The Official Receiver v Mr Andrew Anthony Kelly
| Jurisdiction | England & Wales |
| Judge | Cawson |
| Judgment Date | 18 May 2023 |
| Neutral Citation | [2023] EWHC 1181 (Ch) |
| Docket Number | Case No: BL-2020-MAN-000067 |
| Court | Chancery Division |
[2023] EWHC 1181 (Ch)
HHJ Cawson KC
SITTING AS A JUDGE OF THE HIGH COURT
Case No: BL-2020-MAN-000067
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN MANCHESTER
INSOLVENCY AND COMPANIES LIST (ChD)
IN THE MATTER OF WALMLEY ASH LTD (FORMERLY BALMORAL LTD)
AND IN THE MATTER OF THE COMPANY DIRECTORS DISQUALIFICATION ACT 1986
Manchester Civil Justice Centre
1 Bridge Street West,
Manchester M60 9DJ
Jennifer Newstead Taylor (instructed by Legal Services Directorate, Insolvency Service) for the Claimant
The Defendant appeared in person on 19–21 April 2023
Hearing dates: 17–21 April 2023
Approved Judgment
Remote hand-down: This judgment was handed down remotely at 10.30 am on Thursday 18 May 2023 by circulation to the parties or their representatives by email and by release to The National Archives.
HHJ Cawson KC:
Contents
| Introduction | 1 |
| Matters alleged to determine unfitness | 6 |
| Evidence | 8 |
| The Brightwell Order | 14 |
| MTIC Fraud | 17 |
| Input tax | 19 |
| Section 6 of the CDDA 1986 | 24 |
| Disqualification in the context of MTIC Fraud | 38 |
| Relevant individuals and entities | 41 |
| Background | 42 |
| Issues to be determined | 86 |
| Preliminary Issue | 91 |
| The Official Receiver's case as to unfitness | 99 |
| Introduction | 99 |
| The Company's financial position | 103 |
| The goods | 105 |
| The Company's general awareness of MTIC fraud | 107 |
| Back-to-back transactions | 109 |
| No or no adequate due diligence | 114 |
| Position in respect of written contract | 119 |
| Inspection | 122 |
| Insurance | 126 |
| Payment and other timing aspects | 129 |
| Low profit margins | 132 |
| Delivery | 133 |
| Conclusion regarding the Company's knowledge and/or involvement | 137 |
| The position of Mr Kelly | 138 |
| Period of disqualification | 146 |
| Mr Kelly's case | 147 |
| Assessment of Mr Kelly as a witness | 152 |
| Determination of the case of unfitness | 155 |
| Period of disqualification | 164 |
| Conclusion | 168 |
Introduction
This is an application brought by the Official Receiver by Claim Form dated 10 December 2019 seeking a Disqualification Order under s. 6 of the Company Directors Disqualification Act 1986 (“ the CDDA 1986”) against Andrew John Kelly (“ Mr Kelly”) in respect of Mr Kelly's conduct as a director of Walmsley Ash Ltd, formerly known as Balmoral Ltd (“ the Company”).
The Official Receiver appeared by Ms Jennifer Newstead Taylor of Counsel. Mr Kelly appeared in person.
The trial was due to commence on Monday, 27 April 2023. However, on Friday, 24 April 2023, Mr Kelly lodged an application with the Court seeking an adjournment of the trial on the grounds that he was suffering from ill health. Mr Kelly did not attend at the commencement of the trial on 27 April 2023. Nevertheless, I gave consideration to his application for an adjournment, but was not satisfied that the evidence in support thereof satisfied the guidance set out in Levy v Ellis Carr [2012] EWHC 63 (Ch) with regard to the evidence generally required to support an application for an adjournment on the grounds of ill-health. However, I considered that the appropriate course was to adjourn the commencement of the trial to 2 PM on Tuesday, 18 April 2023 in order to provide Mr Kelly with a final opportunity to attend trial, either in person or remotely, and/or to provide further evidence in support of his application. I directed that any further evidence should be filed and served by 1 PM on 18 April 2023, and that if Mr Kelly should wish to attend remotely by CVP, then he should provide his contact details to the Court.
Mr Kelly did not attend at Court at 2 PM on Tuesday, 18 April 2023, and nor did he provide his contact details to the Court to enable him to attend remotely. However, he did write to the Court indicating that he was seeking a doctor's appointment and to say that he wished to pursue his application for an adjournment of the trial, also raising a further potential ground for seeking an adjournment, namely that his Solicitors had only recently come off the record and he was without legal representation. I considered the position at 2 PM on Tuesday, 18 April 2023, and gave an extempore judgment dismissing the application for an adjournment for the reasons set out in that judgment. I directed that the trial should commence at 10:30 AM on Wednesday, 19 April 2023, and that Mr Kelly should be given a further opportunity to attend remotely should he prefer to do so instead of attending in person.
In the event, Mr Kelly did attend remotely by CVP at 10:30 AM on Wednesday, 19 April 2023, and the trial then proceeded with Ms Newstead Taylor opening the case for the Official Receiver. Mr Kelly attended, again remotely, on 20 and 21 April 2023. For the reasons referred to below, the Official Receivers' witnesses did not attend for cross examination, but Mr Kelly did tender himself for cross examination, and was cross examine by Ms Newstead Taylor. The trial concluded with submissions on 21 April 2023. I did not, during the course of the trial, detect any signs of ill-health on Mr Kelly's part that hindered his ability to properly participate in the proceedings. Mr Kelly was invited to attend in person on 20 and 21 April 2023, but indicated a preference to attend remotely.
Matters alleged to determine unfitness
The conduct on the part of Mr Kelly that it is alleged by the Official Receiver makes him unfit to be concerned in the management of a company in accordance with s. 6 (1) (b) of the CDDA 1986 is that:
a. Between 30 May 2006 and 1 June 2006, Mr Kelly caused the Company to participate in transactions (“ the 05/06 Deals”) which were connected with the fraudulent evasion of VAT, such connections being something which Mr Kelly either knew or should have known about; and
b. On the Company's May 2006 VAT Return, Mr Kelly caused or allowed the Company to wrongfully claim the sum of £1,748,687.50 from HMRC.
The Official Receiver's original allegation of unfitness covered three VAT periods, namely August 2004, May 2006, and July 2006. However, the allegation is now limited simply to the May 2006 VAT Return.
Evidence
The Official Receiver's application is supported by the following evidence, namely:
a. The report of Kenneth David Beasley (“ Mr Beasley”) dated 4 December 2019;
b. The affirmation of Andrew Siddle (“ Mr Siddle”) dated 11 October 2022; and
c. The third report of Michael Smith (“ Mr Smith”) dated 5 December 2022.
Mr Beasley has retired during the course the present proceedings. Mr Smith has effectively adopted Mr Beasley's report in his own third report, as well as updating the evidence in the light of the Order of DDJ Brightwell (as he then was) dated 20 October 2022. During the course of the trial, I granted permission for Mr Beasley's report to be adopted in this way.
Paragraph 9 of DDJ Brightwell's Order dated 20 October 2022 (“ the Brightwell Order”) required Mr Kelly to confirm which of the Official Receiver's witnesses were required to attend for cross examination by 4 PM on the day 28 days before trial. Mr Kelly did not do so. On 5 April 2023, DJ Richmond acceded to an application made by the Official Receiver for Mr Smith's and Mr Siddle's attendance at trial to be excused.
In these circumstances, the evidence of Mr Smith and Mr Siddle in the form of their third report and affirmation respectively was formally put in evidence without them attending for cross examination, and was not, to that extent, challenged.
In defence of the application seeking to disqualify him as a director, Mr Kelly filed and served the following evidence, namely:
a. His affidavit dated 29 May 2020;
b. His witness statement dated 11 November 2020 (relating to the application dealt with by DDJ Brightwell in his Order dated 20 October 2022); and
c. His affidavit dated 21 December 2022.
As I have already mentioned, Mr Kelly did tender himself cross examination, and was cross examined by Ms Newstead Taylor at some length. Prior to Mr Kelly being cross examined, I explained to him the purpose of cross examination, and that Ms Newstead Taylor was likely, during the course of cross examination, to seek to undermine his evidence and case. On the other hand, I explained to Mr Kelly that if he were not cross examined, then I would be bound to place limited weight on his affidavits and witness statement. In response, Mr Kelly made clear that he wished to be cross examined.
The Brightwell Order
The claim in respect of import tax in the sum of £1,748,687.50 made by the Company's May 2006 VAT Return was rejected by HMRC and became the subject matter of an appeal by the Company to the First-tier Tribunal Tax Chamber (“ FTT”). This appeal to the FTT was unsuccessful. In its decision dated 7 March 2016 (“ the 2016 FTT Decision”), and in rejecting the appeal, the FTT made a number of findings adverse to the Company and Mr Kelly in respect of the Company's involvement, by the 05/06 Deals, in transactions involving the purported sale of mobile phones, which were connected with the fraudulent evasion of VAT, and in particular MTIC (Missing Trader Intra-Community) fraud.
These adverse findings go to the heart of the matters alleged to determine unfitness in the present case given that the transactions and VAT Return relating thereto under consideration by the FTT are the same as those under consideration in the present case.
By paragraph 1 of the Brightwell Order, on 20 October 2022, on the hearing of an application by the Official Receiver to strike out parts of Mr Kelly's evidence in the light of the 2016...
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