Re Green v Walking (aka Ortega Associates Ltd ((in Liquidation))
| Jurisdiction | England & Wales |
| Judge | Bernard Livesey QC |
| Judgment Date | 19 December 2007 |
| Neutral Citation | [2007] EWHC 2046 (Ch) |
| Docket Number | Claim No 1473 of 2006 |
| Court | Chancery Division |
| Date | 19 December 2007 |
[2007] EWHC 2046 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Bernard Livesey Qc
Sitting as a Deputy Judge of the High Court
In The Matter of ortega Associates Limited (In Liquidation) and
In the Matter of the Insolvency Act 1986
Claim No 1473 of 2006
Mr Niall McCulloch, instructed by Freeth Cartwright LLP, Manchester, appeared for the Applicant.
Mr Matthew Hardwick, instructed by Hugh Cartwright & Amin, of London WC1, appeared for the First Respondent.
[Approved subject to editorial corrections]
This is the official Judgment of the Court and pursuant to CPR 39 PD 6.1 I direct that no further note or transcript be made of it.
This is an application by the Liquidator of a company called Ortega Associates Ltd ('Ortega') under section 212 of the Insolvency Act 1986 for an order against the first respondent (“Mr Walkling”) declaring that he had acted in breach of his fiduciary duty and/or common law duty as a director of Ortega and/or acted in breach of trust and/or was guilty of misfeasance in procuring authorising or permitting the payment and misappropriation of the sum of £443,000 from Ortega; that the payment of £443,000 from Ortega was a transaction at an undervalue; he seeks an order for the payment of the sum of £443,000 plus interest since March 2004 and ancillary declarations and orders.
Mr Walking denies that he acted in breach of duty. He claims that at the material time he was constrained in his freedom to act by a duty to comply with the provisions of the Proceeds of Crime Act 2002 and that the applicant has given him no credit for the influence of those considerations upon him. He disputes the applicant's entitlement to the orders claimed, alternatively asks the court to relieve him of his liability pursuant to section 727 of the Companies Act 1985.
The application was heard by me on 21 st and 22 nd November 2007 when the applicant gave evidence in writing and Mr Walkling gave evidence in person and was cross-examined at some length. I will say at this stage that I had a good opportunity to form a view about Mr Walkling's veracity and integrity; he is a man of about 60 years of age who impressed me as a person of integrity. I accept that he told me the truth in all material respects. The facts therefore which I find are as follows.
Mr Walkling has been a salesman all his life, working for fairly small enterprises and reaping a fairly modest financial reward. In the latter part of his career he was promoted to Sales Manager, a title which paid respect to his many years in selling but overstated his management role and experience.
From 1997 until 2001 he was responsible for the sales (and some low-level general management) of a company called Mobility Now Limited, which specialised in bathing products for those with mobility problems. In July 2001 he was first contacted out of the blue by telephone by a person one of whose names was Mr Stephen Edwards Moate (“Mr Moate”) an apparently successful and wealthy British entrepreneur in his late twenties who claimed to have made most of his money by buying and selling companies. He had purchased the assets of Mobility Now Limited from the administrator and asked Mr Walkling if he would run the sales side of the business of Ortega, a newly incorporated company under whose umbrella the business would be run.
All of Ortega's issued shares were owned by American Bright Futures Corporation (“ABF”) a company incorporated in the state of Nevada in the USA, which was owned and controlled by Mr Edwards Moate; initially Ortega itself was managed by Mr Moate and his wife Elizabeth Edwards, a chartered accountant, but in August 2002 Mr Moate told Mr Walkling that the demands made on him to travel abroad to the US in connection with an associated business, meant that there was a need for another director to be appointed and asked him to consent to act; Mr Walkling was probably flattered by the invitation and, even though the position did not come with increased income to reflect the increased responsibility, accepted and he and Mrs Edwards were appointed Directors on 28 th August 2002. What neither Mr Moate nor his wife told Mr Walkling was that the need for the appointment arose because on the 27 th December 2001 Mr Moate was disqualified from being a director of any company for 7 years, in circumstances which are not known to me, and although he formally resigned as a director he quite clearly carried on to act de facto as the managing director of Ortega entirely as before. But that is how it came about that Mr Walkling became a director. And thus it was that when the accounts for the year ended 2002 required the signature of a director, he was prevailed upon by Mrs Edwards (who was now Company Secretary) to go to the offices of the company accountants and sign them. Before doing so, since he had not compiled them himself, he required and obtained an assurance, which he received, from both Mrs Edwards and the accountants that they were absolutely reliable and correct and accorded with the books of account of the company. There is no suggestion that the accounts were inaccurate, although I think they probably were because of an ongoing but as yet undiscovered fraud to which I will shortly come.
As may be inferred from the above, Mr Walking was somewhat inexperienced in the duties and responsibilities of directors. He was, however, in my judgment adequately guided as to the manner in which he should conduct his duties by an innate sense of propriety; he knew that he owed a duty to act in the best interests of the company, had duties of good faith and fidelity; and that duties were owed not merely to the company but also to its creditors; in particular he knew that the company assets belonged to the company and not to the shareholders; he had also a clear sense of the integrity which was required in relation to his and other persons' dealings with company property.
It was towards the end of 2003 that Mr Walking began to overhear a casual remark which caused him to suspect that something improper financially was going on. He investigated one weekend in early January and discovered that Mr Moate was involved in a dishonest enterprise to defraud HM Customs & Excise (“the C&E”) of a substantial amount of money. This was done by substantially inflating the inputs on the Company's VAT return so that claims for repayment of VAT were being presented in the sum of £30,000 -£80,000 per quarter, rather than the normal level which was in region of only £6,000 to 9,000 per quarter. The money fraudulently received from the C&E was being credited directly to Ortega's bank account in the usual way; however, as soon as the credit appeared in the Company's bank account the amount of the credit was withdrawn by cheque. The company bank statements then were 'doctored' to conceal both transactions, by folding over the relevant two entries and producing photocopies as thereby redacted which were kept in place of the originals. Mr Walkling estimated that the total amount of money obtained from the C&E by the fraud was in the region of £1.3 million. The Company was itself being defrauded of the VAT rebate to which it was entitled.
Mr Walkling's immediate instinct was to approach Mr Moate directly at his home, confront him with the evidence, and attempt to recover the money and pay it back. However he thought it would be prudent to seek advice and obtain assistance from his solicitor first of all, Mr Timothy Elliott of Vincent Roe and Company.
On 10 th January 2004, Mr Elliott met with Mr Walkling at his home and the latter explained about the fraud and Mr Elliott explained about the money laundering implications and the appropriate course of action; it is clear from an attendance note that he persuaded Mr Walking not to confront Mr Moate but to follow the guidance he gave which was to act consistently with the Proceeds of Crime Act 2002 (“ POCA”). Under the Act it was first necessary to make an authorised disclosure of the fraudulent activities to the appropriate authority. After consulting the Money Laundering Officer at Vincent Roe, Mr Elliott the following day reported the matter to the Scotland Yard Fraud Investigations Unit but they declined to act and suggested that the report be made to the C & E.
On the 13 th January Mr Elliott made the report to the C&E and they arranged for two officers to attend at Ortega's offices on the following day, because Mr Moate was then going to be away. Two officers duly attended and took away copies of all relevant documents and entries in the company's books and left saying that they would conduct an investigation and make contact again in due course. Mr Walkling felt that a great weight had been lifted from his shoulders and awaited the early date when the C&E would —like the cavalry —doubtless arrive, arrest and carry away the dishonest Mr Moate and enable the recovery of the stolen money.
As Mr Walkling put it in his statement, “I could hardly have been more wrong”—despite repeated approaches the cavalry never did arrive. Despite being reminded of the increasing urgency of an intervention by them, it became apparent in March that no one at the C&E had yet read the file and the matter was being transferred to Ipswich; in late March it was reported that someone had read the file and was now “very interested”; and in May that the C&E “wanted to make an arrest, but would like to do it in a subtle manner”. By June they indicated that they were “under resourced” and there was some doubt whether they would in fact undertake an arrest but wanted to meet with Mr Walkling. Although Mr Walkling agreed to a meeting it seems that the C&E...
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