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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Credit Lucky Ltd & Anor v National Crime Agency  EWHC 83 (Ch) (29 January 2014)
Cite as:  EWHC 83 (Ch)
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APPEAL REF CH/2013/0381
The Rolls Building,
London EC4A 1NL
B e f o r e :
| Credit Lucky Limited and Gui Hui Dong
|- and -
|National Crime Agency (formerly the Serious Organised Crime Agency)
Lucy Frazer QC (instructed by Civil Recovery and Tax Legal Department of the National Crime Agency) for the Respondent
Joseph Curl (instructed by Russell Cooke Solicitors of London SW15 6AR) for the Liquidator
Hearing dates: 21-22 November 2013
Crown Copyright ©
Mr Justice Barling :
The decision of Registrar Derrett to wind up CL
1) £208,824.20 of the petition debt was not the subject of any appeal to the Tax Tribunal.
2) The order of the Chief Registrar on 21 January 2013 requiring CL to file a notice of opposition and evidence in opposition dealing amongst other things with what steps it had taken or was taking to pay that part of the petition debt, had not been complied with.
3) When the matter had come before Registrar Jones on 20 May 2013, he had made an order to the effect that unless by 31 May 2013 CL applied (with supporting evidence) for permission to file and serve further evidence in opposition, the company would be debarred from relying on any further evidence.
4) Such an application was made by CL on 30 May 2013 but the evidence in support was "woefully inadequate": it failed to set out whether there were further documents which would support any genuine dispute in relation to the undisputed sum, and it did not deal with any proposed steps by CL to pay that sum, as required by the original order of the Chief Registrar.
5) Since the matter was last before the court the company had taken no further steps to engage with the provisional liquidator in relation to the funds he held.
6) A director (Mr Dong) had told Mr Georgiou that these were client monies.
7) CL had had ample opportunity to defend the petition and had failed to do so. The undisputed sum was due and payable, and it was appropriate to make a winding up order.
The rescission application
"may review, rescind or vary any order made by it"
in the exercise of its insolvency jurisdiction. It is common ground that this includes a winding up order.
(1) The power to rescind is discretionary and is only to be exercised with caution;
(2) the onus is on the applicant to satisfy the court that it is an appropriate case in which to exercise the discretion;
(3) it will only be an appropriate case where the circumstances are exceptional and those circumstances must involve a material difference from those before the court that made the original order;
(4) there is no limit to the factors that the court can take into account, and they may include changes since the original order was made, and significant facts which, although in existence at the time of the original order, were not brought to the court's attention at that time; but where that evidence could have been made available, any explanation the applicant gives for the failure to produce it then or any lack of such an explanation, are factors to be taken into account;
(5) the circumstances in which the court's power will be exercised will vary but generally where the rescission application involves dismissal of the winding up petition, so that the company is free to resume trading, the court will wish to be satisfied:
(a) that the debt of the petitioning creditor has been paid, or will be paid, that the costs of the Official Receiver or any liquidator can be paid, and that the company is solvent at least on the basis that it can pay its debts as they fall due;
(b) that the application has not been presented in a misleading way and the court is in possession of all the material facts and has not been left in doubt;
(c) that the trading operations of the company have been fair and above board, and there is nothing that requires investigation of the affairs of the company.
1) That there is now an "offer on the table" which was not available when the winding up order was made, and which provides an appropriate alternative course to a winding up, namely to put CL into administration with a view to selling the goodwill, name and database of CL to a third party;
2) That on a proper analysis of the evidence as to ownership of the £504,000 now being held by the liquidator, the payment by CL of the undisputed sum should not have been an issue before Registrar Derrett, and but for that issue she would not have made the winding up order.
1) that the third party offer would secure payment to SOCA of the undisputed sum of c.£208,000, which might not otherwise be paid;
2) if the winding up order is not rescinded there would be significant prejudice to CL (and possibly to Mr Dong as the sole contributory) in that the liquidator has made it clear that he regards the Tax Appeal as without merit and does not intend to pursue it, with the result that the tax assessments would stand notwithstanding Mr Georgiou's evidence calling into question the methodology and calculations on which they are based;
3) the third party offer would realise assets of value for the benefit of all creditors;
4) if the tax assessments are successfully challenged there is every prospect of payment of the creditors in full, and a return to Mr Dong;
5) there would be no prejudice, and possible benefit, to SOCA as it would be paid the undisputed sum by the third party immediately, and if the (proposed) administrator were to conclude that the £504,000 now held by the liquidator are client funds rather than funds of CL, that sum would not be available to defray any tax liability to SOCA.
"Since the winding up order was made CL's advisors have been contacted by UHY Hacker Young who have received an offer to invest in CL and on determination of the matters before the Tax Tribunal to purchase the goodwill…
If this Honourable Court were to agree to rescind the Winding Up Order the intention is to apply for an administration order with a view to achieving a better result for CL's creditors than would be likely if it were wound up…This Court will note that Mr Andronikou of UHY Hacker Young has consented already to act as Administrator."
(See paragraphs 16 and 17 of Mr Dong's first witness statement of 28 June 2013.)
"We write to confirm:
(a) We have made a conditional offer to purchase the goodwill, name and database from the administrator for £250,000…
(b) The offer is conditional on the winding up order being rescinded, and that you [ie Mr Dong] as CL's Director appointing an administrator;
(c) Within 7 working days of the order rescinding the order to wind up the company being made, the sum of £250,000 will be paid to our solicitors or to UCY Hacker Young;
(d) On the appointment of the administrator the sum of £250,000 will be paid to or released to him to be applied as follows:
(i) He shall pay immediately the sum of £208,824.50 to SOCA; and
(ii) however much is necessary of the balance paid to the Provisional Liquidator to pay off his reasonable fees;
(e) Within 2 weeks of the Administration order being made, the Administrator signs an asset purchase agreement with us. The Administrator will give credit for the sums paid under (d) against the purchase price."
1) Whether the threshold test for administration ("is or is likely to become unable to pay its debts") could be satisfied in circumstances where CL and Mr Dong are arguing that the company is solvent. Mr Ashworth submitted that there was no inconsistency here: the criterion is satisfied because as things stood the company needed to win the Tax Appeal in order to be in a position to pay its debts.
2) SOCA's objection to the proposed administrator, as chosen by Mr Dong.
3) Whether it would be appropriate to hand the company back to the director, Mr Dong, even for the potentially short period before an administration order could come before the court, in the light of the evidence relating to CL's activities, its customers' activities, and the way the company has been managed (see paragraphs 15 to 20 above). In relation to these aspects Mr Ashworth submitted that they were in any event irrelevant as his client was not seeking the return of the company to its director.
"With regard to cash at bank, we have been advised by our client that this relates to client moneys and is not an asset of the Company."
"…there is an additional problem that, based on the provisional liquidator's first witness statement, he identifies in the company account a sum in the region of £500,000. It does appear that Registrar Baister was also concerned about that and it does raise the question as to whether the Company is, on this narrow issue, balance-sheet insolvent. But the Company says we do not need to go there because, in fact, the amounts are all disputed."
As far as the funds seized by the police are concerned, CL/Mr Dong continue to argue that these are beneficially the property of third parties.
Conclusion on rescission application
The stay application
"On the basis of my investigation and the evidence I have seen in Credit Lucky's books and records, I believe that Credit Lucky has no basis for continuing to dispute the tax assessment."
This was reiterated in his report to the court of 20th August 2013:
"On 14th August 2012 I estimated the Company's annual turnover in 2010 at about £4,800,000. This implicitly created a corporation tax liability in excess of the amount stated on SOCA's winding up petition. I reached this conclusion after carrying out a sampling exercise based on a week's analysis of commissions from one of the Company's six office premises. Paragraphs 43-51 of my first witness statement describes a clear methodology for this based upon a review of the information available at the time.
Sampling was conducted for reasons of proportionality and without the benefit of either
(1) management accounts (since they were not contained in the Company's books and records);
(2) hard drive and other information retained by the police until October 2012;
(3) the cooperation of the Company's director Mr Dong; and
(4) additional servers now said to be located in China.
On the basis of this information, I revisited this initial calculation in my second witness statement on the basis of information available to me on 17th January 2013, which included a large amount of records and hard drives originally retained by the police. My original conclusion remains unchanged."
The applicants dispute the liquidator's methodology and conclusions, and the liquidator responds to this criticism. The written evidence contains a debate between Mr Defty and Mr Dong/Mr Georgiou on this issue, the details of which it is not necessary or appropriate for me to record for the purposes of this application.
Application for permission to appeal