Idessa (UK) Ltd, Re, Court of Appeal - Chancery Division, March 31, 2011, [2011] EWHC 804 (Ch)

Resolution Date:March 31, 2011
Issuing Organization:Chancery Division
Actores:Idessa (UK) Ltd, Re
 
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Page 1Neutral Citation Number: [2011] EWHC 804 (Ch)Case No: 3180 of 2007IN THE HIGH COURT OF JUSTICECHANCERY DIVISIONMANCHESTER DISTRICT REGISTRYIN THE MATTER OF IDESSA (UK) LIMITED (IN LIQUIDATION)AND IN THE MATTER OF THE INSOLVENCY ACT 1986Manchester Civil Justice Centre1 Bridge Street, Manchester M60 9DJ Date: 31 March 2011Before :Ms Lesley Anderson QC sitting as a Deputy High Court Judge- - - - - - - - - - - - - - - - - - - - -Between :- - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -Pépin Aslett (instructed by Freeth Cartwright LLP) for the ApplicantsThe Respondents appeared in personHearing dates: 24, 25, 27, 28 January, 4 February and 31 March 2011 - - - - - - - - - - - - - - - - - - - - -JUDGMENTMs Lesley Anderson QC sitting as a Deputy High Court Judge:Introduction 1. This is the trial of an action brought by Ordinary Application (originally dated 19 November 2009 and first amended pursuant to an order of the Court dated 11 August 2010) by the First Applicant Colin Thomas Burke (``Mr Burke'') of Milner Boardman & Partners, in his capacity as liquidator of Idessa (UK) Limited (In Liquidation) (``the Company'') and on behalf of the Company. A further application was made to me in the course of the trial to re-amend the Ordinary Application which I permitted for the reasons set out in my extempore judgment given during the course of the trial. 2. The Applicants seek relief against Dr John Morrison (``Dr Morrison'') (who is alleged to have been a de facto director of the Company) and Christopher Michael Povey (``Mr Povey''), who was a statutory director of the Company between 27 April 2003 and 3 September 2007. 3. Specifically, the Applicants claim relief under three broad heads of claim.i) First, it is alleged that a number of payments were made or authorised by Dr Morrison and Mr Povey in breach of the fiduciary duties which they owed to the Company and which the Applicant is entitled to recover on behalf of the Company and its creditors pursuant to section 212 of the Insolvency Act 1986 (``the 1986 Act''). The claims are summarised in the Claim Guide at Annex 1 to the Skeleton Argument of Mr Pépin Aslett, who appeared for the Applicants. 16 heads of claim are identified in the Claim Guide although as it makes clear, each head of claim represents the sum of a number of individual transactions which have been broadly grouped according to the factual basis underlying the payment. Further, item 9 of the Claim Guide differs from the other items because rather than being a payment made or authorised by the Respondents the underlying claim concerns their alleged failure to account to Her Majesty's Revenue and Customs (``HMRC'') for the tax properly due on payments made by way of salary. It is convenient to refer to these collectively as the misfeasance claims although in the case of sums received personally by the Respondents the claim is put in the alternative as being for recovery of unlawful loans made in breach of section 330 of the Companies Act 1985 (``the 1985 Act''); in the case of certain payments made by the use of Company bank cards on the basis that this was not a properly approved Company expenses scheme in breach of section 337 of the 1985 Act and, in the case of Mr Povey as an unlawful distribution contrary to section 263 of the 1985 Act. Moreover, it is important to note that misfeasance is not itself a separate cause of action, merely a useful label for claims involving breaches of duty by directors which cause loss to the company and which are pursued derivatively by the liquidator by means of the statutory summary procedure in section 212 of the 1986 Act.ii) Secondly, the Applicants say that certain of the payments identified in the Claim Guide were transactions at an undervalue within the meaning of section 238 and/or section 423 of the 1986 Act.iii) Thirdly, the Applicants contend that the Respondents are liable for wrongful trading within the meaning of section 214 of the 1986 Act in that they knew or ought to have concluded by no later than 26 August 2004; alternatively by no later than 30 June 2005 that there was no reasonable prospect that the Company would avoid going into insolvent liquidation.The witnesses4. I heard evidence over four days from Mr Burke on behalf of the Applicants and from Dr Morrison and Mr Povey. After a week's adjournment Mr Aslett and Mr Povey (on his own behalf and, with my permission, on behalf of Dr Morrison) made submissions in writing and orally on the fifth day of the trial. Although he was, at times, by his own admission, unfamiliar with the rules of procedure, Mr Povey presented his arguments and submissions clearly, succinctly and generally in a courteous and measured manner. He and I were greatly assisted by Mr Aslett who afforded to the Respondents all the assistance he could in what was, by any standards, a difficult case for them to deal with in person.The Company 5. The Company is a private company limited by shares which was incorporated on 31 October 2002 under registration number 04578172. On 12 November 2007 the Company was compulsorily wound up by this Court following a petition which had been presented by Digital Vision Technologies Limited on 1 October 2007. On 30 November 2007, the First Applicant was appointed as liquidator of the Company at the instigation of the Official Receiver. The date of handover from the Official Receiver to Mr Burke was 6 December 2007. 6. Immediately prior to liquidation, the Company's registered office was at 609 Stretford Road, Old Trafford, Manchester M16 0QA which was also its trading premises. The Company was engaged in the development and implementation of electronic tools used in electoral registration, election management and e-democracy including for the use of e-voting and e-counting. According to one version of a business plan which I saw for the Company (produced sometime in or prior to 2006) the Company was formed by four entrepreneurs (including Dr Morrison and Mr Povey) with previous background in property investment and IT expertise. Dr Morrison is described there as being ``instrumental in designing and providing guidance for many of the new products and services'' and Mr Povey as being ``instrumental in the negotiations of many contracts and financial management for the company''. 7. The share capital of the Company is £1,000 divided into 1000 shares of £1 each. Christopher Rankilor Humphrey (``Mr Humphrey'') held 3 of the issued shares amounting to 33% of the issued share capital and he was a statutory director from 27th April 2003 until liquidation. James Hill (``Mr Hill''), a solicitor with a firm known as Hill Jones held a further 3 issued shares and Mr Povey held the other 3 issued shares. Mr Hill served as Company Secretary between 27 April 2003 and 24 November 2006. Dr Morrison was not a shareholder although it seems that it was at one time contemplated that he would become a director and shareholder. Although the plans went so far as the production of a draft Shareholders' Agreement dated 21 July 2003 which provided that Dr Morrison and Mr Hill would each own 20% of the shares and Mr Humphrey and Mr Povey would each own 30% of the shares, the draft was never executed.The Financial Position of the Company8. There is no Statement of Affairs or Directors' Report for the Company. However, according to a List of Creditors (probably prepared by David Leonard Dunn (``Mr Dunn'') who took over from Mr Hill and was the Company Secretary at the time of liquidation) the Company had debtors of £491,098.90 and trade creditors of £153,079.48. Aside from Mr Povey and Dr Morrison, who together were claimed to owe the Company £53,239.94, the only trade debtor was a company incorporated in the United States of America and based in Frisco, Texas called Advanced Voting Solutions (``AVS'') which is said to have owed the Company £437,858.96. Unpaid staff are shown as being owed £79,557.70. The largest creditor by far was Mr Humphrey who is shown to be owed £658,640.93 personally as a ``long term'' creditor on what is described as a loan account. The other long term creditors are Stanley Property Investments Limited; Whitelee Limited; Ascenture Properties Limited and Democracy Systems Limited (all companies controlled and/or connected with Mr Humphrey) and whose claims together with that of Mr Humphrey total £1,203,850.31. 9. According to its abbreviated financial statements for the period ended 31 October 2003 and the years ending 31 October 2004 and 31 October 2005 the Company was at all times balance sheet insolvent. Although those accounts are at times difficult to understand (principally but not exclusively because of errors in showing positive and negative balances and omissions) the Company had net liabilities of £97,606 in the period to 31 October 2003; £731,148 as at 31 October 2004 and £435,785 as at 31 October 2005. In each of the years to 31 October 2004 and 31 October 2005, John Spibey Associates, the Company's accountants reported to the members that the accumulated losses of the Company resulted in an insolvent balance sheet and that the Company was dependent on the continuing support of its directors who had lent money to the Company and who had confirmed they would continue to support the Company with their loans during the foreseeable future.10. The 2003 and 2004 accounts were signed by Mr Povey on behalf of the Board on or about 26 August 2004 in the case of the 2003 accounts and on or about 27 July 2005 in the case of the 2004 accounts. 11. Although Mr Povey sought to argue to the contrary it is clear, and I so find, that the Company was at all times balance sheet insolvent. Although Mr Povey urged me to find that the Company was at all times solvent (having regard to the continued support of its investors namely Mr Humphrey and Mr Hill and/or the companies or entities they represented for this purpose and the...

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