England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIISION
COMPANIES COURT

		30 July 2008

INTRODUCTION

1. These are petitions presented by the Secretary of State for Business, Enterprise and Regulatory Reform under section 124A of the Insolvency Act 1986. The Secretary of State seeks the winding up in the public interest of two companies, TAG World Services Limited ("TAG World") and Club LaBourse Travel Limited ("Club LaBourse Travel"). I shall refer to them together as the Companies. TAG World is an English company within what appears to be an international network of companies constituting the TAG group. Club LaBourse Travel is another such English company. In the case of each of the Companies its parent is a Panamanian company called Onda Investments Inc ("Onda"). I was told that the shares in Onda, which are bearer shares, are owned as to 40% by Mr Brian Wates and his wife with the other 60% being owned by outside investors whose identity was, apart from one, not disclosed. At the hearing before me Mr Wates, who is a director and company secretary of both of the Companies, gave evidence and addressed me on behalf of the Companies. It is right that I record that Mr Wates, although I had reservations about a number of aspects of his evidence, conducted the case for the Companies with courtesy and considerable charm. The Secretary of State was represented by Mr Dhillon.

THE TAG GROUP

2. There are various companies within the TAG group. Evidently, Mr Wates is the individual in overall control of the group's operations. There are TAG companies based not only in England but also in Australia and the United States. In addition, there is the Panamanian holding company Onda and another Panamanian company called Tourism Advisory Group SA ("TAG SA"). I shall have to refer in rather more detail to this latter company when I come to consider one of the specific complaints made by the Secretary of State. But for the present I need only say that it is a company with, at least ostensibly, use of an office in Geneva but what the company actually does in practice, if anything at all, is obscure. Mr Wates, in opening the case for the Companies, claimed that the paucity of documentary evidence about TAG SA's activities was because the underlying shareholders did not want its records to be disclosed. He also told me that originally TAG SA had been the TAG group holding company and wholly controlled by himself and his wife. However, TAG SA had run into financial difficulties in 1987 and ceased its former operations, whereupon the group had been reorganised with Onda becoming the holding company.
3. TAG World was incorporated on 30 June 1983 under the name Briterush Limited. Its name was subsequently changed to Tourism Advisory Group Publications Limited and then to Tourism Advisory Group World Services Limited before the adoption of its present name on 26 September 2000. The company has an issued share capital of £100 divided into 100 £1 shares of which 99 are owned by Onda and the other share by Mr Wates's wife. Mr and Mrs Wates are the directors.
4. Club LaBourse Travel was incorporated on 9 March 1987. It had a number of different names before adoption of its present name on 1 June 2000. The authorised and issued share capital is £10,000 divided into 10,000 £1 shares all of which are owned by Onda. Again, Mr and Mrs Wates are the directors.

THE BACKGROUND

5. The case is concerned with the operation of a holiday club scheme. It is clear that the principal individual in control of the scheme's operations has always been Mr Wates. TAG World is the company through which (in the person of Mr Wates) the scheme was operated in this country. The holiday club goes under the name of Club LaBourse, which I shall call "the Club". In short, the scheme serves to provide members of the Club with an opportunity to take holidays at timeshare accommodation which, for whatever reason, might at a given time not be required by the owner and be available for other holiday makers. Club LaBourse Travel on the other hand has operated as a conventional travel agent although it has no retail outlet and its services are provided to the Club members.
6. The background to how TAG World came to be running the Club is not entirely clear. Mr Wates has been involved with the timeshare industry for many years. Until 1983 he was managing director of various regional operations of a company called Resort Condominium International LLC. That company provides a timeshare exchange service for timeshare accommodation owners; apparently there are two such businesses specialising in this field, the other being Interval International. Mr Wates left Resort Condominium International LLC and established Tourism Advisory Group Limited to operate a timeshare re-sale business. He then set up Holiday Bourse Limited which went into insolvent liquidation in November 1995. Initially, that was the operating company of the Club but, after it ceased trading, the operation was assumed by TAG World. According to Mr Wates, the holding company for the various TAG companies had been TAG SA. However, with a threat of legal action against TAG SA the shares in the various companies were, in Mr Wates's word, "repositioned" in Onda.
7. Mr Wates told me how he and his wife had originally owned all the shares in the group holding company at the time when it was TAG SA. However, he maintained that with establishment of Onda he and his wife had given up 60 per cent of the shares to some Swiss investors. He flatly refused to say who these Swiss investors were, other than a Mr Harris who seems to be a company administrator in Geneva, and indeed said he had never met or spoken to them. In his closing submissions Mr Wates retracted somewhat from what he had said in evidence. The true position, he said, was that Mr Harris held the 60 per cent on trust for himself and the unnamed investors who would be handing their interests back to himself and his wife after recoupment of a loan to Onda. Mr Wates was hazy about the details of this loan. Mr Wates acknowledged that it all sounded "a bit peculiar". The mystery surrounding the ownership of Onda is not directly material to what I have to decide. Nevertheless, I have to say that I agree with Mr Dhillon that Mr Wates's evasiveness on this topic was something which did reflect adversely on Mr Wates's credit.

THE CLUB OPERATIONS

8. In fact the Club stopped recruiting new members in this country in 2005. Mr Wates variously put this down to the fact that "our UK financial position was stretched" and "the market shifted where we didn't feel we can sell it in this country". The focus of the Club's operations is now Australia with the operation being conducted through Australian companies. The fact that there is no longer an active Club operation in this country, apart from some servicing of existing members, is a feature of the present case which I shall have to consider further when considering the present justification for a winding up order as sought by the Secretary of State. But I should explain how the Club operation worked at the time when it was fully operational in this country.
9. A company called Sunscene Holidays Wordwide Limited ("Sunscene") was the main marketing arm for the Club. Sunscene was in fact compulsorily wound up by the Court of Session in Scotland on 17 June 2005 on a petition of Her Majesty's Revenue and Customs. It is right to note that Sunscene was never part of the TAG Group and was independent of Mr Wates. However, its marketing activities were obviously critical to the Club's operations. Indeed, the collapse of Sunscene was undoubtedly a factor in the decision to cease marketing the Club in this country.
10. Until going into liquidation Sunscene conducted most of the recruitment of Club members. Sunscene organised promotional gatherings at hotels around the country. Members of the public were contacted by telephone and invited to attend these gatherings. The telephone calls were cold calls by a telephone marketing organisation. Those telephoned were enticed to attend the promotional gatherings by being told that they had been awarded a "free holiday" if they attended. The presentations were conducted by representatives working on commission and were described in the evidence as "intensive" or a "hard sell". Following a scripted presentation, to which I shall need to refer in more detail, the gatherings broke up into smaller groups with individual sales personnel endeavouring to persuade people to join the Club there and then. Those who decided to join paid an immediate membership fee of, generally, £1,995. The actual amount of the membership fee was, however, left to the decision of the marketing organisation. Whilst the norm was £1,995 (for a 6 week package), there were instances of people being charged other amounts, £1,495 or £2,295. Indeed, marketing organisations other than Sunscene seem to have charged memberships fees of as much as £9,000 in the case of Purple and Diamond and £3,950 in the case of PR Holidays. As between Sunscene and TAG World, the membership fees were divided up although the evidence showed that by far the larger part was retained by Sunscene with only a relatively small amount being actually paid over by Sunscene to TAG World.
11. Members who signed a membership agreement at a presentation were then, after signing, provided with a folder containing a copy of the membership agreement, leaflets explaining the Club's operation, a promotional video and CD, a luggage tag and a plastic card with a membership number. The following week they would be sent a letter welcoming them to the Club.
12. Membership of the Club entitles members to book holiday accommodation ascertainable from databases of spare and available timeshare accommodation to which TAG World had access. Membership gives an entitlement to book accommodation for, usually, a maximum of 6 weeks a year although sometimes an offer was made for a lesser period, say 3 weeks, at a lower membership fee. For the accommodation the timeshare management fee, as levied by the resort, has to be paid by the member; also there was a variable arrangement fee levied by TAG World. Apart from unutilised timeshare accommodation, members also had available to them the travel agency services of Club LaBourse Travel through which ordinary holidays, such as cruises and package tours, and hotel accommodation might be booked. If membership was to be maintained for more than a year, an annual renewal fee of £62 is payable. It was a notable feature of the evidence in this case that a large proportion of those who joined the Club did not, for whatever reason, ever in fact book a holiday through the Club. For such people the joining fee of nearly £2,000 was a wholly wasted investment.

THE INESTIGATION AND THE PETITIONS

13. In December 2003 David Liddell and Claire Round of PKF (UK) LLP, chartered accountants, were authorised by the Department of Trade and Industry under section 447 of the Companies Act 1985 to require the production of documents and obtain information from TAG World, Club LaBourse Travel and Sunscene. Their investigation centred on a variety of matters as I shall explain. This investigation did not immediately result in legal proceedings. However, in April 2006 further section 447 authorities were given to Mr Liddell and Geoffrey Hanna of the Department of Trade and Industry. By this time TAG World had ceased selling membership of the Club in this country. The 2006 investigation updated what had been found at the time of the earlier investigations and also revealed information about what is now said to have been an untruthful AT refund claim. This is one of the complaints covered in the evidence before me.
14. On 21 May 2007 petitions were presented against each of the Companies. As noted, winding up orders are sought under section 124A of the Insolvency Act 1986, that is to say on the ground that winding up is "expedient in the public interest". Section 124A provides:

Petition for winding up on grounds of public interest.

(1) Where it appears to the Secretary of State from--

(a) any report made or information obtained under Part XI (except section 448A) of the Companies Act 1985

...

that it is expedient in the public interest that a company should be wound up, he may present a petition for it to be wound up if the court thinks it just and equitable for it to be so.

15. The Petitions and the evidence before me revolved around the following 7 categories of criticism:

(1) deceptive marketing statements

(2) failure to provide any, or any effective, cancellation right

(3) consumer complaints

(4) the "free holiday" offer

(5) a AT repayment claim

(6) solvency

(7) overlap of corporate businesses.

16. The evidence in relation to these matters for the Secretary of State came from Mr Liddell who was a careful and thorough witness. For the Companies Mr Wates gave oral evidence, and there were also written statements from two satisfied members of the Club. I do not think that Mr Wates was deliberately telling untruths when giving evidence, as Mr Dhillon suggested. Nevertheless, he was certainly a less reliable and accurate witness than Mr Liddell, and he had an unfortunate tendency to turn to marketing jargon when faced with uncomfortable questions. I shall address each of the categories of criticism in turn whilst bearing in mind, as Mr Dhillon reminded me, that I should have regard to the total picture as it emerged from the evidence. I should not just consider each criticism in isolation.

THE MARKETING PRESENTATIONS

17. A script for the presentations by Sunscene was included in the evidence. Mr Dhillon submitted that this demonstrated the false and misleading way in which the Club was marketed to the public. It is, of course, to be borne in mind that Sunscene was not a TAG Group company, and Mr Wates's response to criticisms of Sunscene's marketing methods was to try to divorce TAG World from Sunscene. He explained how TAG World "wholesaled", as he put it, membership of the Club and Sunscene was the "reseller" such that TAG World was not responsible for Sunscene's excesses. However, to my mind there was considerable artificiality about that stance. On any showing Sunscene was marketing Club membership for the benefit of TAG World which was the company which was running the Club. Moreover, Mr Wates specifically accepted that the presentation script had been approved by him. Indeed, one letter written by him suggested that TAG World had actually written the script. Mr Wates said in evidence that this was not in fact so; this letter was a "generic" letter, not a "legal letter". It is unnecessary for me to make any finding about this since, whoever may have originally drafted the script, it was certainly approved by Mr Wates. I should also say that Mr Wates informed me in evidence that at some stage the Sunscene script was amended. However, no amended script was produced in evidence or had been seen by Mr Liddell in the course of his investigations. I do not consider that I could safely rely on any relevant amendments ever having been put in place.
18. Firstly, Mr Dhillon drew my attention to various passages in the Sunscene presentation script which were, he submitted, plainly misleading. Examples of passages which falsely suggested that the Club always made available accommodation of a far higher standard than the reality included the following:

…. each and every time our clients holiday they stay in quality assured luxury accommodation. Basically what we are offering today are luxury holidays at basic package holiday prices.

Most AOA [accommodation on arrival] deals use two star, maximum three star accommodation. Club LaBourse however uses quality assured luxury accommodation at all times.

For the same money that we would have spent on basic packages we will have enjoyed luxury accommodation in every case. …. Club LaBourse however offers worldwide holidays for the price of European packages.

In similar vein were PowerPoint slides forming part of the presentation. For example, slides referred to "luxury holidays for you and your family for life". The impression was fortified by the other materials given to those joining the Club at the presentations. There are numerous references to luxury and quality assured accommodation.

19. Mr Dhillon drew my attention to many instances of customer complaints about the quality of the accommodation which had in fact been provided and was of a standard far below "luxury". Mr Wates did not really dispute that the Club was far from always, or even mainly, providing luxury accommodation if by that was meant four or five star accommodation. But he said that the word "luxury" was one of variable meaning, and standards varied from country to country. I can accept that this is true to some extent. Nevertheless, the presentation was given to members of the public in this country. Having read the full script, I am in no doubt that attendees would have gained, and were intended to gain, the impression that joining the Club would give access to accommodation of outstandingly high quality. The reality was, at least in the main, far from this.
20. Second, at the presentations an attempt was made to distance the Club from the timeshare world. This was because, as was common ground, the timeshare industry has a bad reputation such that explaining the source of Club accommodation as being unused timeshare accommodation would be likely to put people off. Thus, the presentation contained the following passages:

We also have no membership of the exchange companies so it's fair to say -- we don't have timeshare!
What we do have, what we will talk about today is "Club LaBourse".
So hopefully folks I've established that I'm not going to show you timeshare. I'm going to show you something entirely different.

Later, there was passing reference to timeshare accommodation, but it was very much as if timeshare accommodation were not a significant part of the Club's operation. Thus:

As I've already mentioned the accommodation is wide and varied. Some of the hotel chains we use include Hilton, Marriott, Sheraton, Hyatt, Ramada and Disney. There is also timeshare in here. We are not asking anyone to buy a timeshare, far from it. However should you wish to holiday in that type of accommodation you may do so through ourselves without having to purchase one, and also without having to pay maintenance fees.

Any hotel could be booked through Club LaBourse Travel, as with any other travel agent. But, in fact, and contrary to the impression sought to be given, the main focus of the Club was indeed the provision of unused timeshare accommodation. There would be no point in joining the Club at considerable expense simply to have access to an ordinary travel agent.

21. Third, Mr Dhillon also submitted that the presentation gave the misleading impression that holidays with the Club could be taken at any time and anywhere in the world. Thus, at the presentations it was said for example:

The Club LaBourse system uses its own supply of accommodation and there is no destination on the board where we could not send our clients to. The types of accommodation is [sic] tremendously varied. We have access to hotels, apartments, villas, resorts, for example, beach resorts, ski resorts, golf resorts, places such as France, Spain, Italy. Our customers can stay in countryside chateaus [sic], there are chalets, secluded mountain lodges and also recreational vehicles for touring holidays. We can arrange cruises and also safaris.

Remember how to use those weeks. They can be used at anytime of year. If you require to go high season you may do so, or if you prefer to go off-peak this is also available.

In truth, leaving aside bookings through the travel agency Club LaBourse Travel, accommodation through the Club was only available (a) in resorts where there is timeshare accommodation and (b) when the timeshare accommodation was surplus to the owner's own requirements. Mr Wates's only response to this was to say that necessarily, and as with any other holiday organisation, booking would be subject to availability. Within reason that is true, but the presentations certainly give the impression that there is a vast amount of customer choice.

22. Fourthly, Mr Dhillon referred me to passages where the presentations promised value for money whereas on analysis there was no real benefit at all, Mr Dhillon said, in paying the large fee for joining the Club. There is some force in Mr Dhillon's point. However, it might also be said that a certain amount of salesman's puff is to be expected on occasions such as the presentations. I am prepared to accept that statements about the Club being excellent value for money may not be regarded as really being misrepresentations of fact. On the other hand, it is in my view legitimate to consider what benefits Club membership really brought to those paying large sums in membership fees when weighing up the balance of the public interest to the question of winding up the Companies. Here, I am in no doubt that joining the Club and paying the fees was of little real benefit. As the evidence showed, those interested in taking surplus timeshare accommodation can readily obtain details on the internet without having to pay large membership fees for joining the Club. As for the facilities available through Club LaBourse Travel, they were no different from those available from any other travel agent. Mr Wates explained that Club La Bourse Travel would be able to offer discounts because it split its commission from the tour operator or hotel with the Club member booking through it. However, there was nothing in the evidence to suggest that exceptionally favourable holiday deals were only available through Club LaBourse Travel. On the contrary, the evidence tended to show that its prices were no better than what other travel agents might offer.

NO COOLING OFF PERIOD OR CANCELLATION RIGHT

23. Mr Wates told me how, at least originally, he made it a matter of deliberate policy not to allow customers to cancel their membership at any time after joining. The form of membership agreement made no reference to any cancellation right until an amended form was brought into use. It is not clear when this happened, but it would seem in any event to have been not before 17 November 2004.
24. Mr Dhillon referred me to the Consumer Protection (Cancellation of Contracts Concluded away from Business Premises) Regulations 1987. These regulations, where they apply, give a consumer a right of cancellation within 7 days of the conclusion of a contract and require a trader to give a prominent notice in a prescribed form to the consumer of this right. Failure to give such a notice is a criminal offence. By Regulation 3(1):

These Regulations apply to a contract, other than an excepted contract, for the supply by a trader of goods or services to a consumer which is made--
...
(d) during an excursion organised by the trader away from premises on which he is carrying on any business (whether on a permanent or temporary basis).

It was common ground before me that, apart from one point, the Regulations would apply to the Club membership contracts signed at the Sunscene presentations. However, Mr Wates maintained that the Regulations did not apply because Sunscene would have been carrying on its business at the various hotels where it held the marketing presentations. I am quite unable to accept this argument which, if correct, would defeat the evident consumer protection purpose underlying the Regulations. It was the hotel operator, not Sunscene, which was carrying on business at the hotel premises.

25. In September 2002 a Trading Standards Officer drew the absence of a cancellation right to Mr Wates's attention. Mr Wates responded by letter of 20 September 2002 to say that this was in effect Sunscene's, not TAG World's, responsibility. He went on also to say that it had been decided to modify the membership agreement by the inclusion of a 10 day cooling off period and the change was to come into effect towards the end of October 2002 "when the new print run has been completed". This change was not in fact introduced, something which prompted the trading standards officer to prompt Mr Wates by telephone in December 2002. The officer was apparently then told - untruthfully - that the new print run was with Sunscene. On 8 February 2003 he wrote:

My understanding is that the new print run is now with Sunscene and carries a cancellation clause. I would be grateful if you could confirm this and supply, purely for our records, an example of the agreement signed by Sunscene's clients.

This received no answer at all from Mr Wates who had forwarded the letter to Sunscene with a manuscript note: "For your info, not sure how to answer this Any ideas?". The trading standards officer sent a chaser to Mr Wates on 17 March 2003 requesting the urgent supply of a specimen agreement. Mr Wates responded on 26 March 2003 with an apology for the delay. He went on to say:

I had been waiting to hear if Sunscene had used up their documents prior to printing a new set of documents.

At the moment Sunscene is revising their marketing programme and may be discontinuing their weekly group presentations. For this reason there appears to be some delay in making a final decision on new documentation.

Given their uncertainty and the fact that they are Resellers of Club LaBourse rather than our agent, I would suggest that it would be preferable if you contacted them directly.

Mr Wates forwarded a copy of this letter to Sunscene with the message:

Hi Guys,

[The trading standards officer] has been bugging me for some time.

I wasn't quite sure how to close this out. I hope the enclosed is OK for you.

26. Mr Wates's correspondence with the trading standards officer demonstrates much prevarication. He accepted in evidence that he had given false information to the trading standards officer about the existence of revised documentation incorporating a cancellation clause. The position seems to be that Mr Wates was simply trying to put off the day when compliance with the 1987 Regulations would have to be effected. Ultimately, there was a change to the form of Club membership agreement. A sentence was introduced which read:

We understand and acknowledge that this agreement may be canceled [sic] within fourteen days of the date of signing without penalty.

But even then the 1987 Regulations were never fully complied with as regards the prescribed form of notice which has to be given to consumers.

CUSTOMER COMPLAINTS

27. In December 2003 on a visit to the Glasgow offices of Sunscene Mr Liddell discovered some 20 lever arch files of customer complaints. He took away for analysis the files for those with surnames beginning with A and B. He then visited TAG World's office in Sudbury the following week and did the same. The results of both investigations were incorporated in a schedule which he produced in evidence. This showed 97 customers with complaints such as unsatisfactory quality, price not competitive, limited or no availability, booking problems and free holiday problems; a number of the complaints were categorised by Mr Liddell simply as "buyers' remorse". Mr Liddell also produced a further schedule referable only to those who had actually joined the Club through Sunscene. This showed that out of a total of 356 members in the A-B sample only 69 (19%) had actually taken a holiday through the Club. 75 of the 356 members (21%) had made a complaint to Sunscene or TAG World or both. Obviously, complaints over quality could only come from the relatively few who had taken a holiday. There was only a record of 3 refunds although Mr Liddell noted that refunds were not always recorded on complaints files.
28. On the occasion of Mr Liddell's return to TAG World's office in 2006 he conducted a further exercise. Among TAG World's records for customers with surnames between A - D and M - Z he discovered a further 88 complainants who had made 128 complaints. As before, the complaints were categorised by Mr Liddell as buyers' remorse, quality unsatisfactory, price not competitive, limited or no availability, booking problems, free holiday problems and misunderstood the operation.
29. Mr Wates claimed that since 1999 TAG World had only received a total of 20 complaints about quality: 1 in 1999, 2 in 2000, 6 in 2001, 7 in 2002, 4 in 2003 and none in 2004. He did not refer to any documents in support of this assertion. Mr Liddell said, and I accept, that the assertion cannot be reconciled with the complaint files which he examined in 2003 and 2006. The fact of a complaint does not, of course, prove its justification. However, the volume of complaints in the samples inspected by Mr Liddell would be regarded as disturbing by any reputable business. On the other hand, it is right to say that Mr Wates drew my attention to an analysis of customer survey forms which holiday makers with the Club had completed. This shows that of those who completed the forms which were the subject of analysis there was by and large satisfaction, even considerable satisfaction, with the service and accommodation provided by the Club. Furthermore, in the evidence before me a witness statement from a District Judge and another from an Australian lawyer commended the Club. There is no doubt that a number of people who booked holiday accommodation through the Club were happy with what was provided. Dissatisfaction was far from being universal. Nevertheless, the fact remains that there was a sizeable proportion of those Club members who actually took a holiday (a surprisingly small proportion of those who had joined at considerable cost) who were not at all happy with what they received.
30. It is not only the level of complaints which was disturbing. It was also the way in which they were dealt with. It was only exceptionally that TAG World ever offered reimbursement to Club members who made complaints. I was shown numerous examples of prevarication in dealing with complaints. In particular, if a complaint concerned the way in which a Club member had been induced to pay a membership fee and join the Club or the free holiday offer the complainant would simply be told to contact Sunscene. On Mr Wates's view it was only "fulfilment" complaints which were to be addressed by TAG World. Everything else was Sunscene's responsibility. The fact that the membership contract was not between the complainant and Sunscene was not something which concerned Mr Wates. Mr Dhillon put to Mr Wates various instances of consumer complaints being brushed aside. The standard response was that this was just an instance of what Mr Wates called "buyer's remorse" by which he meant an irrational and unjustified request for a refund. Mr Liddell described what seemed to be the standard procedure for dealing with complaints:

•    Adopt the "fulfilment" versus "marketing" response

•    Respond with a standard text rather than responding to the particular complaint

•    Cite large numbers of members who are satisfied

•    Ask the member to try the system and then come back

•    Waive the annual renewal fee as a gesture of goodwill

•    Offer credit against a future holiday with the Club

•    Offer reduced membership with a partial refund

•    Refund membership fees as a last resort.

THE FREE HOLIDAY OFFER

31. The public, having been induced to attend the Sunscene hotel presentations by the promise of a free holiday, discovered that the holiday was not in fact free. A so-called arrangement fee was payable. That varied between £69 and £199. These free holidays were organised by two businesses known as "fly buy" companies. Fly buy companies specialise in offering free holidays to timeshare resorts. They hope to cover their costs and make profits from the sale of timeshare accommodation to those who take up their offer. Thus, neither Sunscene nor TAG World had to fund the free holidays in any way. But the two fly buy companies used to provide free holidays for the promotion of the Club both ceased to trade. TAG World then did locate a new fly buy company. But, Mr Liddell gave evidence about a number of people complaining about having paid an arrangement fee when the promised free holiday never materialised. Although the free holiday offer was used to promote the Club, Mr Wates's view was again that any problems associated with this were Sunscene's, not TAG World's, responsibility.

THE AT REPAYMENT CLAIM

32. Mr Wates explained how in 2003 Sunscene owed TAG World some £66,000 but was having difficulty finding the money. Mr Wates came up with an idea for obtaining for Sunscene a large AT refund from HM Customs and Excise (as it then was) in the hope that Sunscene would then be able to pay TAG World. His idea was that Sunscene might have been erroneously accounting for AT on Club membership fees which it received from those who joined the Club at Sunscene presentations. Mr Wates consulted and instructed a Mr Jordan who ran a AT consultancy.
33. On 14 October 2003 Mr Jordan wrote to HM Customs and Excise explaining the facts about the Club as he had been told them (by Mr Wates) and suggesting that AT was not in fact payable on much the greater part of the Club membership fees. Although this letter was nominally written on behalf of Sunscene, there is no doubt that it was solely prompted by Mr Wates and written on his instructions. Only he dealt with Mr Jordan. In his letter Mr Jordan wrote:

I have been asked by my above-named client [Sunscene] to assist them with clarifying the treatment of their supplies for AT purposes, and am writing to request your confirmation or comments otherwise on the liability position set out below. For completeness, I should add that to date SunScene [sic] has accounted for AT at standard rate on all of its income.

My client is in the business of marketing and selling timeshare and traditional accommodation membership through Club La Bourse. This is a member driven discounted travel club. The company does not actually supply accommodation, only the membership to the club. Accommodation is supplied by TAG World Services Ltd.

Club La Bourse is owned by a Panama registered company, which trades from Switzerland, Travel Advisory Group SA (TAG SA). In the UK, the sole selling/distribution rights of Club La Bourse is [sic] contracted from TAG SA Travel Advisory Group Ltd (TAG UK), a company registered under UK law trading from TAG House, I Meadow Lane, Sudbury, Suffolk, CO10 2TD.

...

As you will see from the documentation enclosed, the club membership is with the Swiss company TAG SA, and in my opinion, the sale of the membership by Sun Scene [sic] on behalf of TAG SA should therefore be treated as outside the scope of AT, the place of supply being where the supplier belongs -- the basic place of supply rules -- in respect of such supplies. As this is Switzerland, the place of supply is outside the UK/EU and therefore outside the scope of AT.

The letter went on to say that Sunscene has to pay £200 out of each membership fee to TAG World so that in Mr Jordan's submission only that small part of the membership fee, but no other, was within the scope of AT.

34. HM Customs and Excise in response accepted Mr Jordan's suggestion in the light of the facts as he had explained them. The consequence was that Sunscene received a AT repayment of over £336,000 out of which it paid TAG World, according to Mr Wates, £44,000.
35. The factual premise underlying the AT repayment claim was that residents of this country were joining a Swiss operated club and that membership of this Swiss club was being marketed by Sunscene on behalf of TAG SA. I have to say that on the evidence this factual premise bears no relation to reality. The Club was undoubtedly operated by TAG World. As for TAG SA, it was a Panamanian company with, at best, only a nominal presence in Geneva at the offices of Mr Harris, a company administrator. Although TAG SA may have been an active company up to 1999, there was no evidence of TAG SA actually having done anything at all since then. Mr Wates assured me on the first day of the trial that TAG SA was indeed an active company and that he would produce documents to demonstrate that this was so. In the event Mr Wates was unable to produce any documents at all to show that TAG SA was in any respect an operational company. He produced copies of a few documents which he claimed showed that TAG SA was an active company, but on examination none of them in fact did so. The notion that the Club was a Swiss club operated by TAG SA was in my view fiction. There is no doubt that the AT repayment claim lacked factual justification, and Mr Wates must have known that. It was he alone who had given the factual instructions to Mr Jordan.

SOLENCY OF THE COMPANIES AND BUSINESS OERLAP

36. TAG World's balance sheet at 31 December 2005 showed a net current asset deficiency of £40,817. Management accounts at 31 May 2006 disclosed net liabilities of £133,266. As for Club LaBourse Travel, it had net assets of £21,795 according to its 31 December 2005 balance sheet although management accounts for the five months ended 31 May 2006 showed a modest net loss. On the basis of the above and other factors Mr Liddell expressed doubts in his evidence about the solvency of either of the Companies, particularly TAG World. However, Mr Wates produced at the trial accounts drawn up, albeit unaudited, by accountants for the year 2006. On the face of it they show solvent companies, although I agree with Mr Dhillon that the constituent parts of some of the figures do not give one a great deal of confidence about the stability of the financial position. Moreover, it was clear from the evidence that the Companies are now effectively dormant. Mr Wates told me at the hearing that TAG World now has no full time employees, although on consideration of my draft judgment he later suggested that what he had said in evidence might not be quite right. Mr Wates also told me that Club LaBourse Travel's business has ceased after its access to facilities via the Global Travel group was withdrawn. Nevertheless, on the overall evidence I am prepared to assume that insolvency of the Companies has not been established.
37. Mr Liddell in his evidence also criticised the way in which Mr Wates in practice treated TAG World, TAG Limited and Club LaBourse Travel as effectively a single business. Of course, I agree that separate companies should have separate day to day accounts, but in reality it is not uncommon in group operations for employees to pay scant attention to the difference between the different corporate entities. I do not consider that this criticism of Mr Liddell really adds anything to the case for winding up orders.

THE APPLICABLE LEGAL PRINCIPLES

38. I have previously set out the provisions of section 124A of the Insolvency Act 1986. The touchstone for winding up a company under this section is the public interest. The leading authority on the correct approach to any public interest petition remains the well known and often cited case of Re Walter Jacob (1989) 5 BCC 244. Nicholls LJ described the court's task as follows at page 251:

A petition having been duly presented by the Secretary of State, the next stage is when the petition comes before the court. At this second stage the court is concerned with the whole of the evidence before it, and the submissions made thereon by the parties. The court is not concerned with what was the material before the Secretary of State at the earlier stage when he formed his opinion. Nor, it seems to me, is the opinion as such of the Secretary of State, or an official in his department, reached at the earlier stage on whatever factual matter was before him in a report made by inspectors, or resulting from a books and papers investigation, normally of materiality to the Companies Court when it decides the petition. The court's task, in the case of so-called public interest petitions, as in the case of all other petitioners invoking the court's winding-up jurisdiction under sec. 122(1)(g), is to carry out the balancing exercise described above, having regard to all the circumstances as disclosed by the totality of the evidence before the court. In respect of all such petitions, whoever may be the petitioner, the court has to weigh the factors which point to the conclusion that it would be just and equitable to wind up the company against those which point to the opposite conclusion. It is to the court that Parliament has entrusted this task, in all cases. Thus, where the reasons put forward by the petitioner are founded on considerations of public interest, the court, if it is to discharge its obligation to carry out the balancing exercise, must itself evaluate those reasons to the extent necessary for it to form a view on whether they do afford sufficient reason for making a winding-up order in the particular case.

In the case of " public interest" petitions, the court will, of course, carry out that evaluation with the assistance of evidence and submissions from the Secretary of State and from other parties. When doing so the court will take note that the source of the submissions that the company should be wound up is a government department charged by Parliament with wide-ranging responsibilities in relation to the affairs of companies. The department has considerable expertise in these matters and can be expected to act with a proper sense of responsibility when seeking a winding-up order. But the cogency of the submissions made on behalf of the Secretary of State will fall to be considered and tested in the same way as any other submissions. His submissions are not ipso facto endowed with such weight that those resisting a winding-up petition presented by him will find the scales loaded against them. At the end of the day the court must be able to identify for itself the aspect or aspects of public interest which, in the view of the court, would be promoted by making a winding-up order in the particular case. In many, perhaps most, cases that will be a simple exercise in which the answer will be self-evident. In other cases the answer may not be so obvious.

In short, what I have to do is to carry out a balancing exercise evaluating the public interest factors which point in favour of making a winding up order and those which point in the other direction.

39. Mr Wates referred me to a number of decisions at first instance in which the court declined to make a winding up order. Of course, this is particularly an area of the law where the particular facts of each case are determinative. In none of these decisions was the Judge purporting to depart from the principles spelt out by Nicholls LJ (as he then was) in Re Walter Jacob. In particular Mr Wates referred me to the decision of Park J in Secretary of State for Trade and Industry v Travel Time (UK) Limited (2000) BCC 792, another case concerned with the timeshare industry. In that case Park J expressed the view that he ought not to wind up the companies merely because he thought that the script of telephone calls and the content of invitations were "not as good as they might have been". I respectfully agree that something more than this would be required. Mr Wates also referred me to, amongst other cases, the decision of Anthony Mann QC (as he then was) in Re Derek Collins Associates Ltd [2002] All ER (D) 474 where he said at [46]:

I remind myself that winding-up is a drastic remedy. It brings a business to a halt, and it is capable of causing hardship to employees and perhaps even creditors, as well as the participators in the business. No doubt it is capable of reflecting badly on those running the business themselves.

It is fair to say that on the present facts the effect of a winding up order in the case of TAG World may be much less extreme, given that the business of recruiting new members in this country has ceased since 2005, the company has (at least according to what Mr Wates told me at the hearing) no full-time employees and the focus of Mr Wates's operations has since 2005 been other companies serving the Australian market. Nevertheless, I entirely accept that a winding up order is a serious matter and should not be made lightly.

CONCLUSION: TAG WORLD

40. For the Secretary of State Mr Dhillon's most sustained criticism was directed at the way in which Club members were recruited at the Sunscene presentations. The submission was that what was said, following the script approved by Mr Wates, amounted to deliberate deception of the public. In particular, Mr Dhillon underlined the frequent and unfounded references to luxury accommodation, which in context would have been understood as being of at least four star standard, and the way in which the Club falsely sought to dispel association with timeshare accommodation. Mr Dhillon also drew attention to other unsatisfactory features of the marketing as I have noted earlier in this judgment. On behalf of the Companies Mr Wates realistically accepted that "it is now obvious that Mr Dhillon has correctly stated some of the deficiencies in my operations". But he maintained that he had not set out to deceive anyone. On Mr Wates's case any fault was that of Sunscene who were not TAG World's agents but, rather, "resellers" of Club membership. Doubtless, a degree of marketing eulogy was to be expected at the Sunscene presentations. I would expect most, if not all, of those attending to have a measure of scepticism, and it would be wrong to construe the script for the marketing presentations like a trust deed. Nevertheless, as I have previously described I consider that in several respects what the public was told about the nature of the Club and what it had to offer was seriously misleading. It was what was said at the presentations which induced people to pay a large sum for a facility, that is Club membership, which in reality was worth very little.
41. Secondly, there is in my view no doubt but that there were breaches of the Consumer Protection (Cancellation of Contracts Concluded away from Business Premises) Regulations 1987. No cancellation clause or cooling off period was included in the membership contract until very late in the day. The correspondence with the trading standards officer demonstrates a high level of prevarication by Mr Wates. If this area of complaint had stood alone, it would not in isolation have justified a winding up order, especially as a cancellation clause (albeit still not compliant with the Regulations) was ultimately incorporated in the contract. But, it does form part of a general picture of commercial self interest being paramount regardless of considerations of commercial fair dealing.
42. Third, I have to say that on the evidence before me there was no justification for the AT repayment claim. I gave Mr Wates every opportunity to produce evidence that TAG SA really was a genuine operating company, but he was unable to do so. I am driven to the conclusion on the evidence which I heard that TAG SA was in reality nothing more than a corporate name which Mr Wates just put forward as a matter of convenience when it suited him. It is true that he used the name TAG SA from time to time on Club literature. The corporate name was not just used for presentational purposes to HM Customs and Excise. Nevertheless, I can only conclude that HM Customs and Excise was induced to make a large repayment to Sunscene (for the benefit of TAG World as to £44,000) by a version of the facts which was in essence fiction.
43. Fourth, I also have to bear in mind the so-called "free holiday" which induced the public to attend the hotel presentations. It never was in fact free. And the evidence produces a picture of people who actually sought to take the holiday being let down when they tried to do so.
44. Fifth, I also bear in mind the number and proportion of customer complaints. I accept that some, indeed a considerable number, were not dissatisfied. Some of those who did book holidays through the Club were even quite content with the accommodation and service they actually received. The fact remains, however, that the level and variety of complaints overall was large, and the Club's approach to dealing with dissatisfied customers left much to be desired. Finally, as regards the financial position of the Companies and the criticism about the failure to differentiate between companies' businesses, I have already indicated that I leave these factors out of account in the balancing exercise which I have to carry out.
45. There is one point which has given me some pause for thought on the facts of the present case. This is the fact that TAG World had in any event essentially ceased to operate well before the petition was presented. Subject to that, I would have no doubt that the balance comes firmly down in favour of a winding up order. Members of the public were misled by false marketing into paying large sums by way of membership fees for no real benefit and there are other indications of a lack of commercial probity in the running of the TAG World operations. I refer to the fictional AT repayment claim and the obfuscation towards the trading standards officer. On the other hand, it is hard to see why it would be in the public interest for TAG World to continue as a company. The level of member dissatisfaction suggests that it was not providing any useful service to at least a large proportion of those who took up membership. And TAG World now, I was told, has no full time employees and really does nothing at all apart perhaps from servicing an occasional request for accommodation from old members. The picture revealed by the evidence before me suggests that such members will not be losing out greatly if they are no longer able to pay the annual membership renewal fee in order to book accommodation through TAG World.
46. Unless the fact of TAG World having ceased to recruit new members prior to the presentation of the petition makes a critical difference I would uphold the Secretary of State's petition in relation to TAG World. On this point Mr Dhillon referred me to what Nicholls LJ said in Re Walter Jacob at pages 257-8:

Having regard to all these matters, I would have had no doubt, if the company had still been dealing in securities, that it was just and equitable that it should be wound up. Does the fact that the company ceased to carry on that business immediately before the petition was presented make a crucial difference? In my view it does not. It is, of course, an important factor to be taken into account. The investing public is no longer at risk from any future activities of the company. The company is no longer a member of FIMBRA. But it would offend ordinary notions of what is just and equitable that, by ceasing to trade on becoming aware that the net is closing around it, a company which has misconducted itself on the securities market can thereby enable itself to remain in being despite its previous history. The wishes of those who control such a company, that it should remain extant for other purposes will, normally, carry little weight in the balancing exercise. On the other hand, by winding up such a company, the court will be expressing, in a meaningful way, its disapproval of such misconduct. Moreover, in addition to being a fitting outcome for the company itself, such a course has the further benefit of spelling out to others that the court will not hesitate to wind up companies whose standards of dealing with the investing public are unacceptable.

The facts of that case and the present one are, of course, not on all fours, but the observations of Nicholls LJ are clearly in point.

47. I have noted Mr Wates's reference to the judgment of Mr John Jarvis QC in Re Portfolios of Distinction Limited [2006] All ER (D), particularly at [57] – [59] where the Deputy Judge appears to have laid considerable store on improvements to the company business effected prior to the petition. I would for my part respectfully echo the doubts expressed by Mr Edward Bartley Jones QC in Re UK-Euro Group plc [2007] 1 BCLC 812 at [19] and by Mr Jonathon Crow QC in Re The Inertia Partnership LLP [2007] Bus LR 879 at [73] – [75]. Nevertheless, I have to bear in mind that each case will very much depend on its own facts.
48. It is fair to say that often the business of a company will have ground to a halt by the time of the hearing of a winding up petition. It is an unfortunate consequence of the mere presentation of a petition that it may de facto bring the business of a company to a halt. Even if the petition is ultimately dismissed, its effect will frequently have been irreversible. Nevertheless, this is not of course reason for dismissing an otherwise well founded petition. In the present instance, whilst TAG World has been quiescent since 2005 there is no reason, aside from what Mr Wates called market conditions, why it could not be revived with its previously questionable business methods. Applying the observations of Nichols LJ in Re Walter Jacob, I have concluded that the fact of TAG World having stopped further membership recruitment in 2005 is not a reason for declining to make a winding up order in its case.

CONCLUSION: CLUB LABOURSE TRAEL

49. I now turn to consider the petition in the case of Club LaBourse Travel. Here, I can be very brief. The Club itself was always operated by TAG World, not Club LaBourse Travel. Sunscene marketed Club membership for the benefit of TAG World. None of the evidence indicated anything disreputable or reprehensible in the operation of Club LaBourse Travel. It has functioned as a perfectly conventional travel agent like any other for the booking of holidays, hotels and so on. The only difference is that Club LaBourse is a travel agent which came into existence for the benefit of Club members.
50. Mr Dhillon put his case for winding up Club LaBourse Travel in two ways. First, he submitted that it was so inextricably tied in with the Club that it is tarnished with the criticisms of TAG World and should stand or fall with that company. Second, he submitted that unless it were also wound up Mr Wates could simply transfer the Club operations to it such that the Club would be carried on as before.
51. In my judgment, it would be wrong for me to wind up Club LaBourse Travel in the absence of any complaint at all about the way it has conducted business. There is no doubt on the evidence which I heard that the company operated its own discrete business as a travel agent. I do not accept that a winding up order should be made simply because it is associated with another company which has employed dubious business practices. There could doubtless be cases where the businesses of two companies are so entangled that it would be difficult or impossible to allocate responsibility for conduct. But the present is not such a case. I turn to the suggestion that, if Club LaBourse Travel were to be left extant, Mr Wates might decide to carry on as before but simply using that company rather TAG World. The prospect of some immediate revival of the Club in this country seems remote. But, in any event no winding up order can serve to prevent Mr Wates from setting up another company. I do not consider that Mr Dhillon's second submission justifies a winding up order against Club LaBourse any more than it would against any other company under the control of Mr Wates.

CONCLUSION

52. In the result, I shall make a winding up order in the case of TAG World but I dismiss the petition in the case of Club LaBourse Travel. I shall, of course, hear the parties on any ancillary matters arising in consequence of this judgment.