Secretary of State for Business, Enterprise and Regulatory Reform v Charter Financial Solutions Ltd and Others
| Jurisdiction | England & Wales |
| Judge | SIR EDWARD EVANS-LOMBE,Sir Edward Evans-Lombe |
| Judgment Date | 22 May 2009 |
| Neutral Citation | [2009] EWHC 1118 (Ch) |
| Docket Number | Case Nos: 6546, 6549, 6550, 6551 and 6556 of 2008 |
| Court | Chancery Division |
| Date | 22 May 2009 |
[2009] EWHC 1118 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Before: Sir Edward Evans-Lombe
(sitting as a Judge of the High Court)
Case Nos: 6546, 6549, 6550, 6551 and 6556 of 2008
Mr Andrew Westwood (instructed by The Treasury Solicitor) for the Petitioner
The Respondents appeared by Mr Christopher Lake, a director, with the permission of the Court
Hearing dates: 11/3/09 – 16/3/09
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.
Sir Edward Evans-Lombe:
In this case the Secretary of State for Business, Enterprise and Regulatory Reform ( “The Secretary of State”) petitions for the winding up of five companies under section 124A of the Insolvency Act 1986 ( “IA 1986”) on the ground that it is expedient in the public interest that those companies should be wound up. Those companies are Charter Financial Solutions Limited ( “CFS”), Charter Financial Solutions (UK) Limited ( “CFSUK”), Finance Select (UK) Limited ( “FSUK”), Bounce World Limited ( “Bounce”) and Trash Express (UK) Limited ( “Trash”). I will refer to those five companies together as “the Companies”.
The Companies are the creatures of a Mr Knight and a Mr Lake. Mr Knight has also been known as Mr Graham and Mr Lake as Mr James. In the proceedings the Companies have not been legally represented and by order of Chief Registrar Baister, made on 29 October 2008, were given permission to appear at trial by any duly appointed directors. Mr Lake is now a director of all the Companies and Mr Knight is a director of all save Trash. Mr Lake and Mr Knight are equal shareholders in all of the Companies with the exception of Trash whose shares were equally held by Mr Lake and his wife.
The issue in the case comes down to whether a winding up order should be made under section 124A against FSUK, it being conceded that winding up orders should be made against the other four of the Companies of which only CFS has traded. The only evidence adduced by the Companies was given by Mr Lake who was also responsible for making oral submissions on the Companies' behalf.
The background facts
It was Mr Lake's evidence that both he and Mr Knight had had wide experience of the world of consumer finance extending over several years. On 19 August 2005 CFS was incorporated as a general commercial company and commenced trading in October 2005 after obtaining a consumer credit licence on 1 October 2005. Its business consisted of three main activities: —
(i) acting as a broker in the sale of financial products to the public (and, in particular, those members of the public who would usually struggle to be accepted by the suppliers of such financial products ( “the subprime market”). On the successful completion of an application for finance obtained by a customer of CFS, CFS would receive a commission from the supplying finance company.
(ii) recruiting sales agents throughout the country to help CFS find more customers. There were three levels of agent position available: Agent, “Top 100 Agent” and “Regional Agent”. Agents would receive a commission from CFS on the successful completion of a finance application by a customer of CFS introduced to CFS by the agent. To be appointed an agent required the payment of a fee by the agent to CFS, latterly, £40 for an Agent, £299 for a top 100 Agent and £795 for a Regional Agent.
(iii) the sale to members of the public of franchises of the CFS business concept. In return for a fee, latterly of £5,995 plus VAT, franchisees were trained and were promised “leads”, advice and support in order to help them market finance products in the subprime market. “Leads” were the contact details of individuals thought to be likely applicants for loans (“customers”). All customers who applied to franchisees had to be referred to CFS, through which company negotiations to arrive at loan agreements with finance providers were conducted. The franchisee was promised a 50% share of any commission received on successful completion.
On 1 October 2005 CFS obtained a consumer credit licence and started trading. CFS records show that it sold its first franchise to a Mr Saville in February 2006. Unaudited accounts of the company for the period to 31 August 2006 show an operating profit of £7,619 on a turnover of £105,346, of which £60,130 was recorded as “commission receivable” and £44,770 as “franchise income”. Similar accounts of CFS for the 12 month period to 31 August 2007 show a profit for the period of £17,692 on a turnover of £138,865, of which £61,070 are shown as “commission receivable” and £71,638 as “franchise income”.
On 26 February 2007 Mr Richard May, a franchisee of CFS, commenced proceedings against CFS in the Northampton County Court claiming £7,457.12. The particulars of claim state:—
“In September 2006 I purchased a franchise from the Defendant. This franchise contained many promises and obligations and also guaranteed income.
None of the promises or guarantees have been fulfilled and letters to the company are not answered.
I have requested the return of my money but the company has not replied.”
Judgment was entered in those proceedings in default for £7,707 on 24 April 2007. On 23 May 2007 application was made by CFS to set aside the judgment in default.
Bounce was incorporated on 24 May 2007. Mr Knight was appointed its only director on that date and Mr Lake its company secretary. Bounce was incorporated as a franchising company to sell franchises to members of the public intended to promote the leasing of “bouncy castles”. Bounce has advertised its services on the internet but has never traded in the sense that it has had any sales.
FSUK was incorporated on 11 July 2007 to carry on business as a general commercial company. It was Mr Lake's evidence that FSUK was incorporated to take over the business of CFS when it became impossible to continue CFS business because of the impact of County Court judgments entered against CFS. It has a nominal capital of £100 divided into a hundred ordinary shares of £1 each, of which two were issued, one each to Mr Lake and Mr Knight under the name of Graham. Mr Knight, under the name of Graham, was appointed its director on incorporation. He resigned on 27 September 2007 and was immediately reappointed under the name of Knight. Mr Lake was appointed secretary on incorporation and has remained in that position since. FSUK has traded but no accounts have, as yet, been filed. They were due on 11 May 2009. In the course of the hearing I asked to see management accounts for the company's trading but nothing has been produced.
Trash was incorporated on 23 July 2007, again to carry on business as a general commercial company. Its intended purpose was to act as a franchising company selling franchises to the public to conduct the business of offering a rubbish removal service to the public to supplement that provided by local authorities. Like Bounce, Trash has never traded in the sense that it has made sales although it has advertised its services through an internet website. Mr Lake and his wife each hold 500 of its 1,000 authorised ordinary shares of £1, all of which have been issued. They have been directors of Trash and Mrs Lake has been its secretary since incorporation.
On 31 July 2007 a further County Court judgment was entered against CFS for £5,620.
On 18 September 2007 CFSUK was incorporated to carry on business as a general commercial company. Mr Lake and Mr Knight each hold one of the two issued shares in this company. Mr Knight has been its only director since incorporation and Mr Lake has been its secretary. It seems that this company has been entirely dormant since incorporation.
On 26 September 2007 FSUK applied for a consumer credit licence. It will be necessary to return to this event later in my description of the background to the case.
On 27 September CFS's records record the resignation by Mr Graham as director and the appointment of Mr Knight in his place. They were, of course, the same person.
On 10 October an order was made in the Cardiff County Court that Mr Lake attend at the Macclesfield County Court to provide information about the assets of CFS. On 16 October a Mr Giacone commenced proceedings against CFS in the Nottingham County Court and on 25 October Mr Lake was personally served with court documents in relation to the County Court judgment entered against CFS on 31 July. On 12 November a County Court judgment was entered in favour of Mr Giacone against CFS for £7,766.29.
Meanwhile, on 31 October, Mr Lake and Mr Knight applied to open a business bank account for FSUK with Abbey National plc in the course of which Mr Lake and Mr Knight, under the name of Graham, completed an application form. Section 3 of this form covers personal details and asks:”Have you ever been associated with a business that has failed to keep up repayments on a mortgage, credit card or other financial arrangement, or had a court order for debt registered against it?” Both Mr Lake and Mr Knight answered this question by ticking the box indicating a negative reply.
On 30 November FSUK was issued with a consumer credit licence. I will return to this subject later. Suffice it to say for the moment that it appears that this licence was issued in error.
On 4 December 2007 Mr Lake attended the Macclesfield County Court...
To continue reading
Request your trial