Re Inertia Partnership LLP
| Jurisdiction | England & Wales |
| Judgment Date | 23 February 2007 |
| Neutral Citation | [2007] EWHC 502 (Ch),[2007] EWHC 539 (Ch) |
| Docket Number | No. 4905 OF 2006 |
| Court | Chancery Division |
| Date | 23 February 2007 |
[2007] EWHC 539 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London WC2A 2LL
Jonathan Crow QC
(Sitting as a Deputy Judge of the High Court)
No. 4905 OF 2006
NICHOLAS PEACOCK (instructed by The Financial Services Authority) for the Petitioner
The Respondent appeared in person
Pursuant to CPR PD 39A, paragraph 6 1, I direct that no official shorthand note shall be taken of this judgment, and that copies of this version handed down may be treated as authentic
INTRODUCTION
This is the trial of a petition presented on the 7 July 2006 by the Financial Services Authority ('FSA') pursuant to s.367 of the Financial Services and Markets Act 2000 ( FSMA). It is apparently the first such petition to be contested! No cross-examination has been sought, and accordingly the trial has been conducted on the basis of the papers and oral submissions, Mr Peacock the the FSA has presented the case very fairly. Mr Roderick Shears appeared in person on behalf of Respondent, The Inertia Partnership LLP ('TIP'). He presented his case clearly and with courtesy.
Under FSMA s.367(1)(c), the FSA may petition for the winding-up of a 'body' which is carrying on, or has carried on, a 'regulated activity' in contravention of the 'general prohibition' On such a petition, the court may wind up the body by virtue of s.367(3) if (a) the body is unable to pay its debts within the meaning of s.123 or s.22l of the Insolvency Act 1986, or if(b) the court is of the opinion that it is just and equitable that the body should be wound up.
TIP is a limited liability partnership As such, it is a 'body' for! the purposes of s.367(1)(c) (see FSMA s,367(2) and regulation 6(2) of the Limited Liability Partnership Regulations 2001 ( SI 2001/1090), 'the L.LP Regulations') and it falls to be wound up (if at all) pursuant to the provisions of Part IV of the Insolvency Act 1986 (regulation 5 of the LLP Regulations).
Pursuant to a resolution passed on the 3l August 2006, TIP went into creditors' voluntary liquidation ('CVI'). Accordingly, the issues that fall to be determined in this trial are:
4.1. Whether TIP has been conducting a regulated activity in breach of the general prohibition
4.2. If so, whether TIP is or was insolvent at the relevant time
4.3. Further or alternatively, whether it is.just and equitable to wind TIP up
THE FACTS
Boiler rooms:
The FSA is Rightly concerned about the activities of 'boiler rooms' These are generally off-shore entities which are not authorised or exempt for the purposes of the FSMA They cold-call private individuals in the UK (for convenience, 'consumers') and try to encourage them to buy shares in unlisted companies. The shares tend to be significantly overpriced. The sales techniques of boiler rooms are typically persistent, often high pressure. They may also make misrepresentations, usually concerning the imminent flotation of the company on an investment exchange, and/or the likely resale value of the shares currently on offer. Their activities are pernicious.
, In the past, boiler rooms have sought to sell shares in non-UK companies, for which payment would have to be made into off-shore bank accounts. Consumers might understandably show some reluctance to enter into such transactions. More recently, the boiler rooms have accordingly changed their tactics and started selling shares in UK companies. They have also sought to put in place arrangements that are calculated to provide reassurance to consumers in the UK by providing for a receiving agent in the UK to collect payments
Through complaints received from a number of consumers during 2005 and 2006, the FSA became aware of the activities of three particular boiler rooms that are relevant to this petition, namely Integra Advisory Group ('JAG'), Aims Management and Stanford Long. Some or all of them sold shares in three UK companies, namely Vivadi Plc ('Vivadi'), Plasma Warehouse Group Plc ('Plasma') and Police 5 Group Pie ('Police 5')
In his written and oral submissions, Mr Shears has objected to the use by the FSA of the pejorative term 'boiler room' in these proceedings, He has also pointed out that the FSA has not described any of TAG, Aims Management or' Stanford Long as 'boiler rooms' in any of the alerts it has issued, and indeed he says that the only alert issued by the FSA relating to any of them merely states that TAG is not authorised under the FSMA. Be that as it may, the evidence clearly shows that the term 'boiler room' is a useful and suitable shorthand for the activities of these three bodies, and others like them
TIP's activities:
TIP is neither authorised nor exempt for the purposes of the FSMA nor is it a boiler room. There may be some dispute about the lawfulness and the moral culpability of its activities, but there is little doubt about their actual nature These can be summarised briefly.
TIP was incorporated on the 22 August 2003. Mr Shears has been a member since then. He has been the sole member since the 9 October 2005. Its business was originally that of management consultancy. At some point before the end of 2005, Mr Shear's came to know of' a man called Jacob Daniels, who operated through Porterland Associates Limited ('Porterland'), a company incorporated in the Seychelles. Mr Shear's says that he understood Porterland to have a client base of' high net worth individuals ('HNWIs') who would be interested in investing in UK companies Mr Shear's introduced Porterland to a number of UK public companies with a view to assisting them in raising capital
Vivadi:
Mr Shear's first introduced Porterland to Vivadi in 2005. Porterland was subsequently engaged by Vivadi to help it raise capital. Porter land in turn engaged the services of lAG, and possibly other boiler rooms as well. Mr Shears was clearly aware at the time that Porterland had engaged a number of 'brokers'. This appears from the evidence of' Katie Souter, a director of 535X (a corporate news and share information service designed for small capitalisation UK public companies). In October 2005, she received a complaint from a member of the public, Elaine Green, who said that she had been cold-called by JAG offering shares in Vivadi, in the course of which she was told that the company was to be posted on 535X imminently. Ms Souter passed the complaint to Mr Roberts, the CEO of Vivadi, and to Mr Shears the same thing happened again in January 2006, when another consumer complained that the same representation had been made to them, this time by Aims Management. Ms Souter says that she was concerned about these complaints because there was no imminent prospect of Vivadi being posted on 535X. Mr Shears has challenged Ms Souter's evidence on this point.. He says that there was an agreement in principle that Vivadi would be posted on 535X, and that he asked Ms Souter to correct her error
There is indeed an email from Mr Shears to 535X dated the 23 August 2005, in which he purported to “require the letter of acceptance for Vivadi to join 535X as agreed at your presentation in July”. However', no such letter of acceptance appears to have been sent by 535X, and there is nothing to suggest that either Vivadi or Mr Shears pursued the matter after August 2005 More significantly, neither Vivadi nor Mr Shears pursued the matter after the complaint from Ms Souter in October 2005 In the circumstances, there is no evidence before the court to suggest that Vivadi was about to be posted on 535X, either in October 2005 or in January 2006, when the representations were made to consumers. More importantly, I am satisfied from Ms Souter's evidence that Mr Shears knew in October 2005 and again in January 2006 that Porterland had engaged brokers, who had cold-called members of the public and that there were complaints about their activities. In other words, Porterland was not seeking to place Vivadi shares exclusively (if at all) with established HNWI clients, which is what Mr Shears said he thought would be happening. Indeed, in the course of presenting his case in court, Mr Shear's acknowledged in terms that he was aware that Porterland had 'associates' and a 'network', although he disclaimed any knowledge of the exact details.
Having said that, the evidence does not establish that TIP took any active part in selling Vivadi shares The nearest the FSA's evidence comes on that issue is in the note of a telephone conversation between Mr Roberts, the CEO of Vivadi, and an FSA official on the 20th March 2006, in which Mr Roberts is recorded as having said that Mr Shears “had arranged the issue of the shares in Vivadi”. However, it is wholly unclear what Mr Roberts meant by that remark, always assuming that he made it. He may simply have been saying that TIP facilitated the issue by having introduced Vivadi to Porterland.. There is no sufficient evidence to base any finding that TIP did anything more.
Plasma:
Later in 2005, Mit' Shears introduced another company, Plasma, to Porterland, This time the arrangements were more formal and TIP's role was more active. A written agreement dated the 17th November 2005 was made between (1) Plasma, (2) Daniel Faughnan (the CEO of Plasma), (3) Porterland, and (4) TIP ('the Plasma Agreement') The FSA only produced an unsigned copy in evidence, and it is apparent that the substance of the agreement must have been slightly different, for reasons that will emerge, Mr Shears said in interview that the draft Agreement I have seen was not a “current document”, but neither has he denied that there was an agreement in place to substantially like effect, nor has he produced the actual agreement.. Subject to the various comments I shall make...
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