Secretary of State for Trade and Industry v Paulin
| Jurisdiction | England & Wales |
| Judge | The Vice-Chancellor |
| Judgment Date | 13 May 2005 |
| Neutral Citation | [2005] EWHC 888 (Ch) |
| Court | Chancery Division |
| Date | 13 May 2005 |
| Docket Number | Case No: CH/2004/APP/855 |
[2005] EWHC 888 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Vice-Chancellor
Case No: CH/2004/APP/855
Miss Lucy Wilson-Barnes (instructed by Treasury Solicitor) for the Claimant/Respondent
Mr Bitu Bhalla and Mr Jonathan Miller (instructed by Key2Law Llp) for the Defendant/Appellant
Hearing dates: 4th and 5th May 2005
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.
THE VICE CHANCELLOR
Introduction
The Premier Screw & Repetition Company Ltd ("the Company") was a subsidiary of Tomkins plc. Its trade in the manufacture of precision turned parts became increasingly unprofitable. By 27th April 2000 it owed its parent £2.7m. On that day the issued share capital in the Company and the benefit of the debt for £2.7m was sold by Tomkins plc to Croftacre Ltd ("Croftacre") for £1. On the same day the then directors of the Company resigned and William Laurie Paulin ("Mr Paulin") and Stuart Vincent Harrison ("Mr Harrison") were appointed in their place. Mr Paulin and Mr Harrison were also directors of Croftacre of which Mr Paulin was the beneficial owner.
From April to October 2000 the debts due by the Company to the Inland Revenue and Customs & Excise increased from £172,004 to £712,366, notwithstanding a payment to the Inland Revenue in June of £61,942. In the same period debts due by the Company to other creditors in the aggregate sum of £2,823,912 were paid. On 26th October 2000 Croftacre caused the Company to sell its business and assets to Croftacre and two other companies owned and controlled by Mr Paulin, namely, Homer of Redditch Ltd and Grice Investments Ltd. The price was paid by way of set-off against equivalent amounts owed by the Company to one or more of those buyers.
On 27th September 2000 Customs & Excise presented a petition for the winding up of the Company for hearing on 27th November 2000. It was advertised on 30th October 2000 but did not proceed further as an administration order was made in respect of the Company on 14th November 2000. Duncan Robert Beat ("Mr Beat") was appointed one of the administrators.
On 13th November 2002 the Secretary of State for Trade and Industry ("the Secretary of State") issued an application under s.6 Company Directors Disqualification Act 1986 seeking disqualification orders against Mr Paulin and Mr Harrison. He alleged that the conduct of each of them as directors of the Company made him unfit to be concerned in the management of a company. The Secretary of State alleged, so far as now material, that Mr Paulin:
1. Caused the Company to trade to the detriment of the Crown in that he caused it to retain Crown monies and to fail to comply with its statutory obligations to the Crown while at the same time making payments of £2,823,912 to third parties. In the period during which the Company traded under his control, being 27 April 2000 until the Administration Order made on 14 November 2000 the Company made only one payment to the Inland Revenue of £61,942 on 5 June 2000 and made no payment to Customs & Excise. In the period from April 2000 to the date of the Administration Order, amounts owed to the Crown increased by £540,362.
2. Was in breach of his fiduciary duty to the Company in that he caused the Company to dispose of its business and the majority of its assets to companies under his and [his co-defendant's] control pursuant to three agreements made on 26 October 2000 without obtaining payment for the Company for the business and assets transferred. According to the terms of those agreements payment for the business and assets so transferred was to be made by way of set off against debts recorded in those agreements as being owed to the Company to those companies on that date, although the accounting records of the Company showed no such debts as due on that date. Subsequently on 27 October 2000 he dishonestly caused entries to be made to the accounting records of the Company which he knew did not reflect the true financial position of the Company as previously recorded in the accounting records, in order to create the appearance that such debts were owed to the Company. Alternatively, in breach of the fiduciary duty he owed to the Company, and at a time when he knew the Company to be insolvent, he caused the Company to transfer its business and the majority of its assets to companies under his and [his co-defendant's] control in transactions that were to the detriment of the Crown departments as preferential creditors, and which were to the benefit of the companies under his and [his co-defendant's] control as unsecured creditors of the Company.
Substantial affidavit evidence was filed and the application was heard by the Registrar over four days from 16th to 19th March 2004 at which most deponents were cross-examined. The Registrar reserved judgment. He completed his judgment by 25th March 2004 and sent copies ("the First Judgment") to counsel appearing before him. In it (paragraph 28) he found that
"The first allegation is made out and in my view renders Mr Paulin unfit to be concerned in the management of a company."
With regard to the second allegation set out above he found (paragraph 41):
"The truth is as the Secretary of State asserts. This was a deal set up by Mr Paulin to hive off the assets to other companies under his control so as to leave the Crown facing an empty shell. The deal was done so as to make it difficult to unravel and so as to present the Crown (and any insolvency practitioner appointed) with a fait accompli. It was a dishonest and flagrant breach of Mr Paulin's fiduciary duty to [the Company] and its creditors. Even if the debts which gave rise to the set off were real, the set off constituted a preference and the second limb of the allegation is made out. Mr Paulin's behaviour demonstrates a serious lack of commercial probity, warranting a finding of unfitness and the making of an order."
Later (paragraph 87) having referred to submissions made to him by counsel then appearing for Mr Paulin he said:
"[Counsel]'s points were well made. They are very persuasive. They do not, however, detract from the fact that his client's behaviour was deeply dishonest and that he set about disposing of Premier's assets with a view to leaving the Crown facing a shell. Subject to any further assistance from counsel resulting from anything arising out of this judgment I would intend to make an order at the top end of the middle bracket."
For reasons which have not been fully explained there was a delay of two months before a hearing at which to hand down the first judgment took place. On 27th May 2004 Mr Paulin appeared before the Registrar by different counsel. He complained that the findings of dishonesty made in paragraphs 41 and 87 of the First Judgment went beyond what had been alleged and should be omitted. Counsel for Mr Harrison was concerned that the matter should be disposed of in relation to his client without further delay. In the event the Registrar made a disqualification order in respect of Mr Harrison and adjourned the matter in respect of Mr Paulin to another day when more time would be available to consider the submissions his counsel wished to make. In due course the further hearing was fixed for 26th October 2004.
On 22nd October 2004 Mr Paulin applied for permission to adduce further evidence. The application stated that the evidence had merit, would assist the court in doing justice and that its late production was caused by unforeseen circumstances. This application was heard by the Registrar on 26th October 2004. Mr Paulin was represented by Mr Bhalla, who had not been instructed on any of the earlier proceedings, and the Secretary of State also by different counsel, Ms Wilson-Barnes. After hearing full argument he reserved judgment.
The Registrar's judgment on the application to adduce further evidence was completed on 9th November 2004 and sent to the parties. It was formally handed down on 3rd December. For the reasons explained in that judgment ("the Second Judgment") the Registrar dismissed that application. After further discussion the Registrar then altered paragraphs 41 and 87 of the First Judgment and handed down the altered version ("the Third Judgment") as his definitive judgment on the application for a disqualification order. The alterations were the omission from paragraph 41 of the penultimate sentence and the following words "Either way" and the substitution in paragraphs 41 and 87 respectively of the words "very serious" and "seriously wrong" for the words "dishonest" and "deeply dishonest".
The Registrar then heard argument on the period of disqualification. He gave an ex tempore judgment ("the Fourth Judgment") explaining his reasons for imposing a disqualification order for seven years. The consequences of the Second, Third and Fourth Judgments were given effect in two orders dated 3rd December 2004. By the first order the Registrar dismissed the application for permission to adduce further evidence; by the second he imposed on Mr Paulin a disqualification order for the period of seven years from the date thereof.
On 17th December 2004 Mr Paulin filed an appellant's notice challenging both orders. Mr Paulin had not obtained from the Registrar permission to appeal either order, nor did he seek such permission in his appellant's notice. In his written argument in support of Mr Paulin's appeal counsel asserted that no permission was required. That the position is more debateable than such an assertion suggests is apparent from the...
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