The Secretary of State for Business, Energy and Industrial Strategy v Lee Edward Lummis
| Jurisdiction | England & Wales |
| Judge | Halliwell |
| Judgment Date | 04 June 2021 |
| Neutral Citation | [2021] EWHC 1501 (Ch) |
| Court | Chancery Division |
| Date | 04 June 2021 |
| Docket Number | Case No: E30MA836 |
[2021] EWHC 1501 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN MANCHESTER
INSOLVENCY AND COMPANIES LIST
IN THE MATTER OF AVACADE LIMITED
AND IN THE MATTER OF THE COMPANY DIRECTORS DISQUALIFICATION ACT 1986
His Honour Judge Halliwell sitting as a Judge of the High Court
Case No: E30MA836
Lucy Wilson-Barnes (instructed by TLT LLP) for the Claimant
David Berkley QC (instructed by Zakery Khub Solicitors) for the Defendants
Hearing dates: 14 – 18 December 2020, 30 March – 1 April, 13 April 2021
APPROVED JUDGMENT
This judgment was handed down remotely by circulation to the parties' representatives by email. It will also be released for publication on BAILII. The deemed date and time for hand down is 4 th June 2021 at 2pm.
HHJ
(1) Introduction
By these proceedings, the Secretary of State seeks disqualification orders, under Section 6 of the Company Directors Disqualification Act 1986, in relation to two directors of Avacade Limited (“the Company”), Messrs Lee Edward Lummis (“Mr Lee Lummis”) and Craig Stanley Lummis (“Mr Craig Lummis”) (collectively “the Defendants”).
The Company carried on the business of an investment broker. It went into liquidation on 6 th November 2015 with an estimated deficiency, as regards creditors, of £3,977,125 including a claim for £1,231,992 from HMRC. The deficiency was subsequently revised to £12,928,059 to reflect additional HMRC claims. The claims submitted by HMRC now amount to £10,183,926.
HMRC's claims arise from two separate tax planning schemes implemented by the Company pursuant to advice from EDF Tax Limited (“EDF Tax”) and, subsequently, Qubic Tax Limited (“Qubic Tax”). HMRC contend that the two schemes were and are ineffective and the Company thus incurred significant tax liabilities. Surprising as it might seem, I am advised there has not yet been a conclusive judicial determination on the validity of either scheme. HMRC has served notices on the Company and issued determinations on the basis that the schemes are ineffective. However, at least in respect of the EDF Scheme, their claim is subject to appeal.
The Secretary of State's case against the Defendants is based on a single ground of unfitness, namely that in the 15-month period prior to the liquidation — 1 st August 2014 to 6 th November 2015 — they caused the Company to enter into transactions totalling £1,504,566 for their own benefit at the risk of HMRC. It is alleged that these transactions took place after the Company had ceased trade. They involved the disposal of the Company's assets and a series of payments to the Defendants in part satisfaction of monies due to them on directors' loan account. In the aftermath, it is alleged there were no assets to meet the Company's contingent liabilities to HMRC.
After repeated postponements, the trial took place remotely on 14 th – 18 th December 2020, 30 th March – 1 st April and 13 th April 2021. At all times, Ms Wilson-Barnes, of counsel, appeared on the Secretary of State's behalf. On 14 th–18 th December 2020, Mr Lee Lummis attended personally in the absence of Mr Craig Lummis. Mr Craig Lummis was then unable to attend or give evidence owing to a syndrome of health problems relating to diabetes and hypertension. Although they had been professionally represented in the past, the Defendants were not professionally represented at this stage and Mr Lee Lummis personally cross examined each of the Secretary of State's witnesses. Once the Secretary of State's case had closed, I adjourned the trial part heard with effect from 18 th December to allow Mr Craig Lummis a final opportunity to give oral evidence. I did so in the light of a medical report from Dr Eric Tran Qyet Chinh confirming that Mr Craig Lummis's condition was life threatening and, although he had been prescribed a course of Bromazepan, he was not fit to give oral evidence and this would remain so until his hypertension had been brought under control. It was envisaged there was a reasonable prospect this could be achieved in 90 days. The rest of the trial was thus adjourned for further hearing in late March 2021.
The Defendants then re-engaged Zakery Khub Solicitors and Mr David Berkley QC to act as their solicitors and counsel for the remainder of the trial. Having assimilated the historic detail and acquainted himself with the evidence, Mr Berkley re-focussed the Defendants' case on the critical issues when the trial resumed. At this stage, the Defendants both gave oral evidence and, following cross examination, they were re-examined, at some length, by Mr Berkley.
I reserved judgment following closing submissions on 13 th April 2021. However, by letter dated 14 th May 2021, the Secretary of State's solicitors, TLT LLP, advised Zakery Khub Solicitors that they had reviewed their files and discovered some additional documents. These were produced in order to satisfy their “client's continuing duty of disclosure”. The documents included a letter dated 6 th December 2013 from Qubic Tax to the Company, a document entitled Accounting Summary and Disclosure for Avacade Limited Employee Trust 2013 and a letter dated 27 th June 2018 from the Company's accountants, Walker Begley Limited (“WBL”) to the Insolvency Service. They were subsequently forwarded to me with additional written submissions from Mr Berkley and Ms Wilson-Barnes. The documents have thus been admitted as evidence and I have taken them into consideration together with counsel's additional written submissions.
(2) Factual sequence
The Company was formed on 28 th January 2010. At the outset, the Defendants were appointed as directors together with Mr Ray Fox (“Mr Fox”). In respect of the Company's nominal share capital of £1,000, 300 shares were allotted to Mr Fox and 350 shares each to Messrs Lee and Craig Lummis.
Shortly after incorporation, the Company commenced business as an investment broker. It filed statutory accounts in respect of the periods ending on 31 st March 2011, 2012, 2013 and, ultimately, for the extended period ending on 30 th September 2014. Between the years ending on 31 st March 2012 and 2013, the Company's turnover climbed from £1,576,621 to £5,459,043 and amounted to £5,586.263 in the period ending on 30 th September 2014. However, this was not reflected in an increase in the Company's net profit. After recording a net profit of £87,992 for the year ending on 31 st March 2012, the Company made a net profit the following year of only £50,018 and a net loss of £1,413,137 in the period ending on 30 th September 2014. It is apparent from the Company's profit and loss account that this was primarily attributable to an increase in employees' remuneration which climbed from £380,654 for the year ending 31 st March 2012 to £4,108,720 and £6,983,657 in the periods ending on 31 st March 2013 and 30 th September 2014. There is an issue between the parties as to whether, by the end of the extended period, the Company had ceased trade.
No doubt, the increase in employees' remuneration was partly attributable to an increase in the number of employees. At one point, the Company was employing upwards of 50 staff. However, during 2012 the Company entered into tax planning arrangements involving the creation of an Employer Financed Retirement Benefit Scheme under which substantial amounts were transferred to an off-shore trust company, IFM Corporate Trustees Limited. These amounts were intended for the ultimate benefit of employees but it was anticipated the Company would thus be entitled to deduct Corporation Tax prior to any payment to the employees themselves. The Scheme (“the EDF Scheme”) was created pursuant to advice from EDF Tax. In November 2012, the sum of £1,000,000 was transferred to a trust company under the EDF Scheme. Further amounts were subsequently transferred to trustees in connection with a tax scheme (“the Qubic Scheme”) created by Qubic Tax.
At all material times, WBL were the Company's accountants. Mr Craig Lummis was closely acquainted with one of WBL's directors of WBL, Mr Kevin Begley (“Mr Begley”). In addition to acting for and advising the Company in connection with its accounts, Mr Begley had initially introduced the Company to EDF Tax and Qubic Tax, and recommended their schemes. Early in 2014, HMRC submitted enquiries to the Company about the EDF tax scheme. These were referred to Mr Begley. Mr Begley attended to HMRC's initial enquiries and, by letter dated 23 rd April 2014, he advised HMRC that the Company had “asked to be admitted to a Representative Sample Arrangement organised by [its employee] Mr Nick Bent at Specialist Investigations at Solihull”.
At about this time – it is unclear precisely when – Mr Craig Lummis signed, on behalf of the Company, a document headed “Representative Sampling Agreement” (“the RSA Document”) in connection with the EDF Scheme. Whilst the Secretary of State has produced a copy of the RSA Document bearing Mr Craig Lummis's signature, the copy is un-dated and un-signed on behalf of HMRC or EDF Tax.
It was implicit in the RSA Document that legal proceedings had been or would be issued in connection with the EDF Scheme and it was expressly provided, in clause 8, that “the Company and HMRC [would] be bound by any final decision made by the Tribunals or the Courts in any lead case also using [the EDF Scheme] unless they can differentiate the Company's circumstances from those of a decided lead case”.
At a board meeting on 29 th April 2014, Mr Fox agreed to resign as a director. Notice of his resignation was duly filed at Companies House.
Following Mr Fox's resignation, the Board resolved to cease providing access to clients who had not yet been sent investment documents...
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Directors Should Provide For Contingent Liabilities
...The risks and improper nature of the transactions would have been apparent, even in the absence of specific advice. Avacade Ltd, Re, [2021] EWHC 1501 (Ch) The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your ......
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Directors Should Provide For Contingent Liabilities
...The risks and improper nature of the transactions would have been apparent, even in the absence of specific advice. Avacade Ltd, Re, [2021] EWHC 1501 (Ch) The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your ......