High Court finds for Liquidator in rare s213 Fraudulent Trading claim – Pantiles Investments Ltd & Anor v Winckler (Rev 1) [2019] EWHC 1298 (Ch) (23 May 2019)

Insolvency and Companies Court Judge Mullen has given judgment for James Dowers as the liquidator of Pantiles Investments Limited (“Pantiles”), against its former director, Ms Sabine Winckler (“Ms Winckler”) following an application arising out of her misfeasance and fraudulent trading.

Background

The above application follows proceedings brought by Stephen John Hunt, the trustee in bankruptcy of Mr Peter Goldbart (“Mr Goldbart”) against Pantiles and 14 other Defendants. Mr Goldbart had become involved in a scheme pre-bankrupcy, in which Ms Winkler had assisted, to denude his estate of assets using a variety of Companies and trust instruments and Ms Winkler had assisted including but not limited to acting as a director of Pantiles. The proceedings started with an application made ex-parte for a worldwide freezing order which order was continued on two separate return dates. Claims against certain defendants were settled and judgement with an Order for costs was eventually obtained against Pantiles and Ms Winkler. Debenhams Ottaway acting on Mr Hunt’s behalf in that action.

Pantiles was incorporated on 14th October 2009 and its sole de jure director and shareholder was at all times Ms Winckler. It did not engage in any activity until it purchased a property known as 656 Finchley Road, London NW11 6XX (“the Property”) from Ms Winckler’s long-standing friend from whom she worked as typist, Mr Goldbart. The Company was incorporated for the specific purpose of purchasing the Property. The Property was transferred to the Company on 15th February 2011 for the price of £550,000, apparently with a further payment of £50,000 being made for fixtures and fittings to Mr Goldbart’s wife, Ms Reiko Iwamoto (“Ms Iwamoto”).

Ms Winckler did not contribute any monies to the purchase, and nor did Pantiles have any monies of its own. The monies to effect the purchase are said to have been provided by way of loans to it including inter alia Goldbeck Investments (2009) Limited (“Goldbeck (2009)”) who was said to have made an unsecured loan of £270,000 on 15th February 2011. Ms Iwamoto was the director of Goldbeck (2009) and she and her son were the shareholders of Lynwood Property Investments Limited (“Lynwood”), which in turn held the entire issued share capital of Goldbeck (2009). These monies came from the sale of 4 Chandos Way, a property owned by Goldbeck Investments Limited (a separate company from Goldbeck (2009)).

Mr Goldbart and Ms Iwamoto did not move out of the Property but entered into a tenancy agreement with Pantiles on or about 17th December 2010. Mr Goldbart was adjudged bankrupt on 5th October 2011 on a creditor’s petition presented on 8th July 2011. On 5th January 2012, Mr Hunt was appointed as his trustee in bankruptcy.

The Property was then sold by Pantiles to a third party. Completion took place on 12th June 2012 for £899,000. Amongst the proceeds paid away, (a) £250,000 was paid to Mr Hunt in settlement of his claim that the transfer to Pantiles by Mr Goldbart in February 2011 had been at an undervalue; and (b) the balance of £181,818.51 was paid to Goldbeck (2009).

Following the settlement of Mr Hunt’s transaction at an undervalue claim, he came into possession of a letter from Mr Goldbart to Suzette Newman of Newman Law, dated 9th February 2010. Mr Goldbart referred to an opinion of Mr Joshua Swirsky of counsel and said:

‘The actual proposed transaction is as follows:-

1. Peter has set up Pantiles Investments Ltd the sole shareholder and director is Sabine Winckler.

2. Sabine Winckler has executed a declaration of trust confirming that she holds the shares in Pantiles Investments Ltd as “bare trustee” for Peter.

4. What is omitted from Joshua’s opinion is the fact that Pantiles Investments Ltd will also enter into a declaration of trust that it holds its interest in 656 Finchley Road, as “bare trustee” for Peter The significance of this is that at no time does the actual beneficial interest in 656 Finchley Road actual [sic] depart from Peter.
5. For commercial reasons in order to discharge the debt to Royal Bank of Scotland new funding has to be put in place.’

Mr Goldbart went on to say that leases would be put in place for three or four years and the Property would then be sold when Mr Goldbart reached the age of 70. He said that he was trying to arrange finance to complete the purchase of the Property which would enable him to force the mortgagee of the Property to ‘back off’. He concluded that he was not going to give up his home ‘without putting up a fairly substantial fight’ and that he would need to consider the implications of his ‘impending bankruptcy’.

Mr Goldbart contended that this letter refers only to a scheme to mitigate stamp duty but, on the basis of it, Mr Hunt formed the view that the sale of the Property to Pantiles, and the subsequent sale and distribution of the proceeds of sale by Pantiles, were part of a scheme to defraud Mr Goldbart’s creditors. In 2012, Mr Hunt commenced a claim referred to above seeking, amongst other things, a declaration that the shares in Pantiles were held on trust for Mr Goldbart and thus for him as Mr Goldbart’s trustee. Mr George Bompas QC, sitting as a deputy High Court Judge, made such a declaration on 4th February 2016. He similarly concluded that Lynwood was a nominee for Mr Goldbart.

Pantiles was thereafter wound on up following a Petition of HMRC on 3 August 2015, with Mr Dowers appointed.

Application against Ms Winkler

Mr Dowers accordingly brought an application against Ms Winckler under section 212 and 213 of the Insolvency Act 1986 on the basis that Ms Winckler (a) was in breach of her duties as director and guilty of misfeasance by allowing the business and day-to-day operation of the Company to be run or controlled by Mr Goldbart at a time when he was an undischarged bankrupt, and (b) that Ms Winckler was knowingly a party to the carrying on of the business of the Company with intent to defraud the creditors of Mr Goldbart and the Company.

Findings of the Court

In respect of the application under section 213, ICC Judge Mullen was satisfied on the balance of probabilities that Ms Winckler was in breach of section 213 as she was knowingly a party to the use of the Company for the purposes of defrauding Mr Goldbart’s creditors for inter alia the following reasons:-

1. Ms Winckler’s account of the purchase of the Property was inherently improbable;
2. There was simply no rational explanation for Pantiles entering into a ruinous loan agreement that it had no real hope of servicing or repaying;
3. The only explanation that Ms Winckler was able to offer for completing the purchase with this finance was that ‘time was running out’, and in ICC Judge Mullen’s judgment, she can only have meant that time was running out for Mr Goldbart;
4. No evidence was  offered to suggest that tenants were ever sought for the Property in accordance with what Ms Winckler claims was her plan for her property investment;
5. There was no evidence that Goldbeck (2009) made any advance to Pantiles at all;
6. Ms Winkler was aware of Mr Goldbart’s impending bankruptcy by the end of September 2011 at the latest and was aware of the fact that a bankruptcy order had been made shortly after 5^th October 2011;
7. Despite her knowledge of Mr Goldbart’s bankruptcy, Ms Winckler was content to complete the sale of the Property and authorise the distribution of the proceeds of sale in June 2012, again as directed by Mr Goldbart, even though (a) Mr Goldbart had instructed her not to cooperate with Mr Hunt as his trustee, and (b) Mr Goldbart had impersonated her using the Company’s email address in correspondence with Mr Hunt seeking to dissuade him from contacting her.

In addition to the above, ICC Jugde Mullen found that Ms Winckler was (a) in breach of her duty to under section 172 of the Companies Act 2006 to act in such a way as she considered bona fide to promote the success of the Company in relation to the various loans entered in to and the distribution of the proceeds of sale, and (b) in breach of her duty under section 173 of the Companies Act 2006 to exercise independent judgment as she simply abrogated her decision-making to Mr Goldbart.

Analysis

The judgment shows that the Court will hold directors of Companies used as part of a scheme to defraud creditors liable for fraudulent trading. The Court appears to have been willing to look at the scheme in the round as evidence of the intent to defraud creditors. A further hearing is due to be listed to deal with the appropriate form of relief and it is anticipated that this will essentially involve making the Company whole in respect of the entirety of its creditors. Conceptually this ought to include the liquidator’s costs which were caused by the fraudulent trading and in this case it ought to extend to all of the liquidator’s costs because but for the fraudulent trading the Company would not have gone into liquidation.