England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice
		15th June 2009

JUDGE COOKE QC:

1. I have before me an application by a liquidator for the court to sanction a compromise of certain claims that he seeks to bring on behalf of a company. Mr. David Rubin is the liquidator. The company is called Branchempire Limited. It went into voluntary liquidation on 7^th August 2003. Mr. Rubin was subsequently appointed at a meeting of creditors.
2. The respondent to the application is Mr. Michael Coote who is the principal unsecured creditor in the liquidation. His claim is for a judgment debt in the approximate amount of £400,000 plus costs which are put at some £90,000, which were funded by legal aid. It is relevant to note that the legal aid fund will have a first claim on any recovery that he makes to reimburse itself for the £90,000 that has been paid.
3. There appears to be one preferential creditor in the form of Customs & Revenue who are owed about £25,000. There are a number of relatively minor unsecured creditors including HMRC for a non-preferential claim of £16,000.
4. Mr. Coote's claim amounts to approximately 95% of the total amount of unsecured creditors. It was his vote, and indeed his intervention, which secured Mr. Rubin's appointment initially.
5. The liquidator has now brought three sets of proceedings against the parties he sought to charge. There are two sets of Part 8 proceedings: one initially brought in April 2005; and another on 21^st January 2008. There is a final set of Part 7 proceedings which were served on 1^st April this year, although it appears that the substance of those claims had been communicated to the potential defendants some time earlier.
6. The defendants in those proceedings were principally: Mr. Brian Henton, who was the sole director of a company controlled by him called Lookmaster Limited. Lookmaster Limited itself and Mr. Martin Rogers who, with

Mr. Henton, is the trustee of a pension fund whose principal beneficiary (I assume) is Mr. Henton himself.

7. The allegations in all those proceedings were of breach of fiduciary duty by Mr. Henton, transactions at an undervalue and transactions defrauding the creditors of Branchempire Limited. There are also allegations of payments to Lookmaster which amounted to preferences.
8. All three respondents have defended the proceedings against them. The Part 7 proceedings have not reached as far as the submission of a defence, but it is quite clear that the Part 8 proceedings were vigorously contested. I have no doubt the Part 7 proceedings would have been likewise.
9. The liquidator reached a proposed compromise in July 2008, subject to the approval of either the creditors' comittee or the sanction of the court, the terms of which are set out in Mr. Rubin's fourth witness statement. In summary, they provide for Lookmaster Limited to make a total of £1m in payments in two instalments. Initially, approximately £570,000 and after twelve months (or in November 2009) a further figure of £430,000. Mr. Henton was to give a personal guarantee for payment of both of those amounts.
10. Mr. Coote, however, has declined to give his approval to the compromise without which it cannot be approved by the meeting of creditors, and that is what has led to this application.
11. It is relevant to note that this is in fact the liquidator's second application for sanction of terms of compromise. He brought an initial application having agreed, in principle, to accept £400,000 in respect of the claims first advanced in 2005. However, that application was withdrawn when Mr. Coote provided material sufficient to bring further claims against Mr. Henton and Lookmaster. This is what led to the second set of Part 8 proceedings and, indeed, the subsequent Part 7 proceedings. It is quite apparent that Mr. Coote's assistance has been of considerable help to the liquidator in identifying these claims and providing him with the evidence to pursue them as far as he has.
12. A matter I should mention is that Mr. Coote has recently brought an application to remove Mr. Rubin as liquidator and replace him with another insolvency practitioner, Mr. Wood, who would be prepared to pursue the claims further and to do so on a contingency basis. It is agreed between counsel, however, that I should deal with the sanction application first and the removal application depending upon the result.
13. The relevant law is not substantially in dispute between the parties. Whether the court should give sanction to a proposed compromise is a matter of discretion. It is the decision of the court itself. The court is not bound by the views of the liquidator or any other party. The court is concerned to see whether the proposed compromise is in the best commercial interests of the company and its creditors; taking due account of the views and interests of such different groups of creditors as there may be, but not being bound by those views. The court will normally place a substantial weight on the view of the liquidator, particularly if he has made a proper, careful and impartial assessment of the strengths of the claim and the commercial merit of the compromise. This emerges from authorities to which I was referred by both counsel. I note particularly the decision of Mr. Justice Lightman in Re Edennote Limited (No2) [1997] 2 BCLC where he said at p.92(h):

"My concern on an application of this sort is to decide what is in the commercial best interests of the company and its creditors and particularly, whether or not there should be a compromise on the terms proposed.

Where a liquidator seeks the sanction of the court and takes the view that a compromise is in the best interest of the creditors, in any ordinary case where, as in this case, there is no suggestion of any lack of good faith by the liquidator or that he is partisan, the court will attach considerable weight to the liquidator's views unless the evidence reveals substantial reasons why it should not do so or that, for some reason or other, his view is flawed."

14. I pause there to say that Mr. Kynoch, on Mr. Coote's behalf, has not suggested any lack of good faith by the liquidator or that he is partisan. Mr. Coote's evidence suggested that the liquidator had placed undue weight on his own interests as a creditor for his fees and expenses. Mr. Kynoch makes clear that there is no suggestion of any impropriety in taking that view, but Mr. Coote's view is simply that the weight that should be placed on the interests of the liquidator is not sufficient to overrule the concerns that he has about the proposed settlement.
15. I am also referred to Re Greenhaven Motors Limited [1999] 1 BCLC 635 and, in particular, to what is said by Lord Justice Chadwick at p.642 and p.643. At p.642, he says:

"The court may, and usually will, take into account the views of someone claiming to be a creditor or contributory, but it is not bound by those views. If the claim appears thin, or the claimant can be seen to have no real interest in the assets having regard to prior claims, his views may carry little weight."

On the following page, having cited and approved the passage from Edennote (that I have just read out) Lord Justice Chadwick went on:

"In deciding whether or not to sanction a proposed compromise the court must consider whether the interests of those, whether creditors or contributories, who have a real interest in the assets of a company in liquidation are likely to be best served (i) by permitting the company to enter into that compromise with all the terms that it contains; or (ii) by not permitting the company to enter into that compromise. It is not for the court to speculate whether the terms of the proposed compromise were the best that could have been obtained; or whether the proposed compromise would have been better if it did not contain all the terms that it does contain. Unless it is satisfied that, if the company is not permitted to enter into the compromise on the terms which the liquidator has negotiated, there will then be better terms or some other compromise on offer, the decision is between the proposed compromise and no compromise at all.

"In reaching that decision, the court may have to weigh the different interests of creditors and contributories and, perhaps, the different interests of preferential and non-preferential creditors. It will not give weight to the wishes of those who will be unaffected whichever way the decision goes; for example, the interests of contributories who have no realistic prospect of receiving a distribution in any foreseeable circumstances, or the wishes of preferential or secure creditors who will be paid in full in any event. Subject to that, the court will give weight to the wishes of creditors and contributories whose interests it has to consider, for the reason that creditors and contributories, if uninfluenced by extraneous considerations, are likely to be good judges of where their own best interests lie. For the same reason the court will give weight to the views of the liquidator, who may, and normally will, be in the best position to take an informed and objective view. But, as I have said, at the end of the day it is for the court to decide whether or not to sanction the compromise."

16. It is also clear from remarks of Lord Justice Chadwick in a later case Whitehouse v. Wilson that the court is entitled to have regard both to the creditors proving the liquidation in respect of their pre-liquidation debts and also those creditors whose debts have arisen post-liquidation, such as the liquidator in respect of his own fees, any solicitors employed by him and any external creditors which the liquidators incurred for the purposes of expenses of the liquidation. It is relevant, in respect of those claims, that they have a prior claim on the assets to the claim of the unsecured creditors such as

Mr. Coote.

17. Insofar as it is said that the court should not speculate on what alternative terms might have been negotiated, in my judgment, Lord Justice Chadwick's remarks do not mean that the court must have no regard to what the alternative may be if the compromise is not approved. If the compromise is not approved the court, of course, has to have regard to what will then happen. In some cases, the alternative may be that there is another offer which can be evaluated and assessed as being in the best commercial interests of the company. This was the case in Edennote where there were two rival bidders for the claims in question. In other cases, where there is no such rival bidder, the choice then available to the liquidator is either to abandon or pursue the claim. If he pursues the claim, the court must have regard to where that may lead and, indeed, cannot ignore the prospect that it may be settled by subsequent negotiations; just as much as it may be ultimately determined by a judgment in litigation if no settlement is achieved.
18. In looking at that alternative, the court must have some regard to the apparent merits of the claim and to the risk and cost of pursuing it, whether by litigation or negotiation or both and the resources available to do so. It must also have regard (and this is not in dispute between the parties today) to the assets available to meet the claim if it is successful in whole or in part.
19. In forming a view of the merits of the claim or considering the merits of the claim, the court does not, however, conduct a mini-trial of the issues. It is not in a position to do so. It has available only the material which is produced to it at this stage and that is an additional reason why the court will place weight on the assessment of the liquidator - particularly if he has been advised in forming that view and his evaluation of it is not obviously flawed or negated or inadequate by reason of some factor which is in evidence on the sanction application. It is clear that the liquidator's views are not binding on the court. It is not a matter of appeal in any sense from the liquidator. It is a decision for the court itself.
20. It is apparent from the case that Mr. Kynoch principally relies upon, Farahan v. Smith, that the court can and will depart from the liquidator's view in an appropriate case. In that case, the liquidator was minded to accept an offer of £17,000 in respect of a claim which was clearly very difficult to evaluate and very complex, but was said to be worth £2m-£5m. The conclusion of the court was that that was a derisory sum in the circumstances. The liquidator's view of it had apparently been influenced by the fact that it was sufficient to cover his own costs. The better commercial interest for the company was to assign the claim to a creditor who would then be in a position to pursue it at his own expense.
21. Turning to the background of this case. Mr. Coote has a long and sorry history of involvement with this company, and with Mr. Henton. It is a history which cannot but give rise to a great deal of sympathy for the position in which he now finds himself. The matter goes back to 1987 with Mr. Henton owned

a leasehold flat in a mansion block. The parapet of the block of flats collapsed into the street outside, leading to the structure being declared to be unsafe by the Local Authority and Mr. Coote being put into the position that he was unable to sell his flat until it was repaired. Branchempire Limited was one of the landlords of that block of flats, but failed to take the necessary action to repair it. Eventually, Mr. Coote was forced to allow his flat to be repossessed and sold by his financier. He recovered nothing in respect of any equity interest he had in the property.

22. There then followed a long history of dishonest evasion of responsibility by Mr. Henton and Branchempire Limited, leading up to, but apparently not ending in, a trial of Mr. Coote's claim in May and June 2002. At the conclusion of that trial the Judge delivered a draft judgment in favour of the claimant, but there was a considerable delay in handing it down by reason of the Judge's illness. It appears it was not finally handed until April 2003.
23. Mr. Coote contends, and for today's purposes it must be assumed, that between from at least the delivery of the draft judgment and, arguably, from considerably earlier, Mr. Henton embarked on a systematic programme of stripping Branchempire Limited of its assets and shifting value to Lookmaster and to himself. Mr. Coote was understandably outraged at that conduct and has pursued Branchempire doggedly both to trial and subsequently into liquidation and, since then, in assisting the liquidator to investigate these claims. As was put on his behalf, it is now some twenty years of litigation and investigation that Mr. Coote has involved himself in, and invested in, to bring him to this point.
24. Mr. Coote's position in the evidence sets out his opposition to the application that the proposed compromise would bring him little or no return for the effort involved in those twenty years, bearing in mind the cost of the liquidation and the other claims ranking ahead of him. It is his position that the claims which have been made in 2005 and 2008, amounted to some £6m. Further claims identified would have taken this figure to something over £8m, and £1m in respect of those claims is an unacceptably timid conclusion by the liquidator. The liquidator is too willing to accept an amount which is sufficient to cover his own costs and provide, as Mr. Coote says, little or nothing to himself in his pocket at the end of the day.
25. It is the liquidator's position however that, had Mr. Coote approved the compromise when it was first negotiated in July 2008, there were then sufficient assets to pay unsecured creditors including Mr. Coote in full, albeit without interest. Mr. Rubin was prepared to compromise his own claim for fees to an extent sufficient to make sure that that was so. He wrote a letter to that effect to Mr. Coote on 20^th July 2008 and, although I remarked when that letter was read that it was perhaps not the clearest letter that could have been written, it is clear that it was followed by subsequent correspondence. I have been shown a subsequent email dated 1^st August 2008, which makes the liquidator's position abundantly clear that he would be prepared to compromise his claims for remuneration so as to ensure that Mr. Coote was paid in full 100p in the pound in respect of his claim.
26. I have been provided with two estimated outcome schedules. These were initially prepared by the liquidator, and Mr. Coote criticises them in certain respects. The first is produced as at 24^th September 2008, but there does not seem to be any material reconciling the position then and at the time the compromise was negotiated in July. The statement shows the claim of the liquidator for costs at some £227,000 (in round terms), and his solicitor's fees and counsel fees at some £367,000. This is totalled (in round terms) to £593,000. Other costs of the liquidation include a consultancy fee, which was agreed to be paid to Mr. Coote for his own advice and assistance, of £30,000. The cost of the first liquidators at a little under £7,000 and then the preferential claim of HMRC for (in round terms) £26,000. The full total coming to £656,257. Against that, the unsecured claims are said to total £505,000 of which by far the greatest is Mr. Coote's own claim.
27. On those figures, since they total some £1.16m, the proposed figure of £1m would not pay the unsecured creditors in full. But, that is where the concession that Mr. Rubin was prepared to make would take effect. It is not clear the extent to which his solicitors would contribute to that concession, but I have no reason to doubt that it was a genuine concession. On those figures, Mr. Coote would, therefore, have been paid the full amount of his unsecured claim.
28. The principal grounds on which that was criticised by Mr. Coote, in his evidence at least, were:

(1) The figures quoted to not include VAT. The liquidator's evidence (and this is also my understanding of the position) however is that, although the services of the liquidator and solicitor are chargeable to VAT, that VAT is recoverable as input tax where the company has no chargeable outputs in relation to VAT, and, therefore, it is not necessary to provide for VAT in assessing the outcome for the liquidation.

(2) It was said that the figures as to costs do not include any amount in respect of the costs of finalising the settlement and, if necessary, pursuing Mr. Henton to judgment and enforcement if he does not comply with the terms of it. That is so, but in my judgment there is nothing in that point. If Mr. Henton was going to renege on the terms of the compromise agreement he would be just as difficult, if not more difficult, to pursue in any alternative scenario. Any additional costs involved in such a scenario would be likely to be at least as high (quite likely higher) than they would be if the matter were dealt with on the compromise basis.

(3) Mr. Coote objected that these figures do not provide for any interest on the amount of his claim. In that respect, until he received Mr. Kynoch's advice he seems to have been under misapprehension that he was entitled to prove for interest on his claims. Mr. Kynoch accepted on his behalf, however, that he is not entitled to prove of interest on his debt after the date on which the liquidation commenced, although it is of course the case that, were there to be a surplus of assets in the liquidation, Mr. Coote would be entitled to interest on the amount of his claim before there were any distribution to the contributors.

29. I also observe in passing that there has been some difference in the way in which Mr. Coote presents his figures from those presented by Mr. Rubin.

Mr. Coote regards the Legal Services Commission as having a preferential claim, or a prior claim, in respect of the costs that they funded. The Legal Services Commission does not, of course, have a direct claim in the liquidation. What they do have is an entitlement to a charge on any recovery made by Mr. Coote, the effect of which would appear to be that they will take the first £90,000 of any amount that he is paid. To that extent, therefore, as Mr. Coote is looking at money in his pocket, it is understandable that he regards the Legal Services Commission as having a prior claim to his own.

30. The second set of figures is drawn on a similar basis by the liquidator, which shows the position just before the commencement of this hearing. At that time the total amount of claims, before Mr. Coote's unsecured claim, is stated at some £847,000. Mr. Coote's claim, for some reason that I have not been able to follow, is stated at a lower amount some £431,000 rather than £486,000 from the previous schedule. But, in all events, it is apparent that, if the prior claims are met in full, there would be very little pay towards the unsecured claims. There is no indication from these figures whether Mr. Rubin would be prepared to make the same, or indeed any, concession on the amount of his own fees and expenses so as to procure a greater payment to Mr. Coote. Looking at these figures there is no doubt that, if a better result were achieved by not accepting the compromise (whether it was by litigation or negotiation), the initial benefit after meeting any extra costs incurred would go very largely to Mr. Coote. At the margin he, being the principal unsecured creditor, will take any additional dividend available from any increased payment.
31. Mr. Coote says that his assessment of the value of the claim is greater than £1m. Mr. Rubin's position would be protected if the matter were pursued further, either by Mr. Rubin or by Mr. Wood in succession to him. Mr. Rubin would have a first claim on any recoveries for the amount of his fees and would not be at risk, at least, unless the eventual outcome were to produce an amount lower than the present amount of his fees and costs which is some £784,000.
32. The applicant's case is based primarily on the fact that he has obtained three opinions of counsel. Mr. Peter Griffiths has been involved throughout in pursuing these claims on their merits and on the proposed compromise and whether it should be approved. The first two opinions were obtained in the context of the 2005 proceedings. The most recent opinion in September 2008 is on the footing of the claims put forward in April 2008 and also those which were proposed to be made, but had not then been made in the Part 7 proceedings which have now been served. In those advices, Mr. Griffiths concludes that the compromise is fair and reasonable, and in the best interests of the company. Mr. Coote has not obtained any advice himself on the merits of the claims. I am told that Mr. Kynoch has provided a preliminary advice to Mr. Wood in respect of these claims which has led Mr. Wood to take the position that he does, but that advice has not been presented to me. I do have Mr. Kynoch's submissions as to the merits of the various claims and the evaluation of them that Mr. Griffiths had made.
33. The liquidator also points out that the company has no assets of its own, other than these proposed claims. If the claims are ultimately unsuccessful, then he and his solicitors stand not only to not recover the fees that they were otherwise due, but the liquidator may be personally liable if any order for costs were made in favour of Mr. Henton or the other defendants. He relies also on some recent affidavits of means filed by Mr. Henton and the director of Lookmaster Limited showing apparent net assets for the two defendants combined of some £1.3m. Mr. Nersessian on his behalf submits that, if the claims are pursued to judgment instead of accepting the compromise, the £1.3m apparently available at present would be diminished by further defence costs and also, quite possibly, by any further manoeuvres which Mr. Henton might undertake to protect his own or his company's assets from such

a judgment.

34. As to this evidence of means, Mr. Coote says that it is incredible. He produces his most recent witness statement of the assets of the two defendants at being at a gross figure of some £16m before debts - some of which he does not accept are true debts. He has not himself made a statement of the net asset position, but, as best I can deduce it from his figures, it would appear to be about £7m which compares to a figure of £1.9m from the affidavits of means themselves, the difference between £1.9m and £1.3m being capital gains tax, which would be payable if the assets were realised at the figures shown in the statement. If Mr. Coote were correct as to the figures then the amount of capital gains would be higher still. So the true difference is perhaps not as great as it appears there, but it is nevertheless very substantial.
35. The liquidator has not himself investigated or valued the assets held by

Mr. Henton and by Lookmaster. However, he has not accepted the affidavits of means at face value. He has required the production of supporting documentary evidence which has been provided to me in an additional bundle at trial. Insofar as it relates to valuations of properties, that evidence does not consist of formal valuations of those properties, but a number of letters from estate agents advising Mr. Henton as to the price at which various properties should be marketed were those agents to be instructed. So far as liabilities are concerned, there are statements on accounts which confirm, on the face of it, the amount of the liabilities stated in the affidavits of means.

36. Mr. Coote has not himself obtained any professional valuation of the properties either. He has, however, produced his own estimates, based on

a combination of internet research and advice from agents, as to average prices in the location of the principal properties concerned. Mr. Coote's contention, understandably in the circumstances, is that Mr. Henton is experienced in avoiding liabilities and concealing or minimising his assets. He points to the fact that, although Mr. Henton has been disqualified from acting as a director, the affairs of Lookmaster Limited are now being run apparently by

Mr. Henton's girlfriend. Further, Mr. Coote says, Mr. Henton's girlfriend appears to have acquired a number of assets recently in her own name at

a price of some £860,000 which, in Mr. Coote's view, is very likely to have been funded by money provided either by Mr. Henton or by Lookmaster. It would appear that the figure of £16m of gross assets that Mr. Coote arrives at assumes that all of these assets are, in one way or another, available to

Mr. Henton and Lookmaster. Mr. Coote asserts that there are certain properties which have been sold in the past and have not been accounted for, and there are additional assets available equal to the full backing of those properties sold. Mr. Coote may or may not be right in respect of those contentions. His suspicions are understandable. But, so far as evidence is concerned, there is no evidence to support the contentions that he makes.

37. It is right, in my judgment, that I should regard evidence given by Mr. Henton and by Lookmaster (which is, to all appearances, still controlled or strongly influenced by him despite the fact that it now appears to be run by his girlfriend) with a considerable degree of scepticism even though it is made on oath. The evidence of the estate agents given by way of letter rather than formal valuation, and given by way of advice to Mr. Henton as an interested party, is some evidence, but not by any means the strongest possible evidence of the value of those properties. It is not at all impossible to imagine that the agents might have been persuaded by Mr. Henton to quote a low figure for the purposes of writing such a letter, in circumstances in which the properties were not in fact going to be put on the market – or at least not with those particular agents. Those agents, of course, are not formally undertaking any responsibility to any of the parties in this action in giving the letters that they have or making any expert's declaration to the court.
38. In the absence of any proper expert evidence as to the values of these properties (with all due respect to Mr. Coote and the investigations that he has undertaken) it is, at the very least, unclear how much, if any, additional value may be available to satisfy these claims. The liquidator, in my view, is right to have regard in some degree to the evidence that he does have on oath and to the likelihood that further investigation and further pursuit of the matter would lead to additional costs and possible further diminution of such assets as may be available if the matter were to proceed to litigation.
39. I come onto the merits of the potential claim. I remind myself again that it is not the function of the court to conduct a mini-trial of the issues in relation to those claims. The principal question is whether the liquidator has formed

a proper opinion of those claims and their potential merits himself or whether, in any respect, the evaluation that he has undertaken is obviously flawed. In that respect, the advice about the individual elements of the claim has been given by Mr. Griffiths. I summarise his advice by saying that he has concluded: As to the first batch of claims, there were strong claims in respect of the three elements totalling the sum of £338,000; in respect of the second batch of claims, there was a strong claim for £185,000, making a total of some £523,000 altogether. In relation to that Mr. Griffiths remarked that a strong claim was one in which there could be considered to be an 80% chance of success and corresponding, of course, a 20% chance of failure.

40. So far as the other claims were concerned, Mr. Griffiths' opinion was that they were either weak or weaker than those he regarded as strong. In addition, he said there would be a strong claim for interest on the amounts that he advised upon and for most, if not all, the liquidator's costs. It was possible, he said, that the liquidator would not recover costs in respect of some of the weaker aspects of his claim. On the basis of that assessment, he unequivocally supported the proposed settlement at £1m.
41. Mr. Kynoch has made an analysis in his skeleton argument - point by point of those claims - by reference to Mr. Coote's evidence and the submissions that were advanced by Mr. Coote in his witness statements. I do not propose to indulge in a detailed analysis of those claims. I do not have the material to do so. In referring to them at all, I do so to summarise the effect of Mr. Griffiths' conclusion that they were not as strong as Mr. Coote would suggest, and to deal with the criticisms that Mr. Kynoch made. A number of the claims related to transactions which occurred a very considerable time before the company went into liquidation. In respect of those claims, Mr. Griffiths noted that, insofar as there were more than two years before the commencement of the liquidation, they would be outside the time limits necessary to be complied with if they were to be pursued under s.238 of the Insolvency Act.
42. The most likely ground on which they could be pursued, therefore, would be under s.423 of the Insolvency Act as transactions intended to defeat creditors. He did not in terms refer to that section in his opinion. It was suggested that he cannot, therefore, have regard to it in giving his opinion that these claims were unlikely to succeed. I do not accept that as a criticism. It is quite clear from the documentation as a whole, Mr. Griffiths was aware of the possibility of pursuing these claims under s.423. Indeed, that is the basis upon which he has clearly come in the proceedings that he settled. It would be necessary to succeed on such a claim, however, to establish a specific motive of intention to put assets beyond the reach of creditors. In my view, Mr. Griffiths has sufficiently addressed the likelihood of establishing that motive in the opinion that he gave, albeit not in terms directly relating to s.423.
43. Mr. Griffiths' overall conclusion (I think) can be fairly summarised as saying that those claims were weak. When the particular transactions referred to were undertaken, Branchempire Limited was not obviously insolvent. It was not imminently facing judgment against it. Indeed, Mr. Coote appears to have been ready to compromise his claim (he says having been mislead by

Mr. Henton, but nevertheless prepared to compromise his claim) for a very much lower figure than he eventually secured in his judgment. This is the position in respect of two of the principal claims advanced: The capitalisation of an intercompany debt of some £700,000; and the transfer of shares to the pension fund leading to, it is said, a loss of some £400,000 - both of which occurred in 1999 so some three years before the judgment.

44. In respect of transactions between the delivery of the draft judgment and the handing down of that judgment, there were three particular property transactions that were addressed. I refer first to the transfer of the property at Williams Mews and its leasing back to Branchempire. This took place in December 2002. It appears that the sale price on the transfer of the property to Lookmaster was £830,000, which appears to have been the market value of the property at that time. However, the company simultaneously entered into

a lease back of that property for a period of three years for a total rent of £171,000 which it apparently agreed to pay upfront. The transaction was dealt with by way of entries on an intercompany account between the two companies resulting in effective payment by the company on that account to Lookmaster of some £171,000.

45. Mr. Griffiths' assessment of that was that the company had no need for the lease back for three years. The terms on which it was undertaken - paying all the rent upfront - were plainly un-commercial and there were good grounds for thinking that that element of the transaction, at least, could be set aside resulting in a claim for the amount of the rent paid in advance of £171,000. He was much less confident, however, that the whole transaction including the sale would be set aside. He said, it was arguable that the court might regard it as a single composite transaction and set aside the whole transaction which might result in the re-vesting of Williams Mews in Branchempire Limited. If Williams Mews were re-vested then there would be additional claims for the subsequent increase in its value of some £571,000 and for rents received in the meantime. But all of those, in Mr. Griffiths' view, were to be regarded as much less likely to succeed because the court would be by no means guaranteed to regard the transaction as a single composite transaction.
46. In respect of the second property at 12 Roland Gardens, that also was transferred in December 2002 at a price which appears (on the basis of more recent valuation evidence) to have been an undervalue of £185,000. Subsequent to that transfer, the property further increased in value. It appears it was eventually sold for an amount which realised a profit of £775,000.

Mr. Griffiths' view was that there was a good claim for the element of the undervalue at the date of transfer - £185,000 - and an arguable, but no more than that, claim for £775,000. His principal reason for placing that claim on

a lower level was that, if the property had not been transferred, in his view, it is unlikely that the liquidator would have retained it to the date of its eventual sale. There was no evidence that, had he sold it soon after his appointment, he would have realised substantially more than the December 2002 valuation. In respect of that property, there was a potential claim for rents received between the transfer in 2002 and the eventual sale.

47. A third property was bought by Lookmaster in July 2002 and that has been referred to as the Hindleson(?). This property was said to have been purchased using funds provided by Branchempire - presumably on loan account between the two companies - and, in addition, some external funding. It was eventually sold, apparently for a profit of some £1.4m. The potential claim, on behalf of Branchempire, is that the opportunity to purchase it should have been made available to Branchempire and not to Lookmaster. Mr. Griffiths concluded, however, that that claim was doubtful. At the time the property was purchased it was highly questionable whether Branchempire was, in fact, carrying on business in any manner at all. Indeed, it was an essential part of the case against the propriety of the lease back of the premises at Williams Mews that it was not carrying on business and so had no need to lease back the offices that it did.
48. It is not for me to agree or disagree with that assessment of the claims.

Mr. Griffiths may be right in the views that he has taken. The claims may or may not have turned out as he anticipated if they were eventually pursued to trial. However, what is clear in my judgment is that there is nothing to suggest that the liquidator did not properly put the potential claims before

Mr. Griffiths.

49. It cannot be suggested, in my view, that Mr. Griffiths was not sufficiently familiar with the claims or the evidence that was available to support them.

It cannot be said, in my judgment, that it was wrong for counsel to be appropriately cautious in advising the liquidator in circumstances where claims will be defended. The defence may be made out at trial, particularly in circumstances where the liquidator does not have all the evidence necessary to establish to crucial elements of the claim and particularly of those which require a particular motivation to be shown. I do not disparage in any way the view that Mr. Coote takes of the likelihood of showing that motive, nor indeed to diminish to prospect that the court might prefer to infer a motive in appropriate circumstances. But that is not to say that it is wrong for counsel to have regard to the difficulties and uncertainty of proof of such a motive.

50. Mr. Griffiths has also taken a cautious view on the remedy which the court might award if the liquidator was successful in establishing that transactions of an undervalue had been undertaken. Mr. Kynoch has not submitted that the views Mr. Griffiths took were obviously wrong. I say no more about the merits other than it would appear that, if Mr. Griffiths was too cautious, there may be some degree of upside in the claims - that is not reflected in the figure that he arrived at for the assessement.
51. In addition to that assessment by Mr. Griffiths, it is suggested that the liquidator has not taken account of two claims which were not expressly advised on by Mr. Griffiths in those opinions. The first is a claim for some £864,000 in respect of the balance on an intercompany account between Branchempire and Lookmaster. This was pleaded in the subsequent Part 7 proceedings that have now been served. Mr. Nesessian, however, is right in my judgment in respect of that claim and the way it is pleaded in the Part 7 proceedings. It is a balance that would be shown on the intercompany account if all the transactions that were criticised in the earlier proceedings were set aside or reversed. To that extent, therefore, that claim merely duplicates the earlier claims. If those claims were successful the company could not recover twice over by adding on the intercompany balance. I am satisfied there is no justification in that criticism.
52. Finally, it is said that the liquidator has taken no account of a claim which

Mr. Coote urged him to make in respect of the waiver of monies due, shown in the accounts of Branchempire back in 1992 and 1993 of some £3m as due from what is referred to as the Branchempire Partnership. That is a partnership of three companies - one of which was Branchempire itself - and involved in property development. Mr. Coote's analysis of the accounts shows that some £3m was written off as being administration expenses, or in other ways, in 1992 and 1993 which he suggests would be under s.423.

53. There is no detail at all in the documentation as to the nature of those transactions. It is said that they took place when Branchempire Partnership's affairs were being wound up and, no doubt, its assets were being distributed amongst the members of the partnership. Mr. Coote has not produced any evidence that Mr. Henton was personally interested in the other two companies that were members of the partnership. It is said that he was a director of them, but there is no evidence he had any other interest in them. There is also no evidence to show that Mr. Henton obtained a personal benefit from the way in which these amounts were written off in the books of Branchempire. It is not obvious why Mr. Henton who, on any account is a very savvy business operator, would make a gift to unconnected parties of, apparently, some two thirds of £3m.
54. The liquidator's approach to this claim is that he does not understand it. He does not understand from the material that has been produced what remedy, if any, can be made out against Mr. Henton in respect of these transactions. In my judgment, that is a perfectly proper attitude to take in circumstances in which so little is known about them. It might be thought unlikely that

Mr. Henton would have caused his company to enter into this transaction unless some commercial benefit, he regarded as corresponding, was available to him or to his company (Branchempire) in the winding up of the affairs of the partnership. What that benefit is, we do not know. It seems highly likely that there was some such benefit rather than the alternative which would appear to have been, as I say, a gift of apparently £2m to unconnected parties. There is no evidence of a motive to defeat creditors' claims.

55. My conclusion, in respect of the liquidator's evaluation of these claims, is therefore that the liquidator has properly assessed the claims. He has properly assessed their potential value and the assets available to meet them on the evidence available to him. The view that he has come to is not Mr. Coote's view. It may not be the only view that could have been taken, but it is, in my judgment, a view properly and fairly arrived at.
56. I have to consider whether it is in the best commercial interest of the company and its creditors to accept that view and compromise the claims, or to go on. The benefit which Mr. Coote hopes to accrue from going on would, of course, be a better outcome either by way of negotiation or result at trial. But neither of those outcomes, in my view, is inevitable or even clear. Mr. Kynoch has produced some figures showing that, if the offer were increased to £1.3m that would be sufficient to pay Mr. Coote even now in full. There is, in my judgment, no basis for assuming that a further offer would be forthcoming so as to produce a figure of £1.3m. If it is the case that the total value of

Mr. Henton's net assets, including Lookmaster, is £1.3m it is, to say the least, far from obvious that he would be prepared to hand over the entirety of his assets to satisfy these claims and walk away with nothing. Any such offer, therefore, requires that Mr. Henton has other assets and is prepared to pay more than he has presently has in order to protect them. It seems to me that, on the evidence available, that is, at best, an uncertain proposition.

57. I do not accept the proposition that the liquidator has not properly assessed all the claims that might be brought or, if Mr. Henton were faced with claims that have not so far been pleaded, that he would be likely to make an additional offer. The only two claims that submission can refer to are firstly, the intercompany calculated as £864,000 which not only is duplicative of previous claims, but appears to have been intimated to Mr. Henton in any event, and so would not cause him to change his view; and the Branchempire Partnership claim which, in my judgment, is too speculative for it to be assumed that

Mr. Henton would, faced with it, suddenly take fright and offer more.

58. If the compromise is not accepted, there is some risk of a worse outcome.

Mr. Henton would, of course, not be bound by the compromise that he has reached. There could be no guarantee that he would maintain that offer. If Mr. Griffiths' estimate is correct, or indeed proves to be over-optimistic, there is some prospect that even those claims that he has assessed as good or strong will not be recovered in full. There is the risk that Mr. Henton may further dissipate assets or deplete them in incurring further costs.

59. It is said that the claims can be pursued without further cost to the company because Mr. Wood is currently prepared to do so on the basis of a contingency. He takes that position at present on the basis of his preliminary assessment of the merits without having seen, it would appear, the totality of the papers and without any formal legal opinion, at least, which is available to me. There can be no guarantee that he, or the solicitors that he would have to employ, would be prepared indefinitely to continue to pursue those claims to judgment if, on further investigation or as a result of any evidence which may subsequently emerge, the claims continue to be contested which shows that his assessment of the prospects was initially over-optimistic.
60. Were the claims to be pursued to that point, the company would then be in the position that, unless further funding could be raised, Mr. Wood could take the view that they should not be pursued further and discontinue them at

a relatively low cost to himself (not negligible, but relatively low). The present liquidator would be in the unenviable position of having lost control of the liquidation, having no ability to resume control of it and, even if he were able to do so, having to put up further funds in order to resurrect the position at that stage.

61. It is true that, if there is an eventual recovery on these claims which is less than £1m but not less than £780,000, the initial risk of short-fall falls primarily upon Mr. Coote. There is not an enormous margin between £784,000 and £1m. It is by no means inconceivable that, if the claim goes badly and has to be compromised on worse terms, the eventual result will be less than sufficient to pay the present amount of the liquidator's costs. At the very least, there would be delay in the liquidator recovering his costs, in respect of which he would not be entitled to any interest.
62. My conclusion therefore is that, in the circumstances of this case, given the proper assessment the liquidator has made, it is appropriate to give weight to his views in his capacity as liquidator and also to his interest as a post-liquidation creditor, and to give the sanction that he seeks. It is unfortunate that the effect of doing so would now appear to put Mr. Coote in a substantially worse position than would have been the case had he indicated his acceptance in July or August of last year, but that is not a circumstance for which, it seems to me, the liquidator can be criticised. Nor is the mere fact that Mr. Coote's position has deteriorated sufficient to mean that the total settlement is no longer in the best commercial interests of the company and its creditors as a whole.