BAILII [Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

England and Wales High Court (Chancery Division) Decisions


You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Ecology Support Services Ltd v Hellard & Anor (As Joint Liquidators of Saff One LLP) [2017] EWHC 160 (Ch) (30 January 2017)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2017/160.html
Cite as: [2017] EWHC 160 (Ch)

[New search] [Printable RTF version] [Help]


Neutral Citation Number: [2017] EWHC 160 (Ch)
Case No: CR-2016-003590

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF THE INSOLVENCY ACT 1986

Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
30/01/2017

B e f o r e :

MR. REGISTRAR BRIGGS
____________________

Between:
ECOLOGY SUPPORT SERVICES LIMITED
Applicant
- and -

(1) KEVIN HELLARD
(2)MICHAEL LEEDS
(As Joint Liquidators of SAFF ONE LLP)
Respondents

____________________

Mr. Jonathan Titmuss (instructed by Fletcher Day Limited) for the Applicant
Mr. Daniel Lewis (instructed by Rosenblatt Solicitors) for the Respondents

Hearing dates: 15 & 16 December 2016
& by further written submissions in January 2017

____________________

HTML VERSION OF JUDGMENT APPROVED
____________________

Crown Copyright ©

    Mr Registrar Briggs:

    Introduction

  1. Ecology Support Services Limited ("ESS") asks the Court to reverse a decision made by the joint liquidators of Saff One LLP (the "LLP"), rejecting its proof of debt pursuant to Rule 4.83 of the Insolvency Rules 1986 (the "Rules"). ESS also invites the Court to provide a direction that the joint liquidators call a meeting of creditors. The purpose of the meeting is to vote on replacing the existing liquidators. The appointed joint liquidators accept that if the appeal against their decision on the proof is successful, such a meeting should be convened. They argue the decision should not be disturbed as a result of any new information that has come to the attention of the court since rejection.
  2. The dispute between ESS and the joint liquidators has been dealt with as an Insolvency Express Trial, operated by the Insolvency and Companies Court in Rolls Building, London. Disclosure has been limited but the parties have co-operated to the extent that there is little between them in respect of the factual background.
  3. I heard oral evidence from Mr McGovern who is an agent for ESS. He is a chartered accountant, formerly with the banking corporate tax department of Ernst & Young in London. He left Ernst & Young to operate as an independent specialist in managing the implementation of tax mitigation structures for corporate groups. His evidence is that the joint liquidators failed to appreciate the tax mitigation structure involved in the present matter and so wrongly rejected the proof of debt submitted. Although I did not hear evidence from Mr Saffer (a member of the LLP, now in insolvent liquidation), I benefited by hearing oral evidence from one of the joint liquidators, Mr Hellard. In the course of his oral evidence he explained he had spent many years working on tax avoidance schemes where money is often designed to move "like a spinning top". He says that "spinning top" schemes are a sham creating an illusion of loss or investment where none exist. His vivid explanation of such schemes goes to the heart of the issue before the Court.
  4. Background to the debt

  5. The background I take from a combination of the written evidence provided by the parties, and the oral evidence given by Mr McGovern during the first day of the trial as he elaborated on some aspects of the transactional arrangements that gave rise to the impugned investment and resulting disputed debt obligation.
  6. Ultra Green Group Limited ("Ultra Green") was incorporated on 24 January 2008 and entered into creditors' voluntary liquidation on 13 January 2011. It had one director, Mr Anthony Blakey. It is said to have traded in the production of "clean technology energy solutions".
  7. At some point before 15 December 2009 Ultra Green sought to raise funds to invest in research and with the development of renewable energy. In particular, it set out to invest in forestry, bio-fuel, waste to energy technology, construction, tidal energy, and some other categories of research. This investment quest became known as the "Ultra Green Scheme" (the "Scheme") and was sold as an opportunity to tax payers to reduce taxation primarily imposed on income.
  8. AIK Credit plc ("AIK") was incorporated on 23 December 1993 under the laws of the Republic of Mauritius. AIK's principal business is said to be leasing finance. AIK owned or was associated with a bank known as the Kensington Bank which was itself a limited company with a registered address in the Commonwealth of Dominica.
  9. Mr Saffer is the majority shareholder of LSI Independent Utility Brokers Investments Limited ("Investments") which as at 2010 had a declared net wealth of £13 million. LSI Independent Utility Brokers Limited ("LSI") is a profitable operating company (wholly owned by Investments) which was projecting a taxable profit of £2million in the financial year 2009/2010. It acted as a utilities broker for individuals and corporate clients.
  10. Mr Saffer is described by Mr McGovern as a serial tax avoider. Mr Hellard does not disagree. Mr McGovern and Mr Hellard agree that the LLP was incorporated for the sole purpose of tax mitigation, with the aim of avoiding payment of corporation tax on LSI's anticipated £2million profit by causing LSI to invest in the Ultra Green Scheme. LSI was one of two members in LLP. Mr Saffer is the other partner and he owns the entire share capital of LSI.
  11. Synthesis Wealth Management LLP ("Synthesis") is a wealth management company incorporated on 19 February 2009. Synthesis was dissolved on 7 July 2015. It introduced LSI and Mr Saffer to Ultra Green in or around October 2009 and recommended investment in the Scheme.
  12. Carbon Research and Development Limited ("CRD") was incorporated on 21 March 2005 under the laws of the Republic of Mauritius. CRD was central to the Ultra Green Scheme. Fideco Global Business Services Limited ("Fideco") was incorporated in the Republic of Mauritius and acts as a management services company for Mauritius-based entities. Fideco is the registered agent of CRD and ESS.
  13. ESS holds a number of loan debts, and at some point toward the end of, or after, 2012 Mr McGovern was approached to give Fideco advice. It appears that Fideco was uncertain as to how to realise these debts. In October 2013 he visited Mauritius, and was subsequently appointed agent of ESS. Mr McGovern described the position he held as the British Isles agent. He was asked to conduct due diligence on the loan debts. The relationship developed and, for reasons Mr McGovern did not wholly explain, he acquired complete control of ESS on 26 February 2014. Mouette Holdings (PTC) SA, now owns the entire shareholding of ESS, and is its corporate director; however Mr McGovern explained in oral evidence that he remains the beneficial owner of ESS.
  14. Moving away from structures and on to the impugned investment, Mr Saffer and/or LSI received advice that corporation tax could be avoided by investing debt and equity into research and development in green energy products. An attendance note from the tax advisor states that there had been "an extensive telecom with Laurence Saffer" and that "he is proceeding and appreciates the risks".
  15. In order to invest in the Scheme two steps were needed (as far as Mr Saffer was concerned). First a separate entity needed to be incorporated: this led to the incorporation of the LLP. And secondly the LLP needed to obtain a term loan for £1.25m. The loan (debt) would be secured on the anticipated profits arising from any investments made in accordance with the Scheme. Mr Saffer provided a guarantee to LLP for the liabilities under the loan agreement between it and AIK. The liability (or otherwise) of Mr Saffer under that guarantee was not in issue between the parties in this application. As regards equity, LSI would pay £375,000 via LLP to its accountants which would in turn be held in escrow and subject to instructions from CRD (CRD was to become agent of LLP). The debt element would also be held by CRD in a nominated account and CRD would provide instructions once an investment opportunity arose. The intended result was LSI would obtain tax relief of £2.164M for the benefit of its corporation tax return, and not pay any corporation tax on its anticipated £2m profit. The benefit would arise by demonstrating a trading loss and by reason of a claim for research and development relief.
  16. The Scheme documentation is dated 15 December 2009, but implementation did not take place until 26 January 2010. Mr Saffer signed a loan request. The loan agreement states that the LLP should provide to the lender a drawn-down notice within a specified period. On the same day Mr Saffer signed an agency agreement with CRD. The loan from AIK is expressed to be repayable but not before the seventh anniversary (unless an early repayment clause is triggered). The draw-down notice was also signed on 15 December 2009. The notice provided that the debt be credited to "a bank account as per the instruction to be given by [CRD]" on a date "as per the instructions given by [CRD]".
  17. On 10 January 2010 CRD wrote to AIK referring to the loan facility stating:
  18. "…..as part of the contract of agency between [CRD] and [LLP] we hereby request you to transfer the following amount which shall be attributable to [LLP] to our bank account held with Kensington Bank Limited….".
  19. On 26 January 2010 AIK countersigned the loan agreement which is said to have constituted "a legally binding loan agreement" pursuant to clause 11 of the facility documentation. Schedule 1 of the facility documentation states that LLP "shall use the Loan solely to fund environmental research, environmental trading and the purchase of land exploitation rights.". By an assignment dated 26 January 2010 LLP assigned any future income from the investment to AIK to repay the loans.
  20. Bank statements produced by Kensington Bank the day before trial show that a series of transactions ensued on the same day: a transfer of the loan from AIK to CRD; a transfer from CRD to Copex International Credit PCC ('CIC PCC'); another from CIC PCC to Copex International Credit Plc ("Copex Cyprus"); a subsequent transfer from Copex International Credit Plc Ireland ("Copex Ireland"), and lastly a transfer from Copex Ireland to AIK. Mr McGovern accepts that these transactions all passed through the Kensington Bank. He describes these same day movements as circular "day-light" transactions which require less regulation as the position is closed out during same trading day. His evidence in cross-examination is, the fact of circularity was not, and is not, unusual with tax avoidance or mitigation schemes. The lender would want to control the money and movements during the day. The documentation in support of the transactions was as he would expect. In this respect his written evidence did not change from his oral evidence:
  21. "In my experience of circular loans from tax structures, a lender will either want to be familiar with each of the parties to the circle, or if there is a third party (CRD in this case) they will want it to be in a jurisdiction where it is comfortable conducting due diligence in. They will also insist on it opening a bank account at a bank of their choosing (in this case CRD's account at Kensington Bank). This would explain why CRD is also a Mauritius company."
  22. During his oral evidence Mr McGovern emphasised that CRD was a third party company in the arrangement, but accepted that the Kensington Bank, AIK and the Copex companies were all connected.
  23. On 17 August 2012 AIK assigned the debt to CIC PCC, and a further assignment took place between CIC PCC and ESS on 31 August 2012. These assignments are not challenged.
  24. Accountants acting for LLP (Wellden Turnbull) sought to agree with HMRC the losses and tax relief claim. On 21 January 2013 they wrote to Mr Saffer explaining that HMRC had agreed that Ultra Green Group had traded at the material time, but did not accept that the trade was on behalf of investors (such as LLP). This meant that LLP was unable to claim the research and development relief intended. It was able to claim relief for any trading loss.
  25. Demand for payment, liquidation and rejection of proof of debt

  26. On 31 October 2014 ESS sought repayment of the loan sum. Referring to the loan ESS wrote:
  27. "As you have previously been advised, these loans were transferred to [ESS]. Your failure to continue your environmental trade is an Event of Default under clauses 13.1(k) of the Loan Agreement. In consequence of these and other Events of Default and Potential Events of Default, these loans are immediately repayable." (sic)
  28. The loans were not repaid in accordance with the demand. The LLP entered insolvent liquidation on 12 January 2016. On 21 January 2016 ESS, through its solicitors, wrote to the joint liquidators threatening to appeal the rejection of its claim and asked them to convene a meeting for the purpose of replacing them as joint liquidators:
  29. "This letter is a formal request to the Joint Liquidators to requisition a meeting of creditors for the purpose of replacing the current Joint Liquidators with Michael Solomons and Richard Keley of BM Advisory. The Joint Liquidators are encouraged to give an early indication as to whether they will (i) requisition the requested meeting and (ii) admit the claim of ESS for voting purposes in the sum of £1,362,694."
  30. The joint liquidators refused to requisition a meeting but explained that the rejection of the ESS claim at the section 98 meeting was rejection for the purpose of voting and not a rejection for the purpose of proving. In an e-mail dated 19 February 2016 the joint liquidators asked for more information regarding the ESS debt to include: (i) the original signed loan agreement; (ii) the draw down notice; (iii) minutes of meeting at which Mr Saffer signed the loan agreement and draw down notice (iv) proof by way of bank statements and any other documentation that concerned the loan monies paid by AIK to the LLP; (v) proof the funds were received by CRD and (vi) an explanation of how the funds were used by CRD. ESS obliged on 1 March 2016. On 18 March 2016 Mr Hellard wrote to ESS doubting the claim, and asking for more information. He provided his reasoning:
  31. "There appear to be some common characteristics shared by [AIK], [ESS] and [CRD]. For instance AIK, ESS and CRD are registered off shore in Mauritius, and that ESS and CRD share the same registered agent, [Fideco]. We also note that AIK and CRD have accounts in the same offshore bank, Kensington Bank of the Commonwealth of Dominica. It appears from the redacted bank statements that the transfer was made from AIK to a bank account in the CRD at the same bank. We also note that Kensington Bank has virtually no presence on the internet and is not a bank of which we are familiar. You will appreciate that our key concern with the alleged transfer of £1,125,000 is whether it is circular in nature, in that the funds apparently transferred to CRD have later transferred back to AIK or other entities with associated beneficiaries, and therefore whether any loss has actually been suffered. For these reasons, we require further information before we consider whether we are in a position to accept or reject your claim."
  32. On 6 June 2016, after further information was provided, Mr Hellard wrote rejecting the proof of debt. He explained:
  33. "From the information provided to us, your client has failed to convince us otherwise that this is anything other than a scheme designed to defraud investors and it appears that there was no possibility of it ever making the investments that had been marketed to investors."
  34. The notice of rejection sent pursuant to r.4.82 of the Rules states "insufficient evidence of a bona fide claim, as set out in our letter of 31 May 2016." The letter referred to in the notice does not appear in the court bundle. It is sufficient for the purpose of this judgment to note that Mr Hellard reasoned that there was no debt as the loan was circular and no investment in research and development was in fact made.
  35. The arguments

  36. Mr Titmuss argues that the LLP is liable to repay the loan made by AIK in accordance with its terms. This gives rise to a provable debt. He asserts the rationale advanced by Mr McGovern in his witness statement that the admitted circularity of the loan is disconnected with an obligation to repay. The validity and enforceability of the loan from AIK stems from the terms of the contract under which it was advanced to the LLP.
  37. Mr Lewis initially argued that ESS has produced no evidence that the AIK facility was in fact drawn down, but even if the documentation provides evidence of a draw-down of the loan there is "no genuine underlying transaction". In his skeleton argument and during closing he argued, that the fact of circularity undermines the genuineness of the transaction. The loan was never intended to rest with LLP but to be advanced straight to CRD. The facility agreement with AIK provided that the loan was "solely to fund environmental research………". Yet it is known that the loan never funded any research and development. He submits that the transactional ring is a fiction as there was no performance in accordance with the stated purpose. Taking a slightly different tack Mr Lewis also submits that the loan from AIK to LLP has been repaid. This argument was developed as a result of the Court granting extra time for written submissions which were submitted in the third week of January 2017.
  38. In essence it is argued that CRD held the loan money (lent to LLP) on trust to be applied in accordance with the agreement of agency. The agency agreement gave rise to a fiduciary relationship. CRD acted in breach of duty (failing to apply the money according to the terms of the agency agreement) by making the money available as a loan to CIC PCC. As a result of AIK receiving the same money on the same day and CRD acting in breach of trust, the debt was repaid.
  39. Legal analysis

  40. Mr Lewis and Mr Titmuss both rely on Re Emerald Meats (London) Limited [2016] EWHC 542 as to the role of the Court when hearing an appeal such as this, and as to which party has to discharge the burden of proof. A debt that is provable is defined by r.12.3 of the Rules to "include all claims by creditors….whether they are present or future, certain or contingent, ascertained or sounding only in damages". There are exceptions but none that are relevant to this matter.
  41. A 'debt' in relation to the winding up of a company is defined by r.13.12 as:
  42. "(1) (a) any debt or liability to which the company is subject at the date on which it goes into liquidation; and
    (b) any debt or liability to which the company may become subject after that date by reason of any obligation incurred before that date."
  43. It is agreed that if the loan transaction between AIK and LLP is not a fiction it is a debt falling with r.13.12(1) and provable in accordance with r.12.3. It is not argued that the liability under consideration falls within r.13.12(2) requiring a consideration of contingent liabilities in light of Re Nortel GmbH [2013] UKSC 52.
  44. Mr Titmuss relies on Commissioners for Her Majesty's Revenue and Customs v Tower MCashback LLP 1 [2011] UKSC 19 where the Supreme Court considered an appeal by taxpayers who operated within a limited liability partnership and had submitted tax returns in which they claimed a tax allowance in respect of expenditure on software rights. The case concerned procedural issues and the right to a fair hearing before the Special Commissioner. However, the Supreme Court went on to decide whether or not the transaction in question was capable of attracting the tax relief claimed. Lord Walker (SJ) said (para 75):
  45. "In this case there was a loan but there was not, in any meaningful sense, an incurring of expenditure of the borrowed money in the acquisition of software rights. It went into a loop in order to enable the LLPs to indulge in a tax avoidance scheme."
  46. It can be seen that the issue was whether or not there was real expenditure on the acquisition of software rights, whereas the challenge by Mr Hellard is whether the loan was made, or whether it was a fiction. In Tower MCashback LLP 1 Lord Walker was influenced by Barclays Mercantile Business Finance Ltd v Mawson [2005] 1 All ER 97, [2005] 1 AC 684. He said:
  47. "One of the lessons of the Barclays Mercantile Business Finance case is that it is not enough for HMRC, in attacking a scheme of this sort, to point to the money going round in a circle. Closer analysis is required. In Barclays the whole £91m was borrowed by Barclays Finance from Barclays Bank on fully commercial terms (though they were companies in the same group) and Barclays Finance's acquisition of the pipeline was on fully commercial terms. BGE had the whole £91m at its disposal, and though it was disposed of at once under further pre-arranged transactions, those transactions were entirely for the benefit of BGE."
  48. Accordingly, a loop or circle is not enough by itself to constitute a 'no transaction'. Other factors are at play. The court looks at the whole transaction or composite transaction and inquires as to what risk the taxpayer is exposed or whether or not the taxpayer has incurred real expenditure. Mr Titmuss uses this as a springboard to make two submissions. First it is not sufficient for Mr Hellard to say that the transaction is a fiction. This provides no legal ground upon which to reject a proof of debt. Secondly he submits that the documents are not sham documents, there is no serious argument that they are sham documents, and that the parties to the scheme were free to enter any transaction in any form they pleased. The Scheme cannot be described as one where the taxpayer sought to reduce his tax without the risk of suffering any financial loss or expenditure. I am reminded of the distinction drawn between tax mitigation and tax avoidance as explained in IR Comr v Challenge Corp Ltd [1986] STC 548 at 554–555, [1987] AC 155 at 167–168:
  49. 'Income tax is mitigated by a taxpayer who reduces his income or incurs expenditure in circumstances which reduce his assessable income or entitle him to reduction in his tax liability … Income tax is avoided … when the taxpayer reduces his liability to tax without involving him in the loss or expenditure which entitles him to that reduction.'
  50. The absence of risk or sufferance of expenditure are badges of tax avoidance not tax mitigation. Nevertheless, the Court will analyse the whole transaction or linked transactions to ascertain their nature and effect, and determine whether on a true construction of the relevant statutory provision the taxpayer can take the advantage contended for. A word of caution needs to be sounded at this point, in respect of applying the cases concerning tax avoidance and allowances to the matter now before the Court. In the cases I have cited above the task of the Court was to establish whether or not a particular test contained in a particular statute had been met. So, by examining whether real expenditure, for the purpose of acquiring plant for use in a trade, had been undertaken, the Supreme Court in Tower MCashback LLP1 had to determine whether or not the test laid down by the Capital Allowances Act 2001 had been met. The cases are useful as they provide an analytical approach to tax scheme challenges, but this case, in my view, turns on whether or not the facility agreement made between AIK and LLP was in truth a loan, and in order to make this determination it is important to focus on the contractual obligations between the parties. The starting point, in my judgment, is that a loan of money will generally create a debt.
  51. In respect of the argument developed by Mr Lewis in his post hearing written submissions, namely misdirected trust property, the authors of Underhill and Hayton (nineteenth edition state (98.11):
  52. "To make a defendant personally liable to account to the beneficiaries for misdirected trust property on the ground that he has behaved unconscionably by receiving the property with knowledge of the breach of trust, the following things must all be established:
    (1) Misapplication of property held on trust or subject to some other fiduciary duty;
    (2) Receipt of the property or its traceable proceeds by the defendant;
    (3) Beneficial receipt by the defendant;
    (4) A causal link between the defendant's beneficial receipt and the breach of duty; and
    (5) Knowledge by the defendant that the property has been transferred in a breach of trust or fiduciary duty, either at the time of receipt or at some later time prior to his dealing with the property for his own benefit."
  53. The test of knowledge mentioned in (5) above is set out in the well-known passage from the judgment of Nourse LJ in Bank of Credit and Commerce International (Overseas) v Akindele [2001] Ch 437 at 455:
  54. "What then, in the context of knowing receipt, is the purpose to be served by a categorisation of knowledge? It can only be to enable the court to determine whether, in the words of Buckley LJ in Belmont Finance Corpn Ltd v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 , 405, the recipient can "conscientiously retain [the] funds against the company" or, in the words of Sir Robert Megarry V-C in In re Montagu's Settlement Trusts [1987] Ch 264 , 273, "[the recipient's] conscience is sufficiently affected for it to be right to bind him by the obligations of a constructive trustee". But, if that is the purpose, there is no need for categorisation. All that is necessary is that the recipient's state of knowledge should be such as to make it unconscionable for him to retain the benefit of the receipt. For these reasons I have come to the view that, just as there is now a single test of dishonesty for knowing assistance, so ought there to be a single test of knowledge for knowing receipt. The recipient's state of knowledge must be such as to make it unconscionable for him to retain the benefit of the receipt. A test in that form, though it cannot, any more than any other, avoid difficulties of application, ought to avoid those of definition and allocation to which the previous categorisations have led. Moreover, it should better enable the courts to give common sense decisions in the commercial context in which claims in knowing receipt are now frequently made, paying equal regard to the wisdom of Lindley LJ on the one hand and of Richardson J on the other".
  55. Accordingly, Mr Lewis must demonstrate to the satisfaction of the court, without oral evidence having been heard on the issue, that there has been a misapplication of funds, beneficially received by the defendant (the proceeds need to be traceable), resulting in a breach of trust or fiduciary duty, and that there is a causal link between AIK's beneficial receipt and the breach of duty.
  56. Conclusion

  57. In conclusion Mr Lewis is not pursuing the argument that a fiction is sufficient to reject a proof of debt. Neither is he pursuing the argument that the transactions were a sham. Accordingly, I shall turn to whether or not the loan between AIK and LLP gave rise to a debt obligation.
  58. When looking at the facility documentation and standing back to consider the composite transaction, I find that the money paid by AIK direct to CRD as a loan to LLP is properly characterised as a repayable loan. I come to this conclusion as: (1) The facility letter provided a term loan with interest accruing (2) the interest rate increased in the event of a default. (3) the loan was capable of repayment at anytime, and any revenue received by LLP was to be paid to AIK to reduce the loan sum (4) revenues are defined as revenues from the business of environmental trading, research and land exploitation (5) any repayments were to pay the interest before the capital (6) the terms and conditions provided that the loan would be paid on the "draw down date" by crediting the "draw down account" as shall be "specified in the draw down notice" (7) the loan term ended once "all the obligations and liabilities of the Borrower under the Financing Documents are discharged in full…" and (8) the obligation to repay is clear in that the loan sum and interest is to be repaid in full on the final repayment date (as defined). Events of default and remedies are incorporated.
  59. In my judgment these contractual terms leave me in little doubt that a loan facility was advanced in favour of LLP by payment to CRD on terms that it would be repaid from revenues received from environmental trading and, the exploitation of land or profit technologies, and, in the event of the revenues not being sufficient, the sum was to repaid at the end of the term, unless an accelerated provision was first engaged by reason of default. There is nothing in the contractual documentation that leads to a conclusion that the loan between the parties was non-recourse. Further the loan sum was not only repayable to AIK by payments out of the net profits received from the funding purpose (land exploitation, environmental trading and exploiting profit technologies), but an obligation to repay the loan survives regardless of whether any revenues are received from the specified trades. The obligation to repay the loan sum is consistent with the concept of a commercial loan.
  60. The agency agreement between CRD and LLP plays an important role in determining the misapplication of trust argument. Unfortunately, the copy provided to the court is almost indecipherable. It appears that there is no provision dealing with how the money received by CRD from LLP (direct from AIK) should be held pending the identification of a suitable project. There is no evidence (the Court has not been taken to any) that AIK or the Copex companies had knowledge of the terms of the agency agreement under consideration. It was not argued that there was an implied obligation that CRD would hold the money pending an investment opportunity in its own bank account. No provision is made that the money should be held in a particular third party interest bearing account. It was not argued that CRD exceeded its authority. Mr McGovern thought that the loan money was to be invested in research and development projects at some point in the future but it was never expected that the money would be invested in such a project on day one. He said once the loans had been made around the circle, the same funds would flow back to CRD once an investment opportunity arose. CRD would then make the investment.
  61. In my judgment Mr Hellard has failed to make out a breach of trust or, on the evidence before the Court, that AIK's state of knowledge was such as to make it unconscionable for it to retain the benefit of the loan receipt. LLP may be able to seek recovery from CRD, but this is not the case before the Court.
  62. I find that ESS's proof of debt should have been accepted. I grant the application and direct the joint liquidators to admit the proof of debt and call a meeting of creditors.
  63. Order accordingly.


BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2017/160.html