England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
NEWCASTLE UPON TYNE DISTRICT REGISTRY

		19 June 2009

1. Introduction

1. This is an application by the Secretary of State under section 6 of Company Directors Disqualification Act 1986 for a disqualification order against Mr David Woolf in respect of his conduct in respect of Brampton Manor (Leisure) Limited ("Leisure").
2. The allegations of misconduct fall under 2 heads. The first – and, on one view, more serious, relate to a lease dated 31^st December 2000 whereby Leisure leased its premises at Brampton Manor to Funday Developments Ltd ("Funday") for a period of 51 years at a premium of £900,000 and at a peppercorn rent. As will appear below this document was part of a complicated series of transactions designed to avoid the payment of VAT. Another document within the transactions was an assignment dated the 1^st February 2001 of the lease by Funday to Brampton Manor Health & Fitness Club Ltd ("Fitness") in consideration of £1 and covenants to be entered into by Fitness in favour of Funday.
3. It is common ground that the £900,000 premium was never paid. The Secretary of State contends that the granting of the lease was conduct prejudicial to its Debenture Holder - Clydesdale Bank plc ("Clydesdale Bank") in that it depleted the value of its security and was created in breach of the terms of the Debenture. In answer to this contention Mr Woolf relies on the fact that the lease was invalid and was in fact declared to be invalid by order of Judge Langan QC on 13^th January 2003. Thus he contends that no loss was in fact caused to Clydesdale Bank as a result of the grant of the lease. In answer to this the Secretary of State relies on the fact that Mr Woolf relied on the validity of the lease in his negotiations with the Administrative Receivers during which he sought to reduce the settlement figure because of the lease. Furthermore he maintained the validity of the lease until 3 days before the hearing before Judge Langan QC. In the result substantial additional time and irrecoverable costs were incurred by the Administrative Receivers in dealing with the issues arising out of the lease. Accordingly the Secretary of State contends that Mr Woolf cannot in these proceedings rely on the invalidity of the leases.
4. The second area of complaint is that Mr Woolf failed to co-operate with the Administrative Receivers after they were appointed on 6^th September 2002. Mr Woolf did not in fact accept that the appointment was valid. Indeed he unsuccessfully challenged the appointment in proceedings which were heard in London in November 2006. There were 4 main failures. First there was a failure to allow access to the premises until a court order was obtained on 20^th September 2002. Second there was a failure to provide copies of the leases until 19^th September 2002. Third there was until 11^th November 2002 inadequate provision of information to the Administrative Receivers. Finally there was a refusal in early 2003 despite a number of requests to provide the Administrative Receivers with information relating to the offers of £2.4 million that he said had been received for Leisure. Mr Woolf denies that there was any failure to co-operate.

2. Representation

5. Lucy Wilson Barnes instructed by Dickinson Dees appeared for the Secretary of State. Mr Woolf represented himself. At an early stage in these proceedings Mr Woolf had the benefit of advice and representation from solicitors and Counsel.

3. Witnesses

6. Three witnesses gave evidence. The Secretary of State relied on the evidence of Karol Sanderson, a Chief Examiner in the Disqualification Unit of the Insolvency Service. Mr Woolf gave evidence on his own behalf. In addition Mr Woolf called Mr McLean, one of the Administrative Receivers who was able to give direct evidence of matters that arose in the Administration.

4. The Facts

4.1. Background

7. Leisure was formed in early 1998 for the purpose of acquiring the leisure centre business of Brampton Manor Ltd. That company was owned and controlled by Mr Woolf and was one of a group of companies funded by loans from Barclays Bank secured by a debenture over what were subsequently Leisure's club premises. Those premises and the business conducted at them were acquired by Leisure from an administrative receiver appointed by Barclays to enforce their security.
8. Leisure's accounts for the period up to 31^st Dec 2001 can be summarised as follows:

Date	Profit/Loss	Net Current Liabilities	Fixed Assets	Net Assets
31/12/1998	(141,159)	(372,549)	1,387,743	458,541
31/12/1999	74,560	(380,547)	1,639,437	533,401
31/12/2000	(123,850)	(352,105)	1,688,569	509,551
31/12/2001 (Draft)	133,432	560,453	1,565,260	643,670

9. A number of points can be made about these accounts:
10. The 2001 accounts are draft accounts and were not approved by Mr Woolf. The relative improvement shown in these accounts has to be read in the light of an entry of £1,245,000 as a debt allegedly owed by a group undertaking.
11. There is no reference in any of the accounts to the lease dated 31^st December 2000 in favour of Funday.
12. Mr Woolf alleges that part of the loss for the year ending 31^st December 2000 was caused by a fraud by Leisure's finance director – Mr Trevor Marples. In paragraph 18 of the judgment in the London action Evans Lombe J said:

In July 2000 Mr Marples came under suspicion for having defrauded Leisure of substantial sums in an attempt to support an ailing public house in Chesterfield which belonged to him. An investigation followed by Leisure's accountants and the police. Mr Marples was arrested and charged but, for reasons which were never made clear in the course of the hearing, those charges do not seem to have been pressed so that he never came to trial. In the course of the investigation it was discovered that the Bank, in breach of its mandate, had permitted payment of a number of cheques carrying only the signature of Mr Marples. It seems that the vast majority of these cheques were in payment of legitimate creditors of Leisure. However it was and remains Mr Woolf's contention that the single signature cheque payments were used as a means of abstracting cash from Leisure by simultaneously drawing cash as if in payment of the payees of those cheques.

13. Mr Woolf held Clydesdale Bank partly responsible for the loss. In October 2000 Mr Woolf's claim against Clydesdale Bank was compromised on payment of £90,000 by Clydesdale Bank without any admission of liability. Notwithstanding the compromise on the 17^th June 2002 proceedings were issued in London by Mr Woolf and Leisure against the Bank. Leisure's claims in those proceedings were for all, alternatively half of the losses allegedly suffered by Leisure as a result of Mr Marples' fraud and damages for breach of contract. These proceedings were ultimately struck out as disclosing no cause of action by order of Master Price made on the 4^th February 2003.

4.2. The Debenture

14. On 6^th August 1998 Leisure granted Clydesdale Bank a Debenture to secure its liabilities.
15. By Clause 2.1 of the Debenture Leisure had covenanted to pay to the Bank "all monies and liabilities which now are or shall at any time hereafter be due and owing or incurred to the Bank" by Leisure.
16. By the charging clause at clause 3 of the Debenture Leisure charged its assets by way of fixed and floating charge to the Bank as a continuing security to secure "the Secured Amounts".
17. By clause 1.1 "the Secured Amounts" meant the monies and liabilities which Leisure covenanted by clause 2 to pay to the Bank.
18. By clause 4 of the Debenture Leisure covenanted to the Bank "not without the prior written consent of the Bank" to:-

"4.1.3 Part with sell or dispose of except in the ordinary course of [Leisure's] business and for the purpose of carrying on the same any of the Charged Assets… ".

19. By clause 4.10 Leisure covenanted

"not without the prior consent of the Bank [to] grant or agree to grant any licence or tenancy affecting all or any part of the Charged Assets nor exercise the powers of leasing or agreeing to lease or accepting or agreeing to accept surrenders conferred by sections 99 or 100 of the Law of Property Act 1925." "The Charged Assets" are defined at clause 1.1 as "the property assets and undertaking for the time being of the Mortgagor [Leisure] which are subject to the charges contained in this Debenture other than the Charged Debts and references to the Charged Assets shall include reference to all or any of them." "The Charged Debts" are defined by clause 1.1 as "all book debts and other debts now and from time to time hereafter due owing or incurred to the Mortgagor other than such of the said debts as the Bank may have specifically agreed in writing to exclude from the first fixed charge contained in clause 3.2.8".

20. It is plain and was not disputed by Mr Woolf that Brampton Manor was the principal charged asset within the terms of the debenture.

4.3. The VAT Scheme

The Old Scheme

21. In 1998 and 1999, on the advice of its accountants, Leisure had operated a VAT avoidance scheme pursuant to which the associated company, Fitness, also owned and controlled by Mr Woolf, was presented as the entity which actually provided the Leisure facilities and other services to members of the public who joined the club. It was Mr Woolf's contention in the London action, that all members of the club contracted with Fitness on joining and, in doing so, many completed a standing order apparently in favour of Fitness for their subscriptions.
22. It appears, however, that, with effect from the 1^st January 2000 the loophole in the VAT system exploited by this scheme was closed by legislation and in the London action Evans Lombe J was told by Mr Woolf that VAT was paid on subscriptions during the year 2000.

The New Scheme

23. The precise nature of the advice received by Mr Woolf is not clear. Mr Woolf exhibited 2 pages from a letter apparently from a Keith Hilton of Tenons dated 15/8/2000 giving advice in relation to the setting up of a complicated new scheme. Mr Woolf accepted that that advice was not given to him at that time but could not explain the provenance of the letter.
24. It appears, however, that Mr Woolf was advised primarily by Mr Peter Smallwood. According to a letter Mr Smallwood wrote in December 2002 he met Mr Woolf in March 2002. He was asked to review a scheme which was set up in 2001. He saw the documents in June 2002 and advised that if the scheme had been correctly implemented it would appear to achieve the desired result subject to an appeal pending before the VAT Tribunal.

In pursuance of this new scheme the following transactions were entered into by Leisure, Fitness and Funday a company similarly owned and controlled by Mr Woolf:-

i) A lease dated 31^st December 2000 whereby Leisure leased its premises at Brampton Manor to Funday for a period of 51 years at a premium of £900,000 and at a peppercorn rent.

ii) An agreement dated the 1^st January 2001 for the sale by Leisure to Funday of Leisure's business for a consideration of £200,000.

iii) An agreement dated the 1^st January 2001 whereby Leisure agreed to lend to Funday £1.1M such loan to be made "by means of intercompany account on the 1^st January 2001 to be repaid on a date to be agreed at simple interest of 2% over Royal Bank of Scotland base rate".

iv) An assignment dated the 1^st February 2001 of the lease comprised in i) above by Funday to Fitness in consideration of £1 and covenants to be entered into by Fitness in favour of Funday.

v) An agreement dated the 1^st February 2001 for the sale by Funday of its business of the provision of sporting leisure and associated facilities to Fitness for a consideration of £1.15M.

vi) An agreement for a loan by Leisure to Fitness of £1.15m "for the purpose of securing a lease of Brampton Manor premises", to be made available "by means of intercompany account on the 1^st February 2001 at an interest rate of 2% over Royal Bank of Scotland base rate".

vii) An "operational agreement" between Leisure and Fitness involving Leisure employing the staff required to administer the club and Fitness recouping to Leisure the costs of employment.

25. Not all of these documents were in evidence before me. For the purpose of this hearing the two important documents are the lease, which was in evidence and the assignment which was not. The lease gave every appearance of having been duly executed. Furthermore there was nothing in the lease which made it conditional on any event.
26. Mr Woolf did, however refer me to clause 2.1 of the February 2001 agreement which provided for the approval by Customs and Excise as a condition precedent to the agreement. Mr Woolf sought to argue that that this made the lease void.
27. It was not in dispute that the £900,000 premium under the lease was never paid. It is plain that the effect of the lease (if valid) was substantially to decrease the value of Clydesdale Bank's security. It is also plain that the consent of Clydesdale Bank was necessary either under clause 4.10 or 4.1.3 of the Debenture. It was common ground before me (though not before Evans Lombe J) that no such consent was obtained.
28. There was no reference to the lease in any of the accounts filed by Mr Woolf on behalf of Leisure. Equally there was no reference to the lease in the Statement of Affairs subsequently completed by Mr Woolf.

4.4. The Appointment of the Administrative Receivers

29. On 20^th August 2002 Clydesdale Bank formally demanded £847,452 from Leisure. On 30^th August 2002 Clydesdale Bank demanded payment of £24,488.15 to be paid into Leisure's current account by 2^nd September 2002. Leisure failed to pay this sum with the result that on 6^th September 2002 Clydesdale Bank appointed Mr McLean and Mr Saville as Joint Administrative Receivers of Leisure.
30. It is important to bear in mind that Mr Woolf did not and does not accept that the appointment was valid. Indeed he challenged the validity of the Appointment in the London proceedings. It is not necessary for me to set out Mr Woolf's arguments in detail as they are set out in the judgment of Evans Lombe J in the London action.^[1]. As already noted Evans Lombe J rejected almost all of Mr Woolf's arguments and upheld the validity of the Appointment. Attempts by Mr Woolf to appeal from the judgment of Evans Lombe J have failed.

4.5. Events to 20^th September 2002.

31. Following the appointment Mr Woolf wrote a letter to Mr McLean in which he disputed the appointment. He alleged that the presence of the Administrative Receivers would cause loss as members would not renew. He asserted that Mr Cooper of Gouldens had confirmed that action would be taken on Monday 9^th September 2002 to have the Receivership removed. When he gave evidence Mr Woolf agreed that he had spoken to Mr Cooper but he accepted that no such instructions had in fact been given to him.
32. On 9^th September 2002 Mr Woolf wrote to Mr McLean and to Clydesdale Bank's solicitors – Addleshaw Goddard. In the letter to Mr McLean he alleged that Clydesdale Bank's actions were unlawful and sought to claim damages from Grant Thornton; the letter to Addleshaw Goddard deals with the allegations against Clydesdale Bank. Point 8 asserts that Fitness has a 50 year lease of the premises and is unhappy that the presence of the Administrative Receivers will cause irreparable damage.
33. On 10^th September 2002 Mr Woolf wrote to Mr McLean. He threatened to issue a claim for damages if Mr McLean did not agree not to visit the premises. He repeated the allegation that there was a 50 year lease of the premises.
34. On 12^th September 2002 Mr McLean wrote a closely typed 2½ page letter to Mr Woolf. In summary:

1. He referred to meetings that had taken place on 6^th and 9^th September and 6 telephone calls that he had made since the appointment.

2. He pointed out that no application had been made to set aside the Receivership despite the threat made in the letter of 6^th September.

3. He was advised that the appointment was valid.

4. He was attempting to maintain an open dialogue and to explore the possibility of settlement without taking possession of the assets. He set out a provisional basis upon which a settlement could be reached.

5. He pointed out that the current position was that Leisure was in Receivership and the directors were preventing him from carrying out his statutory functions. To date he had attempted to co-operate with the directors in order to arrive a settlement. He pointed out he could not continue to delay.

6. He made the point that if Mr Woolf continued to deny him access to Leisure's property within the security he would have to make an immediate application to Court.

35. On 13^th September 2002 there was a meeting between Mr Woolf and Mr McLean at Brampton Manor. Minutes of the meeting were drawn up by Mr Chris Viles (an employee of Grant Thornton) within 24 hours of the meeting. It is not necessary to set out the minutes in detail. I accept that they are substantially accurate. In summary:

1. Mr Woolf repeated his allegation that the Receivership was not lawful. Mr McLean refuted this.

2. There was a discussion over the leases. Mr McLean pointed out that Clydesdale Bank said they knew nothing of the leases. Mr Woolf contended that Clydesdale Bank was aware of the leases. [In these proceedings Mr Woolf accepted that Clydesdale Bank was not aware of the leases].

3. Mr McLean asked to see a copy of the leases. Initially Mr Woolf refused stating that Clydesdale Bank had copies of the leases. Mr McLean refuted this. At a later stage Mr Woolf said they were in the boot of his car and allowed Mr McLean a glance at them. He did, however offer to provide copies.

4. Mr Woolf said he wanted a settlement but that it would be costly to Clydesdale Bank because of the damage to other businesses on site. Mr McLean said the Bank would only consider a settlement after a full valuation and knowledge of the extent of preferential creditors.

5. Mr McLean reminded Mr Woolf that he had made a number of requests for access and information. If he refused to co-operate a court application would be made. There is a conflict of evidence as to whether Mr Woolf threatened Mr McLean with violence if he attempted to enter the building. I unhesitatingly prefer the evidence of Mr McLean. I am satisfied that Mr Woolf did say he would knock Mr McLean's head off if he attempted to enter the building.

6. Mr Woolf made an offer of settlement of £100,000 to Clydesdale Bank. Mr McLean pointed out that the Bank would not consider anything less than £700,000. It is thus apparent that the parties were a long way apart.

36. At 9.40 a.m on 16^th September 2002 Mr McLean wrote by e-mail to Mr Woolf. In the letter he referred to the unproductive meeting held on 13^th September 2002. He made it clear that the offer of £100,000 was rejected. He pointed out that Mr Woolf had persistently refused to deliver up Leisure's books and records. He gave Mr Woolf until 5 p.m on 16^th September 2002 to co-operate by delivering up relevant documents and removing himself from the premises or he would apply to Court.
37. Mr McLean received a fax from Gouldens who had just been instructed asking for an extension of the deadline. As a result Mr McLean extended the deadline to 12 noon on 17^th September 2002.
38. Notwithstanding that Mr Woolf had apparently instructed Gouldens he e-mailed Mr McLean on 17^th September. In that e-mail he described Mr McLean's letter of 16^th September as "pure invention". He regarded the meeting of 13^th September as being to identify terms of settlement. He referred to the leases. He made the point that he had offered to provide copies of the leases and repeated the point that the premises were being occupied by Fitness under a lease that Mr McLean had seen. He repeated his view that the appointment was invalid.
39. On 18^th September 2002 Hammond Suddards sent a fax to Gouldens with a copy to Mr Woolf. The fax made it clear that unless and until there was a determination by the Court as to the validity of the appointment the parties had to treat the Receivers as validly appointed and must co-operate with him. In particular Mr Woolf should allow unlimited access to the whole of the premises, books and records relating to Leisure and information relating to other parties purporting to have an interest in the property. The letter indicated that there would be an application to Court the following day if such information was not provided.
40. There were a number of e-mails sent by Mr Woolf to Mr McLean and/or Mr Viles on 18^th and 19^th September 2002:

1. At 8.04 a.m on 18^th September Mr Woolf thanked Mr Viles for clarifying the information that was required. He stated that the information was being collated and that some would be sent on 18^th and some on 19^th September 2002.

2. At 11.09 a.m on 18^th September 2002 Mr Woolf confirmed that collation of the documents was proceeding and offered to fax them to the Administrative Receivers.

3. At 10.06 a.m on 19^th September 2002 Mr Woolf confirmed to Mr Viles that he would collect the leases etc at 2.00 p.m. In fact they were collected at 3 p.m that day.

4. On 19^th September 2002 Mr Woolf wrote a letter to Mr McLean setting out his position in some detail in order to help them assess "the big picture". He regarded the bank's measures as having been engineered as a result of the High Court proceedings that had been commenced in June 2002. In the letter he repeated his assertion that Fitness was an entity in its own right, had contracts with Members, provided services to Members and had a right to be in occupation by virtue of the purchase of the Funday lease.

5. At 7.12 p.m 19^th September 2002 Mr Woolf e-mailed Mr McLean. He suggested that he was to ignore the application which had been issued by the Administrative Receivers and to attend a meeting at 9.30 the following morning which had been arranged at Hammond Suddards. He suggested a settlement figure somewhere between £100,000 and £600,000.

41. Mr Woolf told me that he was taken by surprise by the hearing on 20^th September 2002. It is, however, plain from the correspondence that he had plenty of warning about it. In any event there was a hearing before me on 20^th September 2002. It was attended by Counsel for the Administrative Receivers and Mr Woolf in person. The hearing was compromised and I approved the terms of a Tomlin order. The Schedule to the Tomlin Order contained 7 terms. Under clause 3 Mr Woolf agreed to allow the Administrative Receivers such access to Brampton Manor as they reasonably required for the purpose of the receivership. The access was to be in part of the premises so as to cause minimum interference with any lawful tenants of the premises. Under clause 4 Mr Woolf agreed to co-operate with the Administrative Receivers. Under clause 5 Mr Woolf agreed to deliver up documents to the Administrative Receivers including documents set out in a Schedule. Under clause 7 the Administrative Receivers agreed to use all reasonable endeavours to conduct the Receivership in such a way as to try to avoid interfering with the lawful business of Fitness, Mrs Woolf (who occupied part of the premises), Funday and others.

4.6. 21^st September 2002 to 11^th November 2002.

42. There is no doubt that there was a degree of co-operation between Mr Woolf and the Administrative Receivers after the hearing on 20^th September 2002. When he gave evidence Mr McLean accepted that the position improved. He described it as a period of "uneasy truce between the parties". He accepted that the books with which he was provided were adequate although not very comprehensive. He agreed that he was provided with trading information but he complained (in a letter dated 25^th September 2002) that Mr Woolf was not handing over surplus income to the Receivers.
43. On 24^th September 2002 Gouldens sent a detailed letter of advice to the Directors of Leisure. In this letter they advised that the appointment of the Administrative Receivers was valid and that it would be unlikely that Leisure would be able to obtain an interim injunction to prevent the Administrative Receivers from acting. Mr Woolf sought to distance himself from this advice. At one stage he even suggested that he did not receive it. It was however sent to his home address and it is clear from a letter he wrote on 16^th April 2003 that he did receive it. There is no reason to believe that he did not receive it shortly after it was sent. It appears that Leisure had the benefit of a Legal Expenses policy and that Gouldens were in fact paid by the Legal Expenses Insurer. It is, however, plain that Gouldens were solicitors instructed by Mr Woolf for the period up to the hearing on 20^th September and this was their considered advice given on 24^th September 2002.
44. One of the matters that concerned Mr McLean was the question of insurance. There is no doubt that at all material times Leisure had the benefit of adequate insurance. Mr McLean was, however, concerned that if Fitness was in fact dealing with Members and running the club Fitness should be named on the policy. There was considerable correspondence over this point which was not really addressed by Mr Woolf until after the hearing on 11^th November 2002. When Mr Woolf eventually approached the brokers they changed the certificate with no additional premium and included Fitness as an insured party.
45. On 12^th October 2002 in response to a meeting with Mr McLean and a number of letters sent by Mr McLean Mr Woolf sent an 8 page letter to Mr McLean. It is not necessary to summarise it in that many of the points had been made in previous correspondence. It was Mr Woolf's contention that the Administrative Receivers had consistently violated the order of 20^th September 2002 by interfering with the other lawful businesses there. The letter went on to discuss offers of settlement. Mr Woolf made it plain that any offer of settlement by him was on the basis that the lease was valid and still in place.
46. On 15^th October 2002 Mr McLean wrote to Mr Woolf. The letter was concerned with the possibility that income from members was being diverted from Fitness. It also invited Mr Woolf to accept that the leases and operating agreements were invalid and threatened a further application to court to gain control and possession of the Fitness assets and business.
47. At the beginning of November 2002 the Administrative Receivers made this further application to Court. The principal purpose of the application was to determine the validity of the leases. Mr McLean sought a summary determination that the leases were invalid. In the alternative he sought possession on an interim basis pending the final determination of the application.
48. In the supporting witness statement Mr McLean made a number of points:

1. He set out his concerns about the insurance position of Fitness.

2. Leisure was the employer of all the employees working at the premises yet most of them in fact worked for Fitness. Utility bills were received in the name of Leisure but related to businesses allegedly belonging to Fitness, Beauty Works and Finesse.

3. He was unable to deal with the issues without information as to the membership of Fitness, confirmation of monies received from membership fees and an account of where the moneys had gone. This information had been requested but not supplied.

49. The application was initially listed on 4^th November 2002 but was subsequently adjourned till 11^th November 2002 when it came before me. It is plain from the order that directions were given to enable a 3 day trial commencing on 13^th January 2003 to determine the validity of the leases. On that basis I permitted Mr Woolf to run the business in the interim on the basis that he provided full details on a monthly basis of receipts payments and liabilities and paid over any surplus receipts to the Administrative Receivers. Costs were reserved to the trial.

4.7. 11^th November 2003 to 13^th January 2003

50. Mr McLean accepted that there was compliance with the order of 11^th November 2002. Substantial costs and time were expended in preparing for the trial listed on 13^th January 2003. A detailed Points of Claim was prepared by Counsel.
51. On 10^th January 2003, that is to say some 3 days before the trial, the solicitors for Mr Woolf wrote to Hammond Suddards stating that Fitness did not intend to contest the Administrative Receivers application in relation to the leases.
52. The matter duly came before Judge Langan QC on 13^th January 2003. There was some debate about the terms of the order to be made. In the result Judge Langan QC made:

1. Declarations that the lease of 31^st December 2000 was not binding on Leisure, that neither Fitness nor Funday had any leasehold interest in the property or any interest in the assets of Leisure by virtue of the agreements of 1^st January 2001 or 1^st February 2001.

2. Orders requiring Fitness, Beauty Works and Finesse to vacate the premises forthwith, requiring Mr Woolf to provide a full account of membership fees received since 6^th September 2002 and that the Respondents pay the costs.

53. When he gave evidence Mr McLean accepted that Mr Woolf had complied with the orders of Judge Langan QC including the obligation to pay costs. However he pointed out that there were substantial irrecoverable costs.

4.8. The offers to purchase

54. The remaining complaints of the Secretary of State related to e-mail correspondence between Mr Woolf and an employee of the Administrative Receivers – Mr Storrie between 20^th March 2003 and 5^th April 2003. At that time the Administrative Receivers were marketing the business and assets of Leisure. Mr Woolf believed that there should be no sale until net profits of £250,000 were achieved as (according to him) the assets would then be worth of the order of £2.5 million (i.e 10 times net profits). He believed that the monthly membership had declined as a result of the Receivership.
55. On 20^th March 2003 he sent an e-mail to Mr Storrie which included the following:

"Please be aware that prior to the unlawful appointment of receivers, offers for Brampton Manor were being made at around £2.4 million. Clearly if you accept a sum below this figure there will be complications when your appointment is found to be unlawful. I would suggest that a sale is delayed until the damage done by the Bank to the monthly membership … is repaired and until net profits of £250,000 p.a are re-established"

56. There followed an exchange of 15 e-mails between Mr Storrie and Mr Woolf during which Mr Storrie repeatedly asked for details of the offers including the name and address of the offeror so that it could be determined whether they were still interested and in which Mr Woolf refused to give the details. In the course of the e-mails Mr Woolf mentioned 2 companies. One was Canon; the other was a company that Mr Woolf had invited to make an offer.
57. Having heard Mr Woolf give evidence I am not satisfied that there was ever a single offer at £2.4 million. It seems to me clear that this was simply an attempt by Mr Woolf to delay or defer the sale of the assets by the Administrative Receivers.

4.9. The London proceedings

58. Mr Woolf did not issue the London proceedings until December 2002 and did not serve them for 3 months thereafter. An attempt by Clydesdale Bank to have them struck out failed. As already noted they eventually came on for trial before Evans Lombe J in October and November 2006. As already noted Clydesdale Bank succeeded. Gouldens' advice proved accurate. The Appointment of the Administrative Receivers was valid.
59. Mr Woolf has attempted to appeal the judgment of Evans Lombe J. Two applications to the Court of Appeal have been unsuccessful. He has made a complaint about the conduct of Evans Lombe J to the Office of Judicial Complaints and he has attempted to appeal to the Court of Human Rights on the grounds of bias. In these proceedings he issued a witness summons against Evans Lombe J. For reasons I gave at the time I set aside the witness summons.

5. The Law

60. Under section 6 of the Act the Court is required to disqualify a person for a period of between 2 and 15 years if it is satisfied :

1. That he is or has been a director of a Company that has become insolvent. [Insolvency is defined as including the appointment of an Administrative Receiver]

2. That his conduct as a director of that company (either taken alone or together with his conduct as a director of any other company or companies) makes him unfit to be concerned in the management of a company.

61. Under section 9 of the Act the Court is bound to have regard in particular to the matters in Schedule 1 of the Act. In this case the Secretary of State relies on paragraph 10 (g) of Part II of the Schedule - the alleged failure by Mr Woolf to cooperate with the Administrators in breach of under section 235 of the Insolvency Act 1986.
62. There is a body of authority dealing with the Court's approach to the question of whether a person is considered to be unfit. I do not intend to lengthen this judgment by an extensive review of the authorities. The following propositions seem to me to be established by the authorities :

1. The words to be construed are the words of the statute which I have quoted above and not judicial paraphrases of them. The true question to be tried is a question of fact for the Court. [Re Sevenoaks [1991] Ch 164]

2. The Court must decide whether the conduct specified by the Secretary of State viewed cumulatively and taking into account any extenuating circumstances has fallen below the standards of probity and competence appropriate for persons fit to be directors of Companies. There is a duty on the Court to disqualify directors whose conduct has fallen below the requisite level. As has been repeatedly said those who make use of limited liability must do so with a proper sense of responsibility. The Court of Appeal in Re Grayan [1995] Ch 241, 254C expressly approved the approach of Vinelott J who pointed out the duty of the Court to disqualify a director whose conduct had fallen short of the conduct which today is expected of a director. As was pointed out by Judge Cooke at page 18 of the transcript in an unreported decision of Secretary of State v Earley:

"where a director simply fails to undertake, whether through lack of knowledge, incompetence or whatever those duties which he ought to undertake, he is as guilty as those who do positive wrong, and, if anything probably even more dangerous"

3. The standard of proof on the Secretary of State is the civil standard of a balance of probabilities. However disqualification involves a substantial interference with the freedom of the individual and the more serious the allegation the more the Court will require cogent evidence. [Re Living Images [1996] BCC 112]. The Court must bear in mind the warning given by Mr Justice Laddie at page 116H as to the dangers of passing judgment with the benefit of hindsight.

4. The Court is entitled to look at individual acts of misconduct and not merely to look at the conduct "in the round". As was pointed out by Morritt LJ in Secretary of State v McTighe [1996] 2 BCLC 477, 485 the consideration of individual acts of misconduct is likely to assist in determining the final conclusion as to the appropriate period of disqualification (if any).

6. Conclusions

6.1. The Leases

63. I am satisfied that Mr Woolf's conduct in relation to the lease fell below the standards of probity and competence appropriate for persons fit to be directors. Clydesdale Bank had lent Leisure in excess of £800,000. Brampton Manor represented the principal security for the loan. The clauses in the Debenture requiring the consent of Clydesdale Bank to the granting of leases were perfectly standard clauses and it ought to have been obvious to Mr Woolf that he required Clydesdale Bank's consent to the arrangement. It is also obvious that Clydesdale Bank would not have consented unless they had appropriate security under the new arrangement. The effect of the leases – if valid – was to prejudice Clydesdale Bank's security. It was common ground before me that the consent of Clydesdale Bank was not obtained.
64. It is true that the motive for the leases was to save VAT on membership fees and it appears that other clubs were involved in not dissimilar schemes. That, however, does not to my mind begin to justify the failure by Mr Woolf to consult Clydesdale Bank and obtain – if possible – its consent to the scheme.
65. Mr Woolf sought to get round this difficulty by asserting that the lease was at all material times invalid and therefore there was, in effect, no prejudice to Clydesdale Bank's security. Mr Woolf relied on a number of matters in support of the assertion that the lease was invalid. Not least among them was the order of Judge Langan QC on 13^th January 2003.
66. Mr Woolf is, of course, correct that the lease was not valid against Clydesdale Bank. However that does not to my mind excuse Mr Woolf's conduct in entering into the lease without the consent of Clydesdale Bank. Furthermore that conduct is aggravated by subsequent events when he sought to rely on the leases:

1. No VAT was in fact paid on membership fees. That could only be on the basis that the scheme including the lease was in force and operative.

2. Mr Woolf relied on the validity of the lease between 6^th September 2002 and 20^th September 2002 when denying the Administrative Receivers any effective access to Brampton Manor.

3. Mr Woolf relied on the lease in the negotiations leading to the compromise on 20^th September 2002 in relation to the Administrative Receivers' obligations to other occupiers of Brampton Manor.

4. Mr Woolf relied on the lease in negotiations with Clydesdale Bank in an attempt to persuade Clydesdale Bank to reduce its settlement figure.

5. Mr Woolf relied on the lease at the hearing on 11^th November 2002 in order to defeat the application for immediate possession of all of Brampton Manor.

6. Mr Woolf only abandoned his reliance on the lease on 10^th January 2003 when the Administrative Receivers had incurred very substantial costs and expended much effort in preparing for the 3 day hearing listed for 13^th January 2003.

67. In my view Mr Woolf's overall conduct in relation to the lease is more than sufficient to merit a disqualification order.

6.2. Co-operation

68. As I indicated in the course of the hearing the allegations of non-co-operation are to my mind less serious than the allegations relating to the lease. There are a number of reasons for this. First this is not a case of total non co-operation by Mr Woolf. He did provide the leases to the Administrative Receivers, albeit not for some 6 or 7 days after they were requested. He did provide access and management information to the Administrative Receivers albeit not until the Administrative Receivers had to make the application to Court on 20^th September 2002. Although there were some difficulties in monies that were retained by Mr Woolf some trading figures were provided to the Administrative Receivers. Furthermore at least until he received the advice from Gouldens Mr Woolf believed that the appointment of the Administrative Receivers was invalid. Furthermore Mr McLean acknowledged that there was compliance with the orders of 11^th November 2002 and 13^th January 2003. The only lack of co-operation thereafter related to the lengthy e-mail exchange over the £2.4 million offer which as I have held was in fact never made.
69. However as Miss Wilson-Barnes pointed out Mr Woolf's conduct made it necessary for the Administrative Receivers to make 2 applications to Court. The first application was plainly caused by his lack of co-operation even though Mr Woolf started to co-operate shortly before the hearing. There was some co-operation between the two hearings but there were also difficulties caused by Mr Woolf's decision to retain surplus monies.
70. Mr Woolf's conduct in the Spring of 2003 in relation to the requests for the offers was unco-operative. A significant amount of time an effort was wasted by Mr Storrie in attempting to discover details of non-existent offers. It would have been perfectly easy for Mr Woolf to have explained the position to Mr Storrie. Mr Woolf, of course, was seeking to prevent the Administrative Receivers from selling.. He was not, however, justified in wasting the Administrative Receivers time in referring to offers that did not exist.
71. I have already indicated that I regard the allegations of non-cooperation as being less serious than the allegations relating to the lease. If they had stood alone I doubt if they would have been sufficiently serious to merit a disqualification order.
72. However the conduct of Mr Woolf has to be viewed cumulatively. When taken with the conduct in relation to the lease I agree with Miss Wilson-Barnes that the allegations do add significantly to the conduct meriting disqualification.

6.3. Period of Disqualification

73. I agree with Miss Wilson-Barnes that the overall conduct of Mr Woolf lies somewhere around the top of the bottom bracket or the bottom of the middle bracket of the categories of conduct set out in Re Sevenoaks. There will be a disqualification order for 5 years.

JOHN BEHRENS

19 June 2009

Note 1   Neutral Citation Number: [2006] EWHC 2983 (Ch)    [Back]