Walid Khalil Fakhry v Laurence Pagden

JurisdictionEngland & Wales
JudgeLord Justice David Richards,Lord Justice Newey,Lord Justice Floyd
Judgment Date15 September 2020
Neutral Citation[2020] EWCA Civ 1207
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A2/2019/0784
Date15 September 2020

[2020] EWCA Civ 1207

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS

INSOLVENCY AND COMPANIES LIST (ChD)

Mr Jeremy Cousins QC (sitting as a Deputy Judge of the High Court)

CR-2018-007079

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Floyd

Lord Justice David Richards

and

Lord Justice Newey

Case No: A2/2019/0784

Between:
Walid Khalil Fakhry
Appellant
and
Laurence Pagden
Simon James Underwood
Respondents

Jonathan Crow QC and Joseph Curl (instructed by Pinsent Masons LLP) for the Appellant

Andrew Sutcliffe QC, Sophie Mallinckrodt and William Day (instructed by Harcus Parker Limited) for the Respondents

Hearing dates: 10 and 11 March 2020

Approved Judgment

Lord Justice David Richards

Introduction

1

This appeal, brought with permission granted by Patten LJ, is against an order made by Jeremy Cousins QC, sitting as a Deputy Judge of the High Court, dismissing an application dated 11 September 2018 made jointly by the appellant (Mr Fakhry) and Mark Robert Fry.

2

The application sought, among other relief, to set aside an ex parte order made by Fancourt J on 20 July 2018. By that order, three associated companies, which had been dissolved at the conclusion of their respective members' voluntary liquidations, were restored to the register of companies and new liquidators, not the liquidators who had previously been in office, were appointed.

Background facts

3

The three companies, Core VCT plc, Core VCT IV plc and Core VCT V plc (the Companies), were established as venture capital trusts for investment in small and medium enterprises. They raised a total of some £66 million from about 2,700 retail investors through the issue of shares listed on the London Stock Exchange. The Companies were managed by Core Capital LLP (CC) until 31 December 2013 and by Core Capital Partners LLP (CCP) from 1 January 2014, whose founders and managing partners were Mr Fakhry and Stephen Edwards, both of whom were also members of each of the Companies.

4

By resolutions passed by overwhelming majorities at meetings of members of the Companies, each was placed in members' voluntary liquidation on 16 April 2015. The liquidators appointed at the meetings were Mr Fry and Neil Mather, both partners in Begbies Traynor Group plc (the former liquidators). The final general meetings of the Companies were held on 10 August 2016. The liquidators' final account for each Company was sent to the members in advance of the meetings and approved by overwhelming majorities at each meeting, as was the release of the liquidators. In accordance with section 201 of the Insolvency Act 1986 (the Act), the liquidators' final accounts and returns were sent to, and registered by, the registrar of companies, and on 18 November 2016 the Companies were deemed to be dissolved.

5

After the final meetings were convened but before they were held, Simon Hussey, a member of Core VCT plc (holding 0.04% of its shares), set out a number of concerns in a letter dated 29 July 2016 to the former liquidators. Mr Hussey and other members raised these concerns at the final meetings. The concerns related to the management of some of the Companies' investments before they went into liquidation, the transfer of some of the investments to an associated company in 2011, which had been approved by resolutions of the members at that time, and the terms on which the Companies' remaining investments were sold to an associated company in the course of the liquidation.

6

Timothy Grattan, a member of each Company (holding 0.331% of shares in Core, 0.25% of shares in Core IV and 0.32% of shares in Core V), had voiced concerns about the transfer of investments in 2011 at the annual general meetings in that year, and he voiced other concerns at the annual general meetings in 2013 and 2014. Mr Hussey and a number of other members had raised some of the concerns set out in the letter dated 29 July 2016 with Mr Fakhry in correspondence and at meetings in the period September to December 2015. Following the final meetings, there was an informal meeting with Mr Fry and his colleagues, attended by Mr Hussey and Mr Grattan, to discuss the concerns and some email correspondence that continued into September 2016. The former liquidators were not persuaded to take any steps with regard to these concerns.

The restoration applications

7

On 18 June 2018, Mr Grattan issued three Part 8 claim forms by which he sought orders that included the restoration of each of the companies to the register of companies, pursuant to section 1029 of the Companies Act 2006, and the appointment of the respondents Laurence Pagden and Simon Underwood (the present liquidators) as liquidators of each company, pursuant to section 108 of the Act (the restoration applications). These applications were supported by witness statements of Mr Grattan and Mr Hussey, the latter running to 42 pages with over 3,000 pages of exhibits. These statements detailed what were described as “serious questions that need to be answered” about the management of the Companies' investments, the transactions undertaken in 2011 and the conduct of the liquidations.

8

The applications were heard by Fancourt J on 20 July 2018, with only the applicant represented. Notwithstanding the requirement to give notice of the applications to the former liquidators under the Practice Note: Claims for an Order Restoring the Name of a Company to the Register (Companies Court Practice Note 1 of 2012) [2012] BCC 880, no notice was given to them. This was deliberate, as counsel appearing for Mr Grattan explained to Fancourt J. The reason given was that the purpose of the restoration and appointment of new liquidators was, in part, to investigate the conduct of the former liquidators. Counsel drew the judge's attention to the relevant paragraph of the Practice Note. Inadvertently, the judge was wrongly told that the registrar of companies had consented to the absence of notice to the former liquidators. Counsel explained to the judge why, having regard to the matters alleged in the witness statements, the former liquidators were not proposed for appointment as liquidators. Fancourt J made a composite order for the restoration of the Companies to the register and for the appointment of the present liquidators (the restoration order). The order was received by the registrar of companies on 25 July 2018, whereupon the restorations became effective.

9

The present liquidators lost no time in getting on with their investigations. On 24 July 2018, they wrote to the former liquidators, Mr Fakhry, Mr Edwards and others, informing them of Fancourt J's order and requiring documents, information and undertakings. After correspondence between the present liquidators and solicitors for the former liquidators and CCP, the evidence in support of the restoration applications was provided on 7 August 2018. On 23 August 2018, the present liquidators applied under sections 234 to 236 of the 1986 Act, for production of documents by the former liquidators, Mr Fakhry, Mr Edwards and others.

The set-aside application

10

On 11 September 2018, Mr Fakhry and Mr Fry (the applicants) issued the application, which is the subject of this appeal. It was dismissed by Mr Cousins QC (the Judge) for reasons given in a careful and well-organised judgment: [2019] EWHC 540 (Ch), [2019] BCC 845.

11

The principal relief sought by the application (the set-aside application) was (1) an order setting aside the order of Fancourt J, (2) alternatively, an order pursuant to section 108(2) of the 1986 Act removing the present liquidators and appointing Mr Fry in their place, and (3) further or alternatively, an order pursuant to section 171(3)(b) of the 1986 Act directing that meetings of members of each Company be held to consider (i) whether the Companies should continue in members' voluntary liquidation and, if so, (ii) the identity of the liquidator(s).

12

A significant amount of evidence was filed by the applicants, and by Mr Grattan, Mr Hussey and the present liquidators in answer, much of which was directed to the merits of the issues raised by Mr Grattan and Mr Hussey. However, the applicants accepted before the Judge, and before us, that for present purposes, and without admitting that any of the allegations were well-founded, the court should proceed on the basis that the evidence disclosed matters worthy of investigation. At [19] the Judge helpfully summarised those issues and it is not necessary for me to repeat his summary or deal further with the issues.

13

Before the Judge, it was submitted for the applicants that the restoration applications were made on a misconceived basis because it is a basic principle of company law that decision-making in a solvent company is for the members and the majority can bind the minority. This principle was subverted in this case by the use of the statutory procedure to restore a company to the register on the application of one member, supported by one other member, without the involvement of any other members. The liquidators appointed on that application were invested with the wide powers conferred by the 1986 Act, which they were seeking to use to pursue investigations again without the consent or involvement of the members, who owned the companies and for whose benefit the present liquidators were purporting to act. Moreover, the present liquidators resisted the proposal that the members should decide who the liquidator should be and had rejected the compromise suggestion of meetings of members of the companies. The present liquidators' approach was summarised by Mr Pagden in a witness statement:

“…we propose to contact the members and provide an opportunity for a meeting once we are able to report conclusions (preliminary or otherwise) arising from our investigations. There is no point in...

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    ...The court's jurisdiction to intervene 33 Mr Lewis took me to the Court of Appeal's decision in the Restoration Application at [2020] EWCA Civ 1207. At paragraph 64 of his judgment, David Richards LJ referred to Mr Fakhry's overarching submission that decision-making in a solvent company is......
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