Re Farepak Food and Gifts Ltd ((in Administration))
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE MANN,Mr Justice Mann |
| Judgment Date | 18 December 2006 |
| Neutral Citation | [2006] EWHC 3272 (Ch) |
| Docket Number | Case No: 7475 OF 2006 |
| Court | Chancery Division |
| Date | 18 December 2006 |
[2006] EWHC 3272 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Mr Justice Mann
In The Matter of Farepak food and Gifts Limited (In Administration)
And In the Matter of the Insolvency Act 1986
Case No: 7475 OF 2006
MS. L. HILLIARD (instructed by Messrs Taylor Wessing) for the Claimants.
MR. J. LOPIAN (instructed by Messrs. Moon Beever) for the First Respondent.
MR. A. TRACE Q.C. and MR. M. SMITH (instructed by Denton Wilde Sapte LLP) for the Second Respondent.
Hearing dates: 15 th and 18 th December 2006
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.
Introduction
This is an application for directions by the administrators of Farepak Food and Gifts Ltd ("Farepak") as to whether and how they should distribute certain funds held by them. The application turns on whether the moneys are held on trust for the customers who provided them.
Factual background
This case arises out of an insolvency which has caused considerable disappointment and disadvantage to a large number of, typically, low income families. The company operated a Christmas savings scheme under which customers could spread their Christmas savings over a year. Small contributions could be made month by month so that enough had accumulated by the beginning of November to buy a shopping voucher, or a hamper, or other goods. It operated through a system of "Agents", who were typically work colleagues, friends of members of the same family as the customers. The Agents collected the money and forwarded it to Farepak. There were approximately 26,000 Agents, most of whom had no more than 6 or 7 customers. The administrators' calculations indicate that the average customer order through an agent was £250 to £300.
On 11th October the directors decided to cease trading. Farepak went into administration on 13 th October 2006. It is heavily insolvent and any dividend will be but a few pence in the pound. It did not, and will not, fulfil its Christmas 2006 orders. A lot of people who relied on Farepak's scheme to provide them with their Christmas food or presents will suffer real hardship. The case has attracted considerable publicity.
At present there is nothing that can be done for those people in terms of their full Christmas entitlements. The money that they paid has largely gone. However, there is a limited sum as to which they, or some of them, might have some entitlement. In the 3 days leading up to the administration the directors sought to ring-fence the moneys received from customers in that period so that it could be returned to customers if necessary. A deed of trust was executed, though there was apparently a mistake as to the account identified in that deed and questions arise as to its scope. In addition, there is a said to be an argument that the moneys received in that period are subject to a constructive trust in favour of their payors. There is a little short of £1m in respect of which the payers of that money might be said to have retained an interest by one or both of these routes. One of the questions before me is whether or not they have that interest. Of that sum about £390,000 is said to be customer moneys which have been received by the administrators post-administration.
The form and timing of these proceedings
The proceedings before me were commenced by an application issued and served on 8th December 2006. The application asks for "directions" that sums of money credited to the company's current account on or after 11th October are held on trust for the "Agents"; a direction whether certain money paid to Alliance and Leicester is similarly so held; a direction as to whether moneys received into post-receivership accounts is so held; a direction as to whether moneys received prior to 11th October was held on trust for the Agents who paid the moneys; and directions for payment out in the event of trusts being established. Despite the constant reference to Agents, the questions have been treated as though they relate to customers (quite rightly).
No respondents were joined at that stage. It came before Briggs J in that state on 12th December. As I understand it an attempt was made to get him to order a distribution, but he ordered the joinder of representatives to enable the various standpoints to be argued. As a result HM Revenue & Customs agreed to represent unsecured creditors; they appeared before me by Mr Jonathan Lopian to argue, if thought fit, that no trust exists. An order was made that a Customer be appointed to represent the interests of Customers and to argue, if thought fit, that a trust was created in favour of "all Customers". A Suzy Hall was joined to achieve that. She was represented by Mr Anthony Trace QC at the hearing before me. His skeleton argument describes her as an agent who collected on behalf of three classes of customers. She is not described as a customer herself. However, no point was taken on this and she assumed the role of arguing the customers' corner. The administrators were represented by Miss Lexa Hilliard. Briggs J's order provided for them to advance arguments in support of a trust in favour of customers whose contributions were paid into the company's current account on or after 11th October 2006, in favour of customers whose moneys were paid to the company on or after 11th October 2006 (the difference between those two presumably arising because not all moneys were paid into the current account in the relevant period), and in favour of customers whose moneys were paid after close of business on 13th October 200The significance of those dates will be made apparent below.
The matter was expedited and came before me on Friday 15th December. It was argued in a day. The documentation was light, but the authorities bundle was not. As I understand it Mr Lopian and Mr Trace had scarcely more than a working day to understand the facts, work up submissions and prepare skeleton arguments. Despite that they presented impressive and concise arguments in support of the cases that their clients were joined to argue. I am grateful to them (and they are to be commended) for the levels to which they managed to raise their arguments in the circumstances.
The matter was expedited because of the proximity of Christmas. It was felt by the administrators that if some of the customers were entitled to moneys via the trust route then, if possible, that money should be paid to them so that it can be enjoyed in the Christmas period, bearing in mind the fact that their original contributions were intended to provide for Christmas and bearing in mind that while the actual sums of money involved was likely to be small for any customers who were entitled, nevertheless it could well be significant. That is why a matter which raises a number of serious legal and factual complexities has arrived before me for hearing within a week of the matter starting in these courts, with the respondents having little time to prepare arguments and with various steps which might normally be thought as being required having in fact not taken place. Thus there is a rectification claim before me which I am invited to accept without any cross-examination of the deponent as to intention, with no evidence from the two people who executed the document, and with no disclosure having been given. Mr Trace sought to advance a resulting trust argument which involved an assertion that the directors of Farepak must have know since January 2006, or at least some date in the year much earlier than October, that its business would fail without that ever having been alleged against the directors before he made the assertion, and without any material from the directors dealing with the point. This breakneck speed was justified as being what was required if the customers were to have the benefit of this money in the Christmas period. That period is not the few days leading up to Christmas, because it is most unlikely that any money that I may order to be distributed will find its way to those people before then, but it is the period between Christmas and the New Year, during which it is possible that money will find its way back to customers.
In those circumstances I must approach this matter with great care. This court will do what it can to hear urgent cases urgently, and if that means that it is inevitable that the case is heard on less evidence, or with fewer submissions, than if the case were heard less urgently, then the court has to hear the case on the basis of the material that it has before it even though that may well be less than the total material which would otherwise be available. That, however, is not this case. It is not necessary that this matter be determined now. It is merely highly desirable. Neither Mr Trace nor Miss Hilliard argued that I did not have enough material to decide the case now and that as a result it should be adjourned. Both of them urged upon me that I had enough material to decide the case in favour of various classes of customers. Nor did Mr Lopian say that I should adjourn the case so that any particular aspect could be investigated further. His position was to argue that the customers' claims should fail because the evidence and/or the law was not in sufficiently clearly in their favour. However, despite those positions I still approach this matter on the footing that I can only authorise a distribution if, balancing the strong need for a distribution if possible against the need...
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