The Secretary of State for Business, Energy and Industrial Strategy v PAG Asset Preservation Ltd
| Jurisdiction | England & Wales |
| Judge | Stephen Davies |
| Judgment Date | 30 October 2019 |
| Neutral Citation | [2019] EWHC 2890 (Ch) |
| Date | 30 October 2019 |
| Docket Number | Case Nos. 2718 & 2719 of 2018 |
| Court | Chancery Division |
[2019] EWHC 2890 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS & PROPERTY COURTS IN MANCHESTER
INSOLVENCY AND COMPANIES LIST (Ch D)
IN THE MATTER OF PAG ASSET PRESERVATION LIMITED
AND IN THE MATTER OF MBV VACANT PROPERTY SOLUTIONS LIMITED
Manchester Civil Justice Centre,
1 Bridge Street West, Manchester M60 9DJ
HIS HONOUR JUDGE Stephen Davies
SITTING AS A JUDGE OF THE HIGH COURT
Case Nos. 2718 & 2719 of 2018
Paul Chaisty QC and Lucy Wilson-Barnes (instructed by Gowling WLG, Birmingham) for the Petitioner
David Chivers QC and Nicholas Trompeter (instructed by Gorvins, Stockport) for the Respondents
Hearing dates: 24, 24, 26, 27 September & 1 October 2019 Draft judgment circulated: 11 October 2019
APPROVED JUDGMENT
I direct that pursuant to CPR PD 39A paragraph 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.
His Honour Judge Stephen Davies
Introduction and summary of decision
The Secretary of State for Business, Energy and Industrial Strategy (“the SOS”) petitions under section 124A of the Insolvency Act 1986 (“the Insolvency Act”) to wind up two companies, PAG Asset Preservation Limited (“PAGAPL”) and MB Vacant Property Solutions Limited (“MBV”) (collectively “the Companies”), on public interest grounds.
PAGAPL has operated, and MBV continues to operate, what the SOS describes as a rates avoidance scheme and what the Companies describe as a rates mitigation scheme. (Since there is no difference of substance as opposed to perceived perception between the two descriptions, and since the SOS does not suggest that it is a rates evasion scheme, I shall refer to it as a rates avoidance scheme.)
Under this scheme (referred to as “Scheme 3”, because it is the third such scheme operated by the individuals behind the Companies) owners of commercial property (I shall refer to them as “landlords”) can avoid paying national non-domestic rates (“business rates”, also known as “NNDR”) on empty commercial properties owned by them. This is achieved by leasing the property to a special purpose vehicle company (“SPV”) incorporated by the Companies which is then placed into members' voluntary liquidation (“MVL”). The effect of the lease is that the SPV becomes the owner of the property in place of the landlords for the purpose of liability for business rates. The effect of the MVL is that the SPV is relieved of liability to pay business rates, because one of the exemptions from such liability as provided by the rating legislation is for companies which are being wound up, whether compulsorily or voluntarily.
Although the SOS does not contend that the incorporation of the SPVs or the grant of the leases or the entry into MVLs are contrary to any specific provision(s) of the insolvency legislation or the rating legislation or are to be treated as sham transactions, nonetheless she contends in summary that the business model adopted by both companies subverts the purpose of liquidations and that such misuse of the insolvency legislation demonstrates a lack of commercial probity such that it is just and equitable to wind up the Companies.
In pursuing that contention (which I shall refer to as the “insolvency misuse ground”) the SOS submits that Scheme 3 is no different in its essential elements from the previous scheme (“Scheme 2”) operated by PAG Management Services Limited (“PAGMS”), in respect of which the Secretary of State for Business, Innovation and Skills succeeded in his petition to wind up PAGMS on public interest grounds following a trial before the then Vice-Chancellor Norris J. By his judgment in that case (“the PAGMS case”) given on 9 August 2015 [2015] EWHC 2404 (Ch) Norris J decided that PAGMS should be wound up on the insolvency misuse ground.
The Companies contend that the differences between Scheme 2 as operated by PAGMS and Scheme 3 as operated by them are so significant that the reasons which led to Norris J deciding that it was in the public interest to wind up PAGMS do not apply to them. If they are wrong about that they also contend that the reasons given by Norris J do not, on proper analysis, justify winding up on public interest grounds and they invite me not to follow his decision.
During the course of the trial which proceeded before me over 5 days I heard from a number of witnesses to whom I refer below and had the benefit of excellent written and oral submissions from Mr Chaisty QC leading Ms Wilson-Barnes for the SOS and Mr Chivers QC leading Mr Trompeter for the Companies, to each of whom I am indebted. I am also grateful to the respective solicitors for the production of the evidence and bundles, both in hard and in electronic form.
Having considered the evidence and the submissions my decision is that the SOS has not made out her case that the Companies or either of them should be wound up on public interest grounds.
I give my reasons below under the following headings:
(A) The witnesses [paragraphs 10 to 16]
(B) The relevant rating legislation [paragraphs 17 to 30]
(C) Public interest winding up – the relevant legal principles [paragraphs 31 to 35]
(D) The Companies [paragraphs 36 to 40]
(E) Schemes 1 and 2 [paragraphs 41 to 42]
(F) The judgment of Norris J in the PAGMS case [paragraphs 43 to 49]
(G) Scheme 3 [paragraphs 50 to 82] (H) The Petitions [paragraphs 83 to 100]
(I) The purpose of members voluntary liquidation (MVL) [paragraphs 101 to 116]
(J) Application of the above principles to the facts of this case [paragraphs 117 to 133]
(A) The witnesses
The SOS adduced evidence from 3 witnesses: (a) Mr Hope, a chief investigator with the Insolvency Service who was responsible for the investigation into the Companies which led to the decision to present the petitions; (b) Mr Simpson, who undertook the investigation under the supervision of Mr Hope; (c) Ms Maskell, a senior policy adviser within that branch of the Insolvency Service which is responsible for the regulation of the bodies who themselves regulate insolvency practitioners such as the two liquidators who were appointed to conduct the MVLs of the SPVs involved in Scheme 3. As would be expected none of them had first-hand knowledge of the operation of Scheme 3 by the Companies. Mr Simpson presented the information which he had obtained as a result of his investigation into the Companies and Ms Maskell presented the information which she had obtained as a result of information obtained from enquiries made regarding the two liquidators. Unsurprisingly, no issues as to their honesty or reliability arise for my determination.
The Companies adduced evidence from 3 witnesses who gave evidence at trial.
Mr Stanley is a licensed insolvency practitioner who acted as liquidator to 11 of the SPVs involved in this case. He had also acted as liquidator in relation to a number of the SPVs involved in Scheme 2. He gave evidence of his involvement in relation to one such SPV as being representative of his involvement with all of them. He was honest and reliable and clearly held a genuine belief that he was entitled to act as liquidator of these SPVs without placing himself in conflict with his professional obligations. This belief was based upon his view that the changes made to the scheme were sufficient to permit him to accept new appointments as a liquidator from the Companies. There was no criticism by the SOS of his conduct as liquidator and, insofar as relevant to my decision, I am satisfied that there is no basis for any such criticism.
Mr Cook is the managing director of a property development group which has used the schemes offered initially by the Property Alliance Group Limited (“PAG”) and subsequently by PAGMS and latterly the Companies for many years. He gave evidence in the previous trial which was described by Norris J as impressive. He was an impressive witness and I accept his evidence.
Mr Gough is a director of and shareholder in both of the Companies and responsible for the operation of Scheme 3. He was an honest witness and – in the main – a reliable historian. Indeed, as Mr Chaisty QC acknowledged, he was disarmingly candid in much of his oral evidence – as indeed he had been both in interview and in his witness statement – as to the Companies' intentions in making the changes which they did to the schemes. It seemed to me that Mr Gough was properly conscious of the importance to him personally of giving evidence which could not subsequently be demonstrated to have been untrue and was therefore determined to ensure that he did not give misleading evidence.
The Companies had also adduced a witness statement from a Mr Vaughan-Jones, who is a director of a company which had also used the schemes offered by PAG and whose evidence was substantially the same as that of Mr Cook. He did not attend trial. It was said that the reason was that his employers had not wanted him to attend trial. However, as Mr Chaisty observed, since he is a director of the company that raised certain questions about who it was had instructed him not to attend, which were not explained. Nonetheless, since his evidence largely duplicated that of Mr Cook and was not sufficiently controversial that the SOS felt it necessary to reply to it, I give it some weight.
Finally, I should record that the Companies had also obtained a witness statement from a Mr Power, a licensed insolvency practitioner with extensive experience of acting as a liquidator but with no personal involvement in Scheme 3 or knowledge of other directly relevant...
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