The Secretary of State for Business Energy and Industrial Strategy v Raymond St John Murphy
| Jurisdiction | England & Wales |
| Judge | Mullen |
| Judgment Date | 01 March 2019 |
| Neutral Citation | [2019] EWHC 459 (Ch) |
| Docket Number | Case No: CR-2016-006347 |
| Court | Chancery Division |
| Date | 01 March 2019 |
[2019] EWHC 459 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Rolls Building
Royal Courts of Justice
7 Rolls Buildings
London EC4A 1NL
ICC JUDGE Mullen
Case No: CR-2016-006347
In the Matter of St John Law Limited
And in the Matter of
The Company Directors Disqualification Act 1986
Ms Anna Lintner (instructed by Womble Bond Dickinson) for the Claimant
The Defendant appeared in person
Hearing dates: 29 th – 31 st January 2019
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.
Introduction
This is an application for a disqualification order under section 6 of the Company Directors Disqualification Act 1986 (‘the CDDA 1986’) to be made in respect of Mr Raymond St John Murphy (‘Mr Murphy’). The application follows the administration and subsequent liquidation of St John Law Limited (‘St John’ or ‘the Company’), of which Mr Murphy was the sole director.
The statement of matters determining unfitness required by Rule 3 of the Insolvent Companies (Disqualification of Unfit Directors) Procedure Rules 1987 is contained in the first affirmation of Mr Robert Sheils, dated 5 th October 2016. There are two allegations. The first is trading to the detriment of HM Revenue and Customs (‘HMRC’) and is referred to by the Secretary of State as ‘the HMRC Allegation’. It is as follows:
‘9. Raymond St John Murphy (“Mr Murphy”) caused St John Law Limited (“St John”) to fail to comply with obligations to file and pay taxes as and when due, to the detriment of HM Revenue & Customs (“HMRC”), over the trading period May 2012 to 9 October 2014, in that:
• St John commenced trading in May 2012 and ceased at the date of Administration on 9 October 2014.
PAYE, NIC, Corporation Tax (“CT”) and Schedule D
• Schedule D Stamp Duty of £14,049 was due and payable on 9 December 2012 but remained outstanding at Administration
• PAYE & NIC of £193,278 due for the year 2012/2013 should have been paid in full by 19 April 2013, £152,434 remained outstanding at the date of Administration
• PAYE & NIC totalling £107,504 was due and payable monthly under Real Time Information (“RTI”) reporting for the year 2013/2014, £98,159 of which remained outstanding at the date of Administration
• PAYE & NIC totalling £98,180 was due and payable monthly under RTI for the year 2014/2015, £96,180 of which remained outstanding at the date of Administration, an employment credit of £2,000 having been given
• CT of £15,228 for the period ended 3 November 2012 was due for payment by 4 August 2013 and £1,308 for payment by 1 September 2013, none of which had been paid
• With the result that at the date of Administration, HMRC were owed a total of £386,074 in respect of PAYE, NIC, CT and Schedule D Stamp Duty, including interest and penalties
VAT
• VAT returns and any payment due thereon were due in respect of the period ended July 2012, by 7 September 2012 and in respect of every quarter thereafter. However, the quarter ended July 2012, on which £36,420 was due and the quarter ended October 2012, on which £18,318 was due, were not filed until 3 May 2013. The quarter ended January 2013 on which £11,875 was due and quarter ended April 2013 on which £17,135 was due, were not filed until 23 July 2013. No further returns were filed prior to Administration.
• No payments were made in respect of VAT throughout.
• With the result that at the date of Administration, a total of £196,255 was due to HMRC in respect of VAT.
Comparative treatment
• St John's Financial Statements show turnover of £649,752 in the period to 30 November 2012 and £1,292,535 for the year ended 30 November 2013. St John's bank statements show income of £1,176,796 in the period 1 December 2013 to Administration.
• Only £50,189 had been paid to HMRC over the entire trading period, none which had been in respect of VAT
• Over the same period, Mr Murphy had received repayments totalling £241,003 against his director's loan and St John had made payments totalling £75,818 to a person who was not a director, shareholder, employee or creditor of St John
• With the result that at the date of Administration, £582,330 was owed to HMRC. Other creditors were owed £404,341, £94,466 of which was to the Redundancy Payment Service, funded by HMRC’
The second allegation relates to the making of payments out of St John's account after presentation of a winding-up petition by HMRC, which payments were outside the scope of a validation order obtained on 29 th August 2014 (referred to as ‘the Validation Order Allegation’). That allegation is as follows:
‘10. Between 27 June 2014 and 09 October 2014 Raymond St John Murphy (“Mr Murphy”) caused St John Law Limited (“St John”) to make payments to himself of £24,400 and to make further payments in excess of those agreed by virtue of the schedule to the Validation Order dated 29 August 2014 totalling £200,752 at a time when he knew that the company was insolvent and were therefore to the detriment of creditors… In that:
• On 27 June 2014, HM Revenue & Customs (“HMRC”) filed a Winding-Up Petition in the High Court against St John
• Before 04 July 2014 and 18 August 2014 Mr Murphy caused St John to make payments to himself totalling £24,400.
• On 29 August 2014 St John made an Application to the High Court for a Validation Order pursuant to Section 127 of the Insolvency Act 1986 “for an Order that payments made out of and into the Law Firm's bank account in the ordinary course of business from the date of presentation of the Petition until the date of judgement on the Petition or further Order in the meantime shall not be void by virtue of the provisions of section 127 of the Insolvency Act 1986.”
• On the same date the High Court granted the Order, that payments in the Schedule attached to the Order and totalling £129,616 (additional professional fees of £15,000 were later allowed) shall not be void by virtue of the provisions of Section 127 of the Insolvency Act 1986. This Schedule specifically excluded Mr Murphy from the Staff Salaries total and did not include any specific payments to him.
• Over the period 27 June 2014 to the date of Administration on 9 October 2014, payments totalling £370,481 were made out of St John's bank account. These included the payments totalling £24,400 to Mr Murphy.’
I have omitted those parts of this allegation that are no longer relied upon by the Secretary of State.
Mr Murphy opposes the application and has summarised his case in a skeleton argument dated 25 th January 2019. He states that he carried out his duties as a director honestly and responsibly and, in particular, caused the Company to maintain proper accounting records. He states that he:
‘denies that he permitted the Company to continue trading when it could not pay its debts’
and that:
‘D maintained proper company accounting records and the records which are now found to be missing would demonstrate that he had made appropriate arrangements to discharge liability to tax, that there was an offset in respect of monies due by C to D and that he did not appropriate company money or assets for personal benefit.’
The reference to missing records is a reference to records of the Company stored on a cloud-based record-keeping system called ‘Osprey’ and are said to have included emails, client ledgers and other financial records. I shall refer to the information stored on the Osprey system as ‘the Osprey Records’.
Mr Murphy contends that he cannot have a fair trial in the absence of the Osprey Records. These were deleted from Osprey on or about 20 th July 2015, six months after the Company's subscription to the system lapsed during the course of the administration. These proceedings have come to trial nearly five years after the administration of the Company and Mr Murphy says that it is unconscionable for the trial to proceed in circumstances where these records are not now available for him to prove his defence. Indeed, Mr Murphy says that he was not told of the lapse of the Osprey subscription until April 2017, by which time it was too late for him to seek to recover the Osprey Records himself.
His position on the allegations is set out more particularly in his written evidence. He relies principally on three matters in defence of the HMRC Allegation –
i) The first is that a substantial sum was owed by HM Treasury to him in relation to a costs order made in criminal proceedings brought against him in about 2011 (‘the Costs Order’) and that this would have been sufficient to discharge the tax liabilities in due course (‘the Costs Order Defence’).
ii) The second is that the Company's fee income from unbilled work and conditional fee cases would have enabled it to meet its liabilities to HMRC in due course (‘the Work in Progress Defence’). He contends that St John was therefore not insolvent.
iii) The third is that the Company's payments in the trading period, which have been shown as credits to his director's loan account, were proper and represented modest remuneration to him (‘the Proper Payments Defence’).
In respect of the Validation Order Allegation he states that the payments made after presentation of the petition were also proper. They represented liabilities that he was required to discharge on behalf of the practice. Though it is not readily apparent from his written evidence, he also contends that many of the payments out of the Company's office account after presentation of the petition were payments of monies held on trust for clients and did not amount to dispositions of the Company's property in any event.
The...
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