Volker Rolf Kappler v The Secretary of State for Trade and Industry
| Jurisdiction | England & Wales |
| Judgment Date | 11 May 2006 |
| Neutral Citation | [2006] EWHC 3694 (Ch) |
| Docket Number | Case No: 5C – 0003 |
| Court | Chancery Division |
| Date | 11 May 2006 |
[2006] EWHC 3694 (Ch)
His Honour Judge Roger Kaye QC
(Sitting as a Judge of the High Court)
Case No: 5C – 0003
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
LEEDS DISTRICT REGISTRY
Leeds Combined Court Centre
Appearances:
Mr Jeremy Bamford for the Appellant
Mr Mark Cunningham QC for the Respondent
Hearing dates: 29, 30 March 2006
Hand down Judgment: 11 May 2006
I direct pursuant to CPR PD 52 para 5.12 that no official shorthand note or mechanical recording need be taken of this judgment and that copies of the approved final version as handed down may be treated as authentic.
Date: 11 May 2006 Roger Kaye QC
His Honour Judge Kaye QC:
This is an appeal from the order of District Judge Saffman made on the 28 April 2005 whereby he made an eleven year disqualification order under the Company Directors Disqualification Act 1986 (as amended) (“the Act”) against the Appellant, Mr Volker Rolf Kappler.
The proceedings were commenced on 12 May 2003 and were brought under s 6 of the Act.
The disqualification order followed a trial on 20 and 21 September 2004 which was adjourned part heard and continued on 26 to 28 April 2005.
The notice of appeal was dated 11 November 2005. The Appellant, Mr Kappler, was given permission to appeal out of time by His Honour Judge Behrens on 5 January 2006.
There is a cross-appeal in the form of a Respondent's Notice on behalf of the Secretary of State in which the Secretary of State seeks to affirm the decision on different or additional grounds.
It is common ground that the appeal (and cross-appeal) before me is in the nature of a true appeal: see Secretary of State for Trade and Industry v Paulin [2005] 2 BCLC 667.
Throughout the proceedings below the Appellant acted in person. Before me he has been represented by junior counsel, Mr Jeremy Bamford, well experienced in insolvency cases and in disqualification cases in particular. The Secretary of State has been represented by leading counsel, Mr Mark Cunningham QC, who also did not appear below.
The background to the disqualification order may be summarised as follows.
Plazoo Pipe Systems Ltd (“the company”) was incorporated on 1 December 1999 as Basicwhiz Ltd, changing its name to Plazoo Pipe Systems Ltd on 8 February 2000. It carried on the business of manufacturing extruded plastic pipes. A Mr Andrew Bunning and a Mr David Spencer were the first directors of the company, being appointed on 21 December 1999. They resigned on 28 February and 7 July 2000 respectively. Mr Michael Colin Stott (“Mr Stott”) and the Appellant replaced them. Mr Stott was appointed on 3 July 2000 and the Appellant on 20 September 2000. Mr Stott also became the company secretary on 25 September 2000.
In March 2001 there was a break in at the company's premises when virtually all the company's computerised accounting systems were lost.
The company was placed in administrative receivership on 18 May 2001. At this time the only two directors were Mr Stott and the Appellant. Indeed, to all intents and purposes there were only these two directors, Mr Stott and the Appellant, during the period covered by the material events of this case.
The authorised share capital at commencement of the receivership was 250,000 redeemable preference shares of £1 each (all issued and held by the Bank of Scotland) and 1,000 ordinary shares of £1 each, of which one was issued and held by an offshore company owned by the Appellant.
The overall deficiency as regards creditors (and shareholders) was, the District Judge found, some £3.5m of which some £2.5m was due to the company's largest creditor, the Bank of Scotland (“the Bank”).
This debt largely arose from an invoice discount facility afforded by the Bank to the company under which the company assigned its invoices to the Bank in return for a facility of up to 80% of the approved invoice value, less fees. The balance of 20% (less fees) was paid when the invoice was paid. The company was to act as the Bank's agent in collecting the moneys due on the invoices and placing them in a designated trust account.
The company had three principal customers, all of whom were found by the Administrative Receivers (based on the invoices) to have been debtors of the company. All three, however, denied being debtors in any amount. The three customers were Level 3 Communications Ltd (“Level 3”), Eurobell (Holdings) Plc (“Eurobell”), and a group of French companies referred to as “the Caplatub group”.
Proceedings were eventually launched by the Secretary of State against both directors, Mr Stott and Mr Kappler, on 12 May 2003, seeking disqualification orders against both.
In accordance with Rule 3 of the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987 (as amended) the affidavit of Mr Elliott Burns, in support of the Secretary of State's case against the Appellant, alleged, under the heading “Summary of Matters Determining Unfitness”, the following (being the allegations found proven by the District Judge):
“(a) That, during the period 27 October 2000 to 18 May 2001, he caused Plazoo to raise sales invoices to Level 3, Eurobell and the Caplatub group with a total value of £1,121,204 which cannot be reconciled with those companies' records. The invoices in question were assigned to [the Bank pursuant to the invoice discount facility agreement] and [the Bank] advanced funds totalling at least £870,011 to Plazoo in respect of the invoices. [The Bank] has suffered a shortfall under the [invoice discount facility agreement] of £1,564,677, of which £870,011 can be attributed to funds advanced against the irreconcilable invoices raised by Plazoo …
(b) That he failed to maintain, preserve and deliver up to the joint Administrative Receivers of Plazoo accurate accounting records. In particular [there then followed references to the existence of sales invoices in the company's records addressed to all three customers which could not be reconciled with their records].”
Similar allegations were made against Mr Stott.
On 12 June 2003 Mr Stott gave an undertaking in accordance with section 1A of the Act that he would not, for a period of 12 years, be a director of a company, act as receiver of a company's property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation, or management of a company save with leave of the court or act as an insolvency practitioner. Shortly thereafter the proceedings were discontinued against him, but continued against the Appellant.
From the outset the Appellant denied that he had any involvement in the day to day running of the company's business. In his first manuscript statement dated 9 January 2004 in opposition to the proceedings the Appellant asked for a stay of the proceedings on the grounds that he had had no opportunity properly to defend himself on account of his being in prison.
This had arisen as a result of his conviction on 14 October 2003 for two offences of kidnapping and two offences of blackmail in respect of both of which he was sentenced to a total of eleven years' imprisonment including one year's imprisonment activated in respect of an earlier suspended sentence of one year passed on 18 November 2002 for false accounting. The 2003 conviction is under appeal. It is common ground these matters have nothing factually to do with the case under appeal in this court.
In the same statement the Appellant maintained that he was a director of the company on paper only. The Bank, he maintained, appointed its own consultant in connection with the affairs of the company and mostly dealt with Mr Stott. He also maintained he had immediately contacted the police following the break in as he believed it “to be an inside job to hide discrepancies within the financial side of the company”.
In response the Secretary of State filed and served an affidavit by a Miss Karol Sanderson of the Disqualification Unit sworn on 13 July 2004.
Following the launch of proceedings various interlocutory hearings took place not all of which were attended by the Appellant, largely on the grounds that he was unaware of them through his having been moved through the prison system. At one of these hearings at which the Appellant did not attend (24 February 2004) Judge Howarth declined to order a stay.
The trial commenced on 20 September 2004.
At the commencement of the trial the case was opened by the then counsel for the Secretary of State. In his opening, counsel summarised the first allegation as that “he [the Appellant] caused the company to raise sales invoices addressed to three companies, Level 3, Eurobell and Caplatub Group… The second allegation is very much tied up with the first, and that is that [the Appellant] failed to maintain, preserve and deliver up to the Joint Administrative Receiver, accurate accounting records of [the company]” (Transcript 20 September 2004, p. 1).
Later he added “It is the Secretary of State's position … that [the Appellant] was effectively the controlling mind [of the company].” (Loc. Cit. p. 2)
As to the invoices, counsel told the District Judge: “The Secretary of State's position is that in relation to those three debtors [i.e. Level 3, Eurobell and the Caplatub Group], invoices effectively have been created and assigned in order to raise money, when in fact no debt was due and owing from the company.” (Loc. Cit. p. 3)
In addressing the District Judge as to period of disqualification, counsel submitted “As to period, my instructions are that this is certainly a top bracket case. It very clearly involves dishonesty and it is a serious case …” (Loc. Cit. p. 5).
No one was thus left in any...
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