasury Solicitor) appeared on behalf of the Respondent.
(As approved by the Judge)
Monday, 10th December 2001
INTRODUCTION:
There are before the court applications by City Vintners Limited and Goldman Williams Limited ('the Companies') to discharge orders of Lightman J. dated 29th November 2001, by which he appointed the Official Receiver as provisional liquidator of each of the Companies ('the Provisional Liquidator').
The orders of Lightman J. were made on the application of the Secretary of State for Trade and Industry ('the Secretary of State'), without notice to the Companies, pursuant to the Insolvency Act 1986 s.135 and the Insolvency Rules 1986 r.4.25. The Secretary of State sought the appointment of the Provisional Liquidator pending the hearing of winding up Petitions ('the Petitions') presented against each of the Companies by the Secretary of State pursuant to the Insolvency Act 1986 s.124A, on the ground that it is expedient in the public interest that the Companies should be wound up.
The applications by the Companies before the court also seek, in the case of both Companies, an order that the Secretary of State provide a cross-undertaking as to damages in respect of the appointment of the Provisional Liquidator, and an order restraining the Secretary of State from proceeding further upon the Petitions, including advertising them.
THE SECRETARY OF STATE'S CASE FOR WINDING UP :
The Petitions set out the facts and matters relied upon by the Secretary of State in support of a winding up order against each of the Companies. The allegations in the Petitions may be summarised as follows.
City Vintners Limited was incorporated on 17th April 1998. Goldman Williams Limited was incorporated on 21st April 1999. Mr. Raun Austin and Mr. Andrew Sommerville are the majority shareholders and directors of both Companies.
Both Companies carry on essentially the same business in the same manner and from the same premises in London. They purchase wines from wine merchants based in the United Kingdom and sell them to members of the public who have acquired shares in listed companies. The Companies purchase lists of the names and addresses of such shareholders, and then write to them offering a free market report on the relevant listed company in return for their agreement to receive an introduction to the fine wine market. The introduction is then made, and sales are pursued by the Companies' telephone sales teams.
It is alleged in the Petitions that the Companies, or one or other of them, make the following representations in their promotional material: the acquisition of fine wines is an excellent or solid form of investment that is capable of producing higher returns than those from stock markets or from the acquisition of rare antiques or fine art; the Companies have extensive knowledge of the fine wine market and will provide clients with sufficient information to enable them to make informed decisions on proposed purchases; after a sale of wines, the Companies will monitor fine wine prices on the international market and look for an opportunity for the client to sell the wine at a profit; if the wine is held in bond, it will be free of capital gains tax when sold.
The Companies' telephone sales teams are referred to as brokers. It is alleged that they hold themselves out as wine brokers who are able to acquire, and subsequently sell, fine wines on behalf of clients in return for a commission.
The Companies expressly direct the brokers to advise potential customers to sell shareholdings in order to diversify their existing investment portfolio by acquiring some wine as an investment.
It is alleged that the brokers commonly represent to potential and existing clients that the Companies' existing clients are consistently experiencing a substantial annual increase in the capital value of their wine holdings; that they can expect to see substantial tax free returns on wine purchases within the short term; that no capital gains tax or inheritance tax is payable on fine wines; that, if a wine cannot be sold profitably at auction, the Companies will generally buy it back at a discount to the Companies' current sale price; that the Companies have, or have access to, cases of wine which are in short supply or are being offered cheaply by the Companies, and the opportunity to purchase will shortly be lost if the client does not agree to purchase quickly; that the client may increase the value of a wine holding by purchasing further wine to complement it.
The Petitions allege that those sales practices are deceptive and are calculated to deceive potential and existing clients, and that the representations made to potential and existing clients are false and misleading and known to be such. It is alleged that the Companies abuse the trust and confidence placed in them by potential and existing clients and breach the Companies' duty to clients, by giving advice that is manifestly imprudent and contrary to their best interests and that is given solely for the purpose of obtaining an exorbitant profit from each transaction.
So, it is alleged, the Companies do not, in fact, act as brokers. They purchase the relevant wine, which is readily available in the market and not in short supply, from regular suppliers in the United Kingdom and sell it on to their clients at a substantially inflated price. The Companies' clients cannot reasonably expect to achieve a profit upon a sale at market value within the short term, let alone a comfortable or very high return. In many cases, for a substantial period, the clients cannot reasonably expect to achieve, if the wine is sold at market value, a sale price which will even recoup the price paid for the wine. The Companies have not sold any wine on the market for their clients; nor have they advised their clients of opportunities to sell their holdings at a profit. The unqualified claims by the Companies that a sale of wine in bond is not subject to capital gains tax, that no inheritance tax is payable on wine and that all returns will be tax free are misleading or false. Further, it is alleged, unqualified statements made by brokers that capital gains tax is not payable are known by the Companies to be false or misleading. The recommendation to clients to purchase additional "complementary" wines, on the grounds that this will increase the value of existing wine holdings, is unfounded. In the circumstances, contrary to the representations made, the Companies do not enable their clients to make informed decisions when they purchase wine. To the contrary, the Companies seriously mislead them.
The Petitions allege that, in the circumstances, the clients are entitled to rescind their agreements and seek repayment of the purchase price. Alternatively, they are entitled to claim the amount of the mark up on each transaction. In some cases, the clients have an absolute right, within three months and seven days of the date of receipt of the wine, to cancel their agreements pursuant to the Consumer Protection (Distance Selling) Regulations 2000. It is alleged that, if these substantial monetary claims against the Companies are taken into account, the Companies are probably insolvent on a balance sheet test.
The Petitions allege that the Companies have made substantial payments to persons associated with the Companies which appear to have been made for no consideration, or for a consideration the value of which is far exceeded by the amount of the payments made.
Finally, it is alleged that the way the Companies carry on business, as I have just summarised, involves the Companies giving investment advice to potential and existing clients so that the Companies, although not authorised to do so, are carrying on investment business in the United Kingdom. The Companies are thereby, it is alleged, acting illegally.
THE APPLICATION BEFORE LIGHTMAN J :
On the without notice application before Lightman J., the Secretary of State, who was represented, as he is before me, by Mr. Adrian Francis, relied upon two matters for the immediate appointment of the Provisional Liquidator. First, he submitted that there was clear and incontrovertible evidence of the Companies' defective sales practices and that it was in the public interest to put an immediate stop to them. He did not rely on the alleged illegal conduct of carrying on unauthorised investment business. Second, there were reasonable grounds for concern that the Companies might react to the Petitions by seeking to put assets or records beyond the liquidator's reach.
As to the first point, the Secretary of State relied upon an affidavit sworn by Mr. John Gardner on 23rd November 2001, an affidavit of Mr. Peter Bott sworn on 28th November 2001, and an affidavit of Ms. Kaley Crossthwaite, also sworn on 28th November 2001. All the deponents are civil servants in the Department of Trade and Industry ('the Department'). The affidavits are detailed and comprehensive.
Ms. Crossthwaite, who is an investigator in the companies investigation branch of the company law and investigations...
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