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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> TAG Capital Venture, Re [2012] EWHC 1631 (Ch) (08 February 2012)
URL: http://www.bailii.org/ew/cases/EWHC/Ch/2012/1631.html
Cite as: [2013] BUS LR D50, [2012] EWHC 1631 (Ch), [2013] Bus LR D50
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CHANCERY DIVISION
The Rolls Building, 7 Rolls Buildings London EC4A 1NL |
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B e f o r e :
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| IN THE MATTER OF TAG CAPITAL VENTURE |
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| -and - |
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| IN THE MATTER OF THE INSOLVENCY ACT 1986 |
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1st Floor, Quality House, 6-9 Quality Court
Chancery Lane, London WC2A 1HP
Tele No: 020 7067 2900, Fax No: 020 7831 6864, DX: 410 LDE Email: info@martenwalshcherer.com
Website: www.martenwalshcherer.com
REUBEN COMISKEY (instructed by GALLANT MACMILLAN) for the Petitioners
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Crown Copyright ©
- This is an application made in contested winding-up proceedings. The petitioners claim to be creditors of TAG Capital Venture Limited (the company) but their claim is disputed. Provisional liquidators of the company have been appointed by the court, but the petition is opposed by Mr Gary Potter, its sole director.
- The present application is made by Mr Potter seeking orders, first, to exclude evidence provided by one of the provisional liquidators and, secondly, to require the solicitors presently acting for both the petitioners and the provisional liquidators to cease acting for the petitioners on the grounds of conflict.
- It is necessary to say a little about the disputed debt on which the petition is based. It is not disputed that the petitioners, Andrew Workman and his wife Elaina, paid a total of €479,810.10 to the company or to a Swiss subsidiary called TAG, over a period of seven and a half months from July 2010 to 2011, with a view to the issue of shares as part of an initial public offering. The issuing company was first to be the Swiss company but in or about February 2011 this was changed to the company. The petitioners were told the shares would be dealt with on a stock exchange in Germany. The petitioners claimed repayment of the sums paid. They say that essential terms were never agreed so that no contract was ever made. For example, they say that there was no agreement as to the number of shares to be issued, the percentage those shares would represent of the total issued share capital or the price per share. They also say, either as a separate point or as supporting their first point, that the whole transaction was a fraud, perpetrated on them by Mr. Garry Potter, the company's sole director, and that there was no intention nor was there any realistic prospect of there being an IPO. In the witness statements, made by Mr. Potter's solicitor on instructions, these claims are denied.
- In addition to witness statements by Mr. Workman and his solicitor the petitioners rely on the witness statement made 16th November 2011 by Finbar O'Connell, one of the provisional liquidators. This is the witness statement referred to in the application notice. Mr. O'Connell exhibits to his witness statement the unapproved transcript of an interview he conducted with Mr. Potter under the compulsory powers conferred by section 235 of the Insolvency Act 1986. Mr. Potter objects to Mr. O'Connell's witness statement on two grounds. First he objects to the use of the transcript of his interview as evidence. Secondly, he says that the witness statement is irrelevant and prejudicial and therefore inadmissible.
- As regards the transcript Mr. Thompson, on behalf of Mr. Potter, rightly submits that information obtained by the use of compulsory means is confidential in the sense that it may only be used for the purposes for which it was obtained: see R v Brady [2004] 1 WLR 3240 at paragraphs 22 and 27, a case concerning information obtained under section 235 of the Insolvency Act, where the Court of Appeal (Criminal Division) held that as the investigation of criminal activity was one of the purposes for which the powers under section 235 are given, the official receiver was entitled to provide the information to the prosecuting authorities.
- Mr. Potter's case as to the purpose of an interview conducted by a provisional liquidator under section 235 is that it is to enable him to undertake his duties, which are essentially to establish underlying facts about the nature, business, liabilities and assets of the company and to ensure the preservation of its assets. I would certainly accept that they are among the duties of a provisional liquidator without accepting that there may not be, at least in some cases, other purposes as well.
- In my judgment it follows from the purposes accepted by Mr. Potter that investigation of the facts relevant to issues arising from the petition fall within those purpose. The first issue is whether the company has a liability to the petitioners and whether a contract was ever made between the parties. The second is the nature of the company's activities and whether an IPO was in the offing or not and whether the company had any business which could make an IPO a realistic course. If in the course of his investigations a provisional liquidator discovers or obtains evidence which is relevant to the issues to be determined in the petition, it would in my judgment be perverse if he could not place that evidence before the court whether it assisted the petitioner or those opposing the petition.
- The provisional liquidator is an officer of the court, appointed by the court, and the notion that he would be obliged to stand by and watch the court decide the issues on an incomplete or even a false basis needs only be stated to be dismissed. There can therefore, in my judgment, be no objection to the transcript of an interview under section 235 being put in evidence on the petition, provided it is relevant.
- In his witness statement --about which I shall say a little more in due course --Mr. O'Connell draws attention to particular parts of the interview he conducted with Mr. Potter, in particular in relation to the business and activities of the company and matters relating to the prospects of an IPO. It seems to me these matters are relevant to the issues which arise on the petition and can properly be the subject of evidence on the petition. It may well be that the transcript of the interview also contains material which is not relevant to the issues in the petition but that would not, in my judgment, be a good reason for putting in evidence an incomplete version of the transcript.
- In addition, it may be that further evidence given by Mr. O'Connell in his witness statement, aside from the transcript, has a bearing on the issues. For example, he gives evidence that no post addressed to the company was received at the company's address after his appointment, a matter which may be relevant as to what, if any, business or other activity the company was undertaking. In my judgment this is sufficient to establish the relevance of the transcript and, in broad terms, of Mr. O'Connell's witness statement for the purposes of the petition. The witness statement itself undoubtedly includes statements which fall into the territory of inadmissible comment by Mr. O'Connell. I do not think that that is a reason for excluding the witness statement. The judge hearing the petition will be well able to disregard all matters contained in the witness statement which are an inadmissible. No doubt, submissions will be made to the judge as to those parts of the statement which are admissible and those which are inadmissible.
- I turn then to the second subject covered by the present application. This is the objection raised by Mr. Potter to the same firm of solicitors, and indeed to the same partner within that firm, acting for both the petitioners and the provisional liquidators. The basis of the objection is that there is a conflict between the interests of petitioners and the position of the provisional liquidators which makes it impossible or inappropriate for the same solicitors to act for both. Mr. Thompson submits that the provisional liquidators ought to be and should remain neutral on the question of whether the petition has been properly presented. They should have solicitors acting for them who are likewise able professionally to take an objective position. Instead, Mr. Thompson submits, Mr. O'Connell, advised by the solicitor who also acts for the petitioners, has provided the witness statement in support of the petitioners. Mr. Comiskey for the petitioner submits that no conflict exists because the provisional liquidators are not, as a liquidator would be following the winding up, required to adjudicate on disputed claims. The duty of the provisional liquidators at this stage goes no further than investigating the facts as regards possible liabilities of the company.
- In my judgment, in circumstances where the petition debt is the subject of actual dispute leading to a one day hearing to determine whether the petition is well founded, there is a conflict between the positions of the provisional liquidators and the petitioners. It is in the personal interest of the petitioners to establish their claim and it is the duty of their solicitors to use all legitimate means to assist them in doing so. If the provisional liquidators are to take any steps in relation to the claim, it is to investigate the facts relevant to the claim with a view to seeing whether such a claim is well founded. Theirs is an entirely dispassionate task. If they discover matters which suggest that further enquiries might reveal that the claim is not well founded, their duty would be, within reason, to pursue those enquiries. The conflict which a solicitor acting for both parties faces is apparent. Further, the court wishes to be assured that provisional liquidators are acting objectively with the benefit of objective advice, particularly if they provide evidence or information to the court. These concerns are heightened in this case where Mr. O'Connell's witness statement is expressed in terms which appear to align him with the petitioners. I was told that it was drafted by him and settled by his solicitor who also, of course, acts for the petitioners.
- Mr. Comiskey, who appears for the petitioners but not for the provisional liquidators, submitted that it was too late for Mr. Potter to raise this objection. He had noticed shortly after the appointment of the provisional liquidators that the same solicitors were acting for them and for the petitioners. As against that, it can be said that it was only with the service of Mr. O'Connell's witness statement on or shortly after 16th November 2011 that the close alignment with the petitioners became apparent. The present application was issued on 20th December 2011.
- I do not think that Mr. Potter can now complain about information from his interview which has already been passed by the provisional liquidators to the petitioners. He participated in the interview in the knowledge that the solicitor, common to both, was present. It is not however too late for him to raise the matter for the future. In any event, the provisional liquidators are officers of the court and the court is entitled to give directions to its offices in matters of this sort.
- In my judgment, while the petition remains the subject of dispute, the provisional liquidators should have separate solicitors advising them. They will advise the provisional liquidators, having regard solely to what is appropriate for the provisional liquidators to do in the performance of their duties.
- In saying this, I am not suggesting that it is never appropriate for the same firm of solicitors to act both for the petitioning creditor and for provisional liquidators, or for the same firm to act for creditors and for a liquidator appointed after a company has gone into winding up. It will all depend upon the circumstances. If there is no dispute about the debt owed to the petitioning creditor then in the absence of other circumstances, there is no conflict between the petitioner's position and the position of the provisional liquidators. There have been many cases in which the same firm of solicitors has acted for both a petitioning creditor and provisional liquidators or have acted for creditors and liquidators. But, equally there are cases where the provisional liquidator or the liquidator has instructed separate solicitors precisely because there is or maybe a conflict with the position of petitioning or other creditors.
- Mr. Thompson submitted that Gallant Macmillan should be required to cease to act for the petitioners. I see no good reason for that. There are no grounds for thinking that, as the provisional liquidator's solicitors, they have confidential information which has not already been made available to the petitioners. The need to avoid future conflict is sufficiently and indeed better served by new solicitors acting for the provisional liquidators. I can see no good reason why Gallant Macmillan should not continue to act for the petitioning creditors. I will therefore direct the provisional liquidators to retain a new firm of solicitors. Technically, the provisional liquidators are not before the court although of course that solicitor is instructed by Mr. Comiskey on behalf of the petitioning creditors. No doubt, however, the provisional liquidators are fully aware of this application and given that it affected their position they have had the opportunity of intervening. Notwithstanding that, if the provisional liquidators consider there are points which should be drawn to my attention with a view to varying or indeed reversing the direction which I am giving, points which have not already been considered at this hearing, then they have liberty to apply within seven days to raise such points with me.
- Accordingly, I shall give a direction of the sort I have indicated to the provisional liquidators but shall not make any other order on the application of Mr. Potter.
MR. JUSTICE DAVID RICHARDS :