England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

IN THE MATTER OF ASEGAAI CONSULTANTS LIMITED
AND 43 OTHER COMPANIES
(ALL IN CREDITORS' VOLUNTARY LIQUIDATION)

AND IN THE MATTER OF THE COMPANY DIRECTORS DISQUALIFICATION ACT 1986

		Rolls Building, Royal Courts of Justice, 7 Rolls Buildings, London EC4A 1NL
		10/07/2012

Mr Justice Newey :

1. In these proceedings, a disqualification order under the Company Directors Disqualification Act 1986 ("the CDDA") is sought against the Defendant, Mr Kirankumar Mistry.
2. The case is an unusual one. Applications under the CDDA are normally made by the Secretary of State for Business, Innovation and Skills or the Official Receiver against individuals who are or have been company directors. The present case, in contrast, is founded on Mr Mistry's conduct in relation to companies of which he was a liquidator; it is not suggested that he was ever a director of any of the companies. Further, the application is not brought by the Secretary of State or Official Receiver but by liquidators; the Claimants, Mr Nicholas Wood and Mr James Earp, who are partners in Grant Thornton UK LLP, are the present liquidators of the relevant companies.

Basic facts

3. After reading physics at Manchester University, Mr Mistry qualified as a chartered accountant in 1990 and became a licensed insolvency practitioner in 1997. By the time of the events at issue in this case, Mr Mistry was a partner in HKM Harlow Khandhia Mistry ("HKM"), an accounting firm and insolvency practice based in Leicester.
4. By the summer of 2003, Mr Mistry was in discussion about the possibility of acting as liquidator for some 100 companies that had been established and run by Safe Solutions Accounting Limited and what was then Safe Solutions Management Services Limited ("the Safe Solutions Companies"). The Safe Solutions Companies provided a tax-saving scheme to individuals coming to work in the United Kingdom on a temporary basis. The scheme involved setting up personal service companies ("PSCs") through which the individuals would provide their services. Each PSC would employ up to ten of the participants, who would also become shareholders in the PSC. Each participant would be paid the minimum wage, less deductions for PAYE and National Insurance Contributions, by his PSC. The balance of the earnings would be distributed by way of dividend, after deduction of an administration charge and a retention to cover corporation tax on the PSC's profits. The scheme was lawful at the time, provided that it complied with the requirements of the "Intermediaries' Legislation" (known as "IR35") which was introduced on 6 April 2000. The companies of which it was proposed that Mr Mistry should become a liquidator were all PSCs.
5. The Safe Solutions Companies were controlled by Mr John Hill, his son Mr Timothy Hill and Mr Kevin Goddard. The last of these was a chartered accountant who ran Goddards, a firm of chartered accountants. Mr Mistry had, I gather, been introduced to Mr Goddard in about late 2002 by Mr Derek Williamson, an accountant/bookkeeper working for Goddards.
6. Between August 2003 and July 2004, Mr Mistry became a liquidator or administrator of 92 PSCs. Mr Mistry and another partner in HKM, Mr John Harlow, were appointed as joint liquidators of ten PSCs on 26 August 2003. Another 44 PSCs went into creditors' voluntary liquidation in batches on 14 October 2003, 18 December 2003, 20 January 2004, 26 February 2004 and 18 March 2004, in each case with Mr Mistry and Mr Harlow as the joint liquidators. Between 14 May and 26 July 2004, a further 38 PSCs went into administration with Mr Mistry and Mr Harlow as joint administrators.
7. All the companies in a batch would be put into liquidation together. For instance, a single creditors' meeting was held in respect of the nine companies comprising the batch that went into liquidation on 14 October 2003. Mr Mistry and Mr Williamson were both present. Mr Williamson was there as a creditor in his own name for a nominal sum (£5), and as representing the director of the PSCs (namely, Safe Solutions Management Services Limited) and the PSCs' major creditor (which was said to be another company in the Safe Solutions group, Safe Solutions Accounting Services Limited). Mr Williamson and Safe Solutions Accounting Services Limited ("SSAS") apart, no creditors were identified.
8. Asegaai Consultants Limited ("Asegaai"), one of the PSCs in the 14 October batch, was typical. According to its statement of affairs, Asegaai owed £5 to Mr Williamson and £102,615.48 to SSAS. No assets were identified other than cash at bank of £881.41. The company's history was summarised in these terms:

"Asegaai Consultants Limited was incorporated on 29 October 1997 with a view to managing a number of IT contractors. It commenced trading on 1 September 1998 but in March 2003 the consultants commenced returning to Australia, and by 30 July 2003 the company had ceased trading, as it had no consultants and there was no further income being generated.

The company had sustained losses of £101,835.54, which effectively was funded by the managing agents Safe Solutions Accounting Services Limited, who are a creditor for £102,615.48. There are no other known creditors".

9. Mr Mistry took no further appointments in respect of PSCs after the batch of 26 July 2004 because his insolvency licence was successively restricted and withdrawn. His licence was restricted for reasons unconnected with the PSCs on 27 July 2004 following a monitoring visit by the Joint Insolvency Monitoring Unit ("JIMU") of the Institute of Chartered Accountants in England and Wales ("ICAEW"), and in April of 2005 Mr Mistry was informed that the Insolvency Licensing Committee of the ICAEW had decided to withdraw his licence altogether. An appeal against that decision was, however, successful, and by February 2006 Mr Mistry once again held an unrestricted licence. The Review Committee of the ICAEW said that it "share[d] JIMU's concern that [Mr Mistry] has at a certain time in his career and over a period, conducted himself and his practice in a way which fell below the standard expected of the Institute of which he was a member", but considered that Mr Mistry had "taken JIMU's concerns very seriously indeed and … gone to considerable lengths and cost to address them". It also attributed events to Mr Mistry "being, from time to time, overworked, inadequately trained and inexperienced and naïve".
10. The Claimants became the liquidators of the companies at issue in these proceedings at about this point. They had already, in the latter part of 2005, been appointed as liquidators of the Safe Solutions Companies at the instigation of HM Revenue and Customs ("HMRC"), who had been investigating the Safe Solutions Companies since March 2005. On 8 March 2006, the Claimants were also appointed as liquidators of 64 PSCs. The PSCs in question comprised the 44 of which Mr Mistry and Mr Harlow had become liquidators and 20 further PSCs which had gone into liquidation with Mr Harlow alone as liquidator between December 2004 and February 2005, during the period that Mr Mistry's insolvency licence was restricted. Later in 2006, the Claimants replaced Mr Mistry and Mr Harlow as the administrators of the 38 PSCs that had gone into administration between May and July of 2004. However, the Claimants never became liquidators of the first batch of PSCs to go into liquidation, in August 2003, since these companies had been dissolved.
11. During 2006, the Safe Solutions Companies, by the Claimants as liquidators, brought proceedings against Mr John Hill, Mr Timothy Hill and Mr Goddard. Some £21 million was claimed. £18 million was subsequently recovered under a compromise and from other sources.
12. A bankruptcy order was made against Mr Mistry on 11 January 2011. The order was based on a guarantee Mr Mistry had given in respect of a loan made to WM Proserv LLP, of which Mr Mistry had become a partner. As a result of his bankruptcy, Mr Mistry was unable to use his accountancy qualification, and he had surrendered his licence as an insolvency practitioner in December 2010. His bankruptcy has now, however, been discharged, and it is open to him to re-apply for membership of the ICAEW and his insolvency licence. When giving evidence, he said that he had not yet decided whether to re-apply for his licence.

Legal framework

Statutory provisions

13. While applications under the CDDA are generally made by the Secretary of State or Official Receiver, section 16 of the Act makes provision for disqualification orders under sections 2-4 to be sought by a wider range of applicants. Section 16(2) is in these terms:

"An application to a court with jurisdiction to wind up companies for the making against any person of a disqualification order under any of sections 2 to 4 may be made by the Secretary of State or the official receiver, or by the liquidator or any past or present member or creditor of any company in relation to which that person has committed or is alleged to have committed an offence or other default."

The potential applicants thus include liquidators.

14. Section 4 of the CDDA, which is one of the provisions referred to in section 16(2), is headed, "Disqualification for fraud, etc., in winding up". So far as relevant, section 4(1) reads:

"The court may make a disqualification order against a person if, in the course of the winding up of a company, it appears that he—

(a) has been guilty of an offence for which he is liable (whether he has been convicted or not) under section 993 of the Companies Act 2006 (fraudulent trading), or

(b) has otherwise been guilty, while an officer or liquidator of the company receiver of the company's property or administrative receiver of the company, of any fraud in relation to the company or of any breach of his duty as such officer, liquidator, receiver or administrative receiver".

15. Unlike sections 6 and 8, under which most disqualification orders are made, section 4 is not confined to company directors. It extends, in particular, to liquidators. A disqualification order can be made under section 4(1)(b) against a liquidator who has been "guilty … of any fraud in relation to the company or of any breach of his duty as such … liquidator".
16. Section 4 is, in its origins, rather older than sections 6 and 8, which allow for disqualification where a person's conduct has shown him to be unfit to be concerned in the management of a company. A power to disqualify a person on the basis of unfitness was first introduced by the Insolvency Act 1976. A provision very comparable to section 4 of the CDDA had been included in the Companies Act 1948, though the equivalent of what is now section 4(1)(b) (viz. section 188(1)(b)(ii) of the 1948 Act) made no reference to liquidators, receivers or managers of a company's property until it was amended by the Companies Act 1981. As first enacted, section 188(1)(b)(ii) was limited to fraud and breaches of duty by an "officer".
17. One difference between sections 4 and 6 of the CDDA is that the former provision (like section 8) confers a discretion on the Court. Section 6 stipulates that, if satisfied that the conditions set out in section 6(1)(a) and (b) are met, the Court "shall" make a disqualification order; disqualification is mandatory. In contrast, section 4 says that the Court "may" make an order.
18. Whichever section of the CDDA such an order is made under, a disqualification order will be:

"an order that for a period specified in the order—

(a) [the person] shall not be a director of a company, act as a receiver of a company's property or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company unless (in each case) he has the leave of the court, and

(b) he shall not act as an insolvency practitioner".

(See section 1(1) of the CDDA.)

Authorities

19. In Re Adbury Park Estates Ltd [2003] BCC 696, a shareholder applied pursuant to section 4 of the CDDA for disqualification orders to be made against the liquidators of a hopelessly insolvent company. Jacob J refused the application on two grounds: first, that the applicant had no standing to bring the application and, secondly, that the application anyway had no merit.
20. With regard to the applicant's standing, Jacob J said this (at 698):

"The company is hopelessly insolvent. It follows that the two individuals concerned, the liquidators, are principally concerned with apportioning the company's assets amongst the creditors. [The applicant] is not a creditor, and so to the extent that the liquidators make an error in admitting to proof, or not admitting to proof, debts, he is wholly unaffected. He cannot be a victim of any maladministration by the liquidators of their duties. In those circumstances, it is submitted that [the applicant] has no standing to make this application. I think that submission is right. It cannot be right that [the applicant] sets himself up as some kind of public prosecutor for the general interests of the public to complain about what has been done or done wrongly by these liquidators. The fact that he was a director once makes no difference. Of course, the Secretary of State, if he comes to the conclusion that there has been some sort of maladministration warranting disqualification can apply under s.4. I was told that [the applicant] has made no complaint to the Secretary of State. It was suggested that if I thought that there was sufficient to look into that I ought to adjourn the matter for the Secretary of State to make representations. Quite apart from the fact that I do not so think, such a course would be wholly unjust and wrong. If a disinterested person thinks that a liquidator's conduct warrants disqualification, then the proper person to report it to is the Secretary of State, not to bring proceedings before the court and then ask the court to refer it to the Secretary of State."

Jacob J went on to observe, citing in particular Deloitte & Touche AG v Johnson [1999] 1 WLR 1605, that "[t]he authorities make it plain that complaints of this nature can only be made by those who have an interest in the result of the case, in the sense of the remedy that is to be provided". He ended this section of his judgment by saying this (at 700):

"I unhesitatingly conclude that [the applicant] has shown no interest in the order … which he seeks. He does not have standing to bring this application."

21. As for the merits of the application, Jacob J concluded (at 700):

"People make mistakes; they sometimes make big mistakes. These liquidators did make mistakes, but there is nothing that suggests that the way they made the mistake amounts to such conduct that they are not fit to be liquidators. On the contrary, as soon as they found out their mistake they put it right".

A little earlier in his judgment, Jacob J had said this:

"It is plain as anything that the conduct which merits disqualification has to be, if not fraudulent, at least very serious. One only has to stand back for a moment to think of the purpose of the section. It is to take off the road a liquidator who is either fraudulent or has conducted himself in such a way that in the public interest he ought not to be allowed to do the job any more. Thus, although the section formally gives jurisdiction for any breach of his duty, one does not look for trivial breaches or breaches which are the result of a mistake, one is looking for something worse. [Counsel for the applicant] recognised that. He said that the conduct of the liquidators amounted to reckless indifference to their duties, or incompetence amounting to a gross dereliction of duty."

22. Deloitte & Touche AG v Johnson, to which there was reference in the Adbury case, involved an application by defendants to proceedings brought by a company in liquidation for the liquidators to be removed on the basis that they had a conflict of interest. The Privy Council upheld a decision dismissing the application, which was made under section 106 of the Companies Law (1998 rev.) of the Cayman Islands. Lord Millett, giving the judgment of the Privy Council, said this (at 1611):

"In their Lordships' opinion two different kinds of case must be distinguished when considering the question of a party's standing to make an application to the court. The first occurs when the court is asked to exercise a power conferred on it by statute. In such a case the court must examine the statute to see whether it identifies the category of person who may make the application. This goes to the jurisdiction of the court, for the court has no jurisdiction to exercise a statutory power except on the application of a person qualified by the statute to make it. The second is more general. Where the court is asked to exercise a statutory power or its inherent jurisdiction, it will act only on the application of a party with a sufficient interest to make it. This is not a matter of jurisdiction. It is a matter of judicial restraint. Orders made by the court are coercive. Every order of the court affects the freedom of action of the party against whom it is made and sometimes (as in the present case) of other parties as well. It is, therefore, incumbent on the court to consider not only whether it has jurisdiction to make the order but whether the applicant is a proper person to invoke the jurisdiction.

Where the court is asked to exercise a statutory power, therefore, the applicant must show that he is a person qualified to make the application. But this does not conclude the question. He must also show that he is a proper person to make the application. This does not mean, as the plaintiff submits, that he 'has an interest in making the application or may be affected by its outcome.' It means that he has a legitimate interest in the relief sought. Thus even though the statute does not limit the category of person who may make the application, the court will not remove a liquidator of an insolvent company on the application of a contributory who is not also a creditor: see In re Corbenstoke Ltd. (No. 2) [1990] B.C.L.C. 60. This case was criticised by the plaintiff: their Lordships consider that it was correctly decided.

The standing of an applicant cannot therefore be considered separately and without regard to the nature of the relief for which the application is made. Section 106(1) does not limit the category of persons who may make the application. The plaintiff, therefore, does not lack a statutory qualification to invoke the section. But the question remains whether it has a legitimate interest in the relief which it seeks. It is not asking the court to appoint a liquidator to fill a vacancy. It is asking the court to remove incumbent liquidators for cause. The English cases relied upon by the plaintiff show that an interest which is sufficient to support an application of the former kind may not be sufficient to support an application of the latter kind.

The company is insolvent. The liquidation is continuing under the supervision of the court. The only persons who could have any legitimate interest of their own in having the liquidators removed from office as liquidators are the persons entitled to participate in the ultimate distribution of the company's assets, that is to say the creditors. The liquidators are willing and able to continue to act, and the creditors have taken no step to remove them. The plaintiff is not merely a stranger to the liquidation; its interests are adverse to the liquidation and the interests of the creditors. In their Lordships' opinion, it has no legitimate interest in the identity of the liquidators, and is not a proper person to invoke the statutory jurisdiction of the court to remove the incumbent office-holders."

The scope of section 4(1)(b)

23. Mr Donald Lilly, who appeared for Mr Mistry, argued that serious misconduct is required for a disqualification order to be made pursuant to section 4(1)(b) of the CDDA. Mr Lilly accepted that, since section 4(1)(b) speaks of "any breach of duty" (emphasis added), any breach of duty by a person as a liquidator is strictly capable of giving the Court jurisdiction to make a disqualification order, but he said that the Court would not be justified in exercising its power to disqualify if the misconduct was not serious. In support of this submission, Mr Lilly referred to the passages from Jacob J's judgment in the Adbury case that are quoted in paragraph 21 above. Mr Lilly submitted that Jacob J had been right to take the view that "the conduct which merits disqualification has to be, if not fraudulent, at least very serious".
24. For my part, I cannot envisage circumstances in which the Court would exercise its discretion to make a disqualification order against a liquidator without serious misconduct having been established. That is not to say that each breach of duty alleged must, individually, be serious if it is to be relevant. Were a serious breach of duty established, the Court could surely take other, less important breaches into account when deciding what, if any, order to make under section 4. A number of relatively minor breaches of duty could also, taken together, be thought serious enough to warrant a disqualification order.

Standing

25. One of the grounds on which Jacob J declined to make a disqualification order in the Adbury case was that the applicant had "no interest in the order … which he seeks" and so no standing to bring the application. Mr Lilly, in well-judged submissions, argued that the Claimants in the present case also have no interest in the relief sought and, hence, that they lack standing to make the application. While, given the terms of section 16(2) of the CDDA, the Court might have jurisdiction to make a disqualification order on an application by liquidators, the Court should (Mr Lilly said) decline to entertain the Claimants' application as a matter of judicial restraint or in the exercise of its discretion. Mr Lilly submitted that the Claimants are unable to point to any genuine interest they have in the relief sought. He suggested, moreover, that allowing the Claimants to pursue the proceedings would raise the prospect of liquidators:

i) depleting a company's assets for the purposes of a claim that gives no discernible benefit to creditors;

ii) litigating disqualification claims where the Secretary of State has either (a) not considered whether they would be in the public interest or (b) decided that they would not be in the public interest; and

iii) adopting investigative and claim procedures that are not subject to the requirements as to fairness imposed on the Secretary of State (compare Re Finelist Ltd [2003] EWHC 1780 (Ch), [2004] BCC 877).

26. The views that Jacob J expressed in Adbury on standing have been the subject of some criticism. Walters and Davis-White, "Directors' Disqualification & Bankruptcy Restrictions", 3^rd. ed., suggests (at paragraph 7–43) that, "contrary to the view of Jacob J., there is no need for a creditor or shareholder to show that they have a financial interest before they are entitled to bring disqualification proceedings under any of CDDA ss.2–4". Mithani: Directors' Disqualification comments (in a footnote to paragraph III[4]):

"On the basis of the reasoning in Re Adbury Park Estates Ltd, neither a liquidator nor any member (past or present) nor a creditor of a company may bring or continue disqualification proceedings under ss 2–4 unless the Secretary of State has consented to the proceedings being brought by such a person. Given that the provisions of s 16(2) specifically empower such persons to bring disqualification proceedings under ss 2–4, the reasoning in the case — which goes against the plain words of s 16(2) — is difficult to understand. It is probably appropriate to confine it to its own particular facts. On the facts: (a) the liquidators against whom disqualification proceedings had been brought had done no more than make genuine mistakes which they had put right as soon as they discovered them; (b) the court was not satisfied that the applicant's motive for bringing the proceedings was genuine; and (c) the applicant had delayed over two years before bringing the proceedings. If there was any real public interest in having the respondents disqualified, then 'standing by and letting them practise their trade … [was] somewhat inconsistent with the stand that [the applicant] took.'"

27. Whether or not such criticisms are well-founded in relation to applications by shareholders (such as that before Jacob J in the Adbury case), I do not think it can be the case that a liquidator can apply under section 4 of the CDDA only if he has a financial interest in a disqualification order being made. In the first place, it is difficult to think of a situation in which a liquidator would ever have such an interest. To require such an interest would thus mean that liquidators could not in practice make applications under section 4. That, however, would seem to run counter to section 16(2), which expressly provides for applications by liquidators.
28. A second point is that it is hard to see why a financial interest should necessarily be a prerequisite of an application under section 4 of the CDDA. The purpose of disqualification is essentially, after all, the protection of the public, not private advantage. Why then need an applicant always have a personal financial interest? In fact, even the Secretary of State and the Official Receiver would presumably be unable to apply under section 4 if a personal financial interest were invariably required.
29. Of course, the Secretary of State and the Official Receiver are obviously appropriate people to seek relief in the public interest. However, liquidators also have a public interest role. Under the Companies Act 1862, the Court was empowered by section 167 to direct a liquidator to bring a criminal prosecution; in In re London and Globe Finance Corporation Ltd [1903] 1 Ch 728, Buckley J said (at 734) that it was "plain that the principle upon which [he was] to apply, or refuse to apply s.167 is not measured or limited or even concerned with pecuniary benefit to be obtained for the shareholders or creditors". No equivalent of section 167 of the 1862 Act now exists, but it remains the case that a liquidator's functions extend beyond the collection and distribution of assets (important though his responsibilities in that regard are). In In re Pantmaenog Timber Co Ltd [2003] UKHL 49, [2004] 1 AC 158, Lord Walker of Gestingthorpe said (at paragraph 77):

"winding up has, and has had almost throughout the history of company law, a dual purpose. One purpose is the orderly settlement of a company's liabilities and the distribution of any surplus funds, prior to the company being dissolved. The other is the investigation and the imposition of criminal or civil sanctions in respect of misconduct on the part of persons (especially directors of an insolvent company in compulsory liquidation) who may be shown to have abused the privilege of incorporation with limited liability. The first function is primarily a concern of a company's creditors and shareholders; the second function serves a wider public interest."

In similar vein, Lord Millett said (at paragraph 63):

"The liquidator's functions in relation to the company which is being wound up are not and never have been limited to the recovery and distribution of the company's assets."

30. In the circumstances, I do not accept that the situations in which liquidators can properly apply for a disqualification order under section 4 of the CDDA are as limited as Mr Lilly suggested. That said, it will no doubt be a relatively rare case in which it would be appropriate for a liquidator to make an application under section 4. A creditor might well have legitimate grounds for complaint if such an application involved any substantial depletion of the company's assets without his consent. An application would doubtless be dismissed if shown to have been brought for an improper ulterior purpose. It may well be that an application would not be allowed to proceed either if the Secretary of State indicated that he considered that a disqualification order would not be in the public interest.
31. In my view, it would not be right (whether as a matter of judicial restraint, discretion, or otherwise) to deny the Claimants' standing to apply for a disqualification order against Mr Mistry. The reasons include these:

i) There is no reason at all to think that the Claimants have an improper ulterior motive;

ii) This is not a case in which company assets are being used to the prejudice of creditors without their consent. The only legitimate creditors of the PSCs appear to be HMRC, and they fully support the application. Mr Walsh noted in his affidavit:

"It is a matter of extreme concern to HMRC that a licensed insolvency practitioner has been involved in the deliberate removal of monies from cases under his control for his own benefit and to the detriment of HMRC";

iii) Far from complaining that the liquidators are misusing company assets, HMRC have provided funding for the proceedings;

iv) HMRC themselves have a legitimate interest in the application. They are creditors in very many liquidations and other insolvency procedures. It is understandable that they should not wish a liquidator who has acted fraudulently (as Mr Mistry is alleged to have done) to act as an insolvency practitioner in the future;

v) The Secretary of State has not indicated that he considers the proceedings to be contrary to the public interest. When approached about the possibility of becoming a co-Claimant, the Insolvency Service explained that the Secretary of State was not in a position to do so, in particular because there was insufficient time to undertake the necessary work before the trial. The Insolvency Service also, however, referred to the Secretary of State "supporting in principle the disqualification in the public interest of anyone responsible for the wrongdoing [the Claimants] allege" and observed that the Claimants' position as joint liquidators appeared "inherently different" to that of the contributory in the Adbury case;

vi) Mr Lilly conceded that, if the allegations made against Mr Mistry were well-founded, there would be a public interest in a disqualification order being made; and

vii) The Claimants accepted for the purpose of the present proceedings that they, like the Secretary of State, should be subject to the requirements as to fairness explained in the Finelist case. They maintained that they had in fact presented the case against Mr Mistry fairly, and I see no basis for disagreeing.

Evidence

32. The Claimants' witnesses comprised Mr Wood, the First Claimant; Mr Kevin Hellard, another partner in Grant Thornton whom Mr Wood asked to investigate Mr Mistry's conduct as liquidator; Mr Eugene Walsh, an officer of HMRC whose responsibilities have included matters relating to the Safe Solutions group and the PSCs of which Mr Mistry became liquidator or administrator; and Miss Louise Bell, a partner in the Claimants' solicitors, Gateley LLP. Sensibly, Mr Lilly did not suggest that any of these witnesses was other than truthful.
33. Mr Mistry also gave evidence. He remained impressively calm and courteous during his cross-examination despite the seriousness of the accusations being made against him. He was also at times an appealingly rational witness, acknowledging the logic of points even if he did not accept them. Nonetheless, I have concluded that I cannot treat Mr Mistry as a reliable witness. It seems to me that his evidence was informed by his knowledge of what other evidence was available: he tailored his own evidence to fit in, so far as possible, with the other evidence before the Court. When giving judgment in 2010 in Re Mumtaz Properties Ltd, following a trial where Mr Mistry had been a witness, Judge Simon Brown QC concluded that Mr Mistry and one of the parties had told the Court "bare faced lies". I am afraid that I consider that Mr Mistry knowingly gave untruthful evidence in these proceedings too.
34. The Claimants served a hearsay notice in respect of evidence Mr Williamson gave when interviewed on behalf of the Claimants on 8 April and 22 September 2009. The value of that evidence is, however, very doubtful. Not only was there no opportunity for Mr Lilly to test Mr Williamson's evidence in cross-examination, but (a) some of the evidence Mr Williamson gave when being interviewed appears to have been incorrect and, indeed, untruthful and (b) there is reason to think that Mr Williamson may himself have been complicit in any fraud Mr Mistry might have committed. In the circumstances, I do not think I should place any substantial weight on Mr Williamson's interviews when considering factual disputes.

Payments to IIAS and Dreamcast

Allegations

35. Four of the allegations made against Mr Mistry can conveniently be considered together. They concern (a) payments of £750 which were made by many of the PSCs of which Mr Mistry was liquidator to Independent Insolvency Advisory Service Limited ("IIAS"), a company of which Mr Williamson was the sole director and shareholder, and (b) payments which IIAS made to Dreamcast Limited ("Dreamcast"), a Mauritian company which Mr Mistry controlled and of which he was the beneficial owner.
36. In the form in which they were pursued at trial, the relevant allegations were expressed in these terms:

"i. Mr Mistry, whilst acting as liquidator of the Companies [i.e. the PSCs of which the Claimants subsequently became liquidators], remitted monies he had dishonestly obtained from the Companies to an offshore vehicle (Dreamcast) which he controlled.

ii. Mr Mistry concealed the fact that he was diverting funds from the Companies for his own use by employing a third party (Mr Williamson) to act as a conduit for the funds.

iii. To secure Mr Williamson's co-operation, Mr Mistry paid IIAS/Mr Williamson fees … to which IIAS/Mr Williamson were not entitled.

iv. Mr Mistry made payment from the insolvent estates of the Companies of invoices raised by IIAS/Mr Williamson which he knew to be false".

37. Mr Wood summarised the Claimants' case in relation to these allegations in these terms in one of his affidavits:

"The allegations of fraud which are made against Mr Mistry are that whilst he was liquidator of the Companies, he paid invoices which he knew to be fraudulent (from funds provided for the purposes of the liquidations …) to a third party who, acting on the instructions of Mr Mistry, paid the majority of those receipts to an offshore company known as Dreamcast Limited …. Dreamcast is a company controlled by Mr Mistry".

Factual history

38. Mr Williamson was paid £250 for each of the ten PSCs that went into liquidation in August 2003 (or possibly for all but one of those PSCs). For the next batch of PSCs, comprising nine companies that entered liquidation in October 2003, Mr Williamson received £500 per company. Each invoice was issued in Mr Williamson's own name and stated to be for assistance in the preparation of the statement of affairs.
39. There was reference to the change from £250 per company to £500 in correspondence between Mr Mistry and Mr Williamson. In a letter to Mr Mistry of 6 October 2003, Mr Williamson said:

"As you know, although we agreed for me to be paid £500 per company on the Safe Solutions jobs; it was reduced to £250 for the first 10 companies.

With your revised fees, I will be charging £500 per company from now on for both Safe Solutions companies and others".

Writing to Mr Williamson on 24 November 2003, Mr Mistry said:

"My revised fee is now a total of £2643.75 per company and on this basis, you are charging £500 per company for assistance in the preparation of the Statement of Affairs and ancillary assistance as required in respect of queries received in relation of the companies".

In his second affidavit, Mr Mistry explained that "[t]he increase to £500.00 reflected the beyond anticipated time spent by [Mr Williamson] at [creditors'] meeting[s] caused by the attendance of the HMRC officers and the questions asked by them at each of those meetings".

40. By December 2003, Mr Williamson was no longer billing in his own name. Invoices for the £500 payments were instead raised by IIAS.
41. It was also at this stage that additional payments of £750 per company began to be made. In respect of each of the PSCs that went into liquidation on 18 December 2003, IIAS was paid £750 for "additional work" as well as £500 for "assistance with the preparation of the Statement of Affairs". Payments totalling £1,250 (i.e. £500 plus £750) were also made to IIAS in respect of other PSCs of which Mr Mistry became a liquidator or administrator.
42. By way of example, IIAS issued two invoices to the liquidators of Ballito Limited, one of the PSCs that went into liquidation on 20 January 2004. The first, dated 23 January 2004, was for £500 and was stated to be for "assistance with the preparation of the Statement of Affairs for 'Ballito Ltd'". The second invoice, dated 2 February 2004, claimed £750 for "additional work on Ballito Ltd as requested and agreed".
43. IIAS was itself invoiced by Dreamcast. Three invoices were raised. The first, dated 8 January 2004, was for £12,000; the second, dated 13 February 2004, was for £17,000; and the third, dated 24 August 2004, was for £26,250. The earlier two were stated to be for "Professional services pursuant to consultancy agreement". The last invoice identified the services rendered as "Consultancy and Business Services Pursuant to Consultancy Agreement".
44. Dreamcast had entered into a consultancy agreement with IIAS not long before. An agreement dated 5 November 2003 ("the Consultancy Agreement") provided for Dreamcast to supply IIAS with "consultancy services", defined to mean:

"the sourcing of a suitable purchaser for the business and the assets or the shares of the companies and businesses introduced by [IIAS] and the provision of advice in relation to such a purchase and its implementation together with any general consultancy advice required by [IIAS]".

The definition was also stated to encompass "the provision of restructuring, Corporate Finance and Corporate Rescue advice to specific companies and businesses introduced by [IIAS]".

45. In cross-examination, Mr Mistry accepted that he would have arranged for Dreamcast to enter into the Consultancy Agreement. He maintained that the agreement was "primarily intended to deal with potential acquisition targets overseas, on behalf of IIAS". However, he accepted that no services had in fact been provided to IIAS in relation to the three invoices raised by Dreamcast. He agreed that the invoices were fictitious and that he had behaved dishonestly in this respect.
46. Dreamcast's £12,000 and £17,000 invoices were both paid in March 2004. The £26,250 invoice was settled in January 2005 by a transfer to an account Dreamcast held with Barclays Bank in Mauritius.
47. On 19 July 2004 Dreamcast transferred sums of £3,250 and £4,000 to a Spanish account whose beneficiary was named as "Prosper Trust No 5904". The beneficiary of the account was evidently the Prosper Trust, an offshore trust associated with Mr Williamson. The payments were said to be in respect of "Professional fees" in Dreamcast's instructions to its bank. Mr Mistry, who was one of those who signed the instructions on behalf of Dreamcast, accepted in cross-examination that no "professional fees" had in fact been due to the Prosper Trust and that he had therefore behaved dishonestly.
48. Dreamcast has now been dissolved.

Mr Mistry's case

49. Mr Mistry's case is to the following effect:

i) The £750 payments made to IIAS were for additional work. In his first affidavit, Mr Mistry said this:

"Mr Wood [the First Claimant] asserts that Mr Williamson carried out no additional work to justify fees, over and above his statement of affairs fee. That is simply not true. Mr Williamson negotiated increased fees to reflect the fact that he was being required to carry out more work, on a case by case basis, to reflect the increasing interest in the cases from HMRC. Specifically, Mr Harlow and I were aware, from HMRC attendance at creditors meetings, that HMRC were seeking ever more detailed information, much of which had to be obtained by Mr Williamson from the Director of the company in question".

In his second affidavit, Mr Mistry stated that it had been agreed that Mr Williamson would collect information required to answer HMRC queries and "send that information on to [Mr Mistry's] office, so that Mr Harlow or [he] could then respond to HMRC";

ii) IIAS made payments to Dreamcast on the basis that the money would be passed on to the Prosper Trust (and possibly other entities), and that was what happened. Mr Mistry explained matters as follows in his first affidavit:

"At Mr Williamson's request, I agreed that he could forward monies to Dreamcast and that on receipt of those funds they would be transferred on his instructions to Prosper Trust, controlled by him.

… I was not unduly concerned by his request and assumed based on discussions with him, that these arrangements were designed to assist his own personal tax arrangements".

In his second affidavit, Mr Mistry said:

"Sums paid on to Dreamcast … were then passed on by Dreamcast to Prosper and/or (as I recollect) other entities, in accordance with the instructions of [Mr Williamson]".

Mr Mistry also said that Mr Williamson had told him that he had paid tax in the United Kingdom on the money;

iii) Mr Mistry did not know of any connection between the £750 payments that IIAS received and its payments to Dreamcast. As to this, Mr Mistry said in his second affidavit:

"Such payments to Dreamcast were so far as I was aware, wholly unrelated to [the Safe Solutions group]";

iv) Mr Mistry had set up Dreamcast several years earlier to deal with intended property transactions overseas. Mr Mistry said in his second affidavit:

"I was aware of a resort development planned in Mauritius, and I intended that Dreamcast would be the brokerage to be used by persons interested in acquiring plots on that development. I intended to become actively involved in that project";

v) The Consultancy Agreement was, according to Mr Mistry, "primarily intended to deal with potential acquisition targets overseas, on behalf of IIAS".

Problems with Mr Mistry's case

50. Mr Mistry's version of events is problematic in numerous ways. I shall outline some of them.
51. In the first place, it is hard to see why anyone would have thought it appropriate for Mr Williamson to be paid an extra £750 per PSC for additional work. The fee paid in respect of each company had already been increased from £250 to £500 to take account of "the attendance of the HMRC officers [at creditors' meetings] and the questions asked by them at each of those meetings", and the £500 was recorded as covering "assistance in the preparation of the Statement of Affairs and ancillary assistance as required in respect of queries received in relation of the companies". As a result, Mr Williamson would be paid £5,000 in respect of a batch of 10 companies on top of whatever remuneration he received as an employee of Goddards or from the Safe Solutions group. (During one of his interviews, Mr Williamson spoke of the Safe Solutions group paying him £250 a company.) Nothing seems to have happened by 1 January 2004, when the first of the £750 invoices were raised, to warrant an additional payment. When giving evidence to the Review Committee of the ICAEW in 2005, Mr Mistry said that at the creditors' meetings on 26 August 2003 HMRC did not "suggest that [he] should take or not take any particular course of action", that the "course of the [14 October 2003 creditors'] meeting(s) was very similar" and that "no particular requests were made of [him] as liquidator either at or after the [18 December 2003 creditors'] meetings". During his oral evidence in the present proceedings, Mr Mistry confirmed that HMRC had not asked him at the August meeting to carry out any particular investigations. Further, there is (to quote Miss Bell) "no indication on the files [HKM maintained] that in the period to 1 January 2004 (when the first invoice for Additional Work was raised by Mr Williamson) … any additional work was required or anticipated as a result of any queries raised by HMRC"; in fact, (to quote Miss Bell again) there is "no evidence on any of the files of Mr Mistry (or anyone else at HKM) instructing Mr Williamson to carry out any further work as a result of any creditors' meeting or question raised by HMRC or of Mr Williamson having carried out any further work and sending information he had obtained to HKM so that they could respond to HMRC's queries". Mr Mistry was inclined to attribute this to poor record-keeping on the part of his firm, but he accepted (a) that Mr Williamson would have provided any information to HKM rather than to HMRC direct, (b) that HKM would have forwarded any information to HMRC in writing and (c) that any such letter should be in the files. No such letter has, however, come to light. On balance, the evidence indicates that HMRC were not even in attendance at the 14 October creditors' meetings. Further, for what it is worth Mr Williamson did not suggest that the £750 payments were in respect of additional work. For example, he said during an interview:

"If you look at a typical case there it's £1,250; £500 is for work that I would have done, anything over and above that was billed on".

52. Next, a spreadsheet produced within HKM undermines Mr Mistry's account. The spreadsheet in question, which is headed "Hammersmith Jobs", lists the PSCs that went into liquidation or administration between February and July of 2004 and gives figures for the first 27 of the companies under the headings "TPF received", "IIAS '1'", "IIAS '2'", "D" and "Prosper". The "TPF received" column appears to show "third party funds" received from the Safe Solutions group, and the "IIAS '1'" and "IIAS '2'" columns respectively the £500 and £750 payments made to IIAS by PSCs. During cross-examination, Mr Mistry claimed that the "Prosper" column, in which "250" is entered for each of the 27 companies, related to £250 payments that he had discovered Mr Williamson had been receiving from the Safe Solutions group on top of the £500 and £750 payments. The "D" column, Mr Mistry said, referred to payments to Mr Williamson, whose first name is Derek. The "750" entries in this column, Mr Mistry suggested, were arrived at by aggregating the £500 payments to IIAS and the additional £250 payments from the Safe Solutions group.
53. If, however, the "D" stood for "Derek", the column might have been expected to show the totality of what Mr Williamson/IIAS were receiving: on Mr Mistry's figures, £1,500 per company (i.e. £500 plus £750 plus £250). I find it difficult, moreover, to understand why Mr Mistry (or anyone else at HKM) would have wanted a column reflecting just the £500 and £250 payments. It is also, as it seems to me, highly significant that, in respect of one of the PSCs (viz. Thatemp Productions Limited), the "IIAS '2'" and "D" columns are both blank although "500" appears under "IIAS '1'" and "250" under "Prosper". If, as Mr Mistry claimed was the case, the "D" column had reflected the £500 and £250 payments, it should have included a "750" entry. The fact that it did not suggests a correlation between the "D" figures and the £750 payments to IIAS: in other words, that there was in this instance no "D" payment because IIAS had not received £750. That would make sense if the "D" referred to "Dreamcast" rather than "Derek" and the £750 payments to IIAS were to be passed on to Dreamcast. There having been no £750 payment for Thatemp Productions Limited, there would have been nothing to transfer on to Dreamcast and, hence, nothing to enter in the "D" column.
54. A correlation can also be seen between the numbers of PSCs going into liquidation or administration and the amounts of Dreamcast's invoices to IIAS. The figures in the "D" and "Prosper" columns on the "Hammersmith Jobs" spreadsheet add up to £26,250. That is also the amount of Dreamcast's invoice to IIAS of 24 August 2004. That invoice is thus consistent with Dreamcast having invoiced IIAS for (a) £1,000 for all but one of the 27 companies in respect of which payments are listed in the spreadsheet and (b) £250 in respect of Thatemp Productions Limited. Dreamcast had previously invoiced IIAS for sums totalling £29,000 (i.e. £12,000 plus £17,000), and 29 PSCs had gone into liquidation since the introduction of the £750 payments to IIAS but before those listed in the "Hammersmith Jobs" spreadsheet. The £29,000 accordingly equates to £1,000 per company. Dreamcast's three invoices can therefore be explained on the basis that, except where IIAS was not paid £750 (as with Thatemp Productions Limited), Dreamcast would invoice at the rate of £1,000 per company.
55. If the fact that the total of the "D" and "Prosper" columns on the "Hammersmith Jobs" spreadsheet matches the amount of Dreamcast's third invoice to IIAS is significant rather than coincidental, the invoice will have included £250 per PSC attributed to "Prosper". That the Prosper Trust was paid £250 per PSC is also suggested by the payments to the Prosper Trust from Dreamcast for which there is evidence. The payments amount to £7,250. That could represent £250 for each of the 29 PSCs that (a) went into liquidation after the introduction of the £750 payments and (b) are not included in the "Hammersmith Jobs" spreadsheet.
56. Manuscript notes that Mr Williamson made on transaction print-outs also indicate that the £750 payments to IIAS were passed on to Dreamcast and that further sums of £250 per company were transferred to the Prosper Trust via Dreamcast. For example, notes on one print-out of transactions suggest that the £55,250 Dreamcast invoiced to IIAS represented 56 payments of £250 and 55 of £750, and the difference between the 56 and the 55 can be explained by the fact that there was no £750 payment for Thatemp Productions Limited. A note on another print-out appears to refer to "29 payments @ 250", and, as already mentioned, the £7,250 that Dreamcast can be seen to have transferred to the Prosper Trust equates to 29 multiplied by £250. Further, a figure "[d]ue to Prosper" seems to have been calculated by deducting 59 times £750 from the amounts paid to Dreamcast by IIAS.
57. While, therefore, Mr Williamson's manuscript notes indicate that Dreamcast passed on some money to the Prosper Trust, they lend no support to the proposition that all the money Dreamcast received was paid on to the Prosper Trust. Nor does any of the other documentary evidence. The documents are, rather, consistent with Dreamcast transferring on £250 per PSC.
58. It is significant too that the purported justifications for the payments to Dreamcast and the Prosper Trust were unfounded. By Mr Mistry's own account, the payments IIAS made to Dreamcast were not for "Professional services pursuant to consultancy agreement" or "Consultancy and Business Services Pursuant to Consultancy Agreement", as claimed in the relevant invoices. The instructions in respect of Dreamcast's transfers to the Prosper Trust were similarly misleading. The fact that Mr Mistry was willing to give false justifications for payments to Dreamcast and the Prosper Trust makes it less improbable that he would have been prepared to be complicit in false justifications being given for the PSCs' payments to IIAS.
59. Further, although Mr Mistry now denies knowing of any connection between the £750 payments that IIAS received and its payments to Dreamcast, he appeared to accept in his first affidavit that the sums paid by IIAS to Dreamcast represented sums that had been paid by the PSCs to IIAS. He said:

"At Mr Williamson's request, I agreed that he could forward monies to Dreamcast and that on receipt of those funds they would be transferred on his instructions to Prosper Trust, controlled by him.

Whilst it would have been simpler to pay Mr Williamson direct, he requested that monies be paid to him (Prosper Trust) via Dreamcast" (emphasis added).

The implication must be that it would have been simpler for the PSCs' payments to have been made direct to the Prosper Trust instead of via Dreamcast and IIAS.

60. While I do not think I should place any significant weight on it, the interviews with Mr Williamson also provide evidence that the £750 payments to IIAS were passed on to Dreamcast. For example, Mr Williamson said during an interview on 8 April 2009:

"the extra £750 that were paid, I was then billed on by another company that was controlled by the partners of HKM".

61. The timing of IIAS's first invoices for £750 and Dreamcast's first invoice to IIAS tends to confirm that there was a link between the payments. IIAS's first invoices were raised on 1 January 2004, Dreamcast's first invoice only shortly afterwards, on 8 January 2004.
62. Finally, it is noteworthy that Mr Mistry answered "no comment" to questions relating to Dreamcast and the Prosper Trust when interviewed under caution by investigators with HMRC's criminal investigation team in 2007. In evidence in these proceedings, Mr Mistry explained that he had been advised by solicitors to say "no comment" to all questions. He had, however, been warned by the HMRC investigators that it might harm his defence if he did not mention when questioned something he later relied on in Court.

Miscellaneous points

Deficiencies in the evidence

63. Mr Lilly made much of gaps in the evidence. He pointed out, in particular, that some of the documents that HMRC held when interviewing Mr Mistry are no longer available. In addition, as a result of an error, HMRC returned to Mr Williamson materials they had seized from him, and he seems to have had some of them shredded, apparently in the belief that they were not needed. Mr Lilly also suggested that there had been weaknesses in the Claimants' investigations: he said, for example, that the Claimants had not done much to investigate the Prosper Trust.
64. It seems to me, however, that the points Mr Lilly made are of limited significance. It is certainly unfortunate that materials that were released to Mr Williamson are missing and that others are no longer available: both the list of property returned and references to documents during Mr Mistry's interviews suggest that some of the missing materials would have been of interest. However, there is no reason to think that they would have undermined the Claimants' case in any important way. More generally, it seems to me that the evidence before me is such as to allow me to arrive at fair and reliable conclusions.

Mr Harlow's role

65. In his affidavits in particular, Mr Mistry was inclined to emphasise the fact that Mr Harlow was also a liquidator of the PSCs in respect of which allegations are made. Where, however, Mr Mistry and Mr Harlow were joint liquidators, it was Mr Mistry who was the lead liquidator, and Mr Harlow will therefore have relied on him. As Mr Wood explained, the Claimants found no evidence that Mr Harlow was personally involved in the matters of which complaint is made. Even had there been evidence that Mr Harlow shared the blame, that would not have exonerated Mr Mistry.

The origins of the money paid to IIAS

66. The Safe Solutions group appears to have provided funding for the liquidation of the PSCs of which Mr Mistry became liquidator. On the strength of this, Mr Mistry maintained that "[n]o funds originating from the [PSC's] funds or assets were paid by way of fee to Mr Williamson" (emphasis added). Regardless, however, of whether the money paid to Mr Williamson and IIAS can be traced back to funding from the Safe Solutions group, the simple fact is that the payments were made out of assets of the PSCs. As Mr Mistry accepted in cross-examination, the payments were made out of the liquidation estates and from accounts specific to the PSCs. Further, the payments purportedly represented expenses of the liquidations: Mr Mistry himself referred in one of his affidavits to funds having been "released by HKM to the liquidator to discharge Mr Williamson's fees as an expense of the liquidation" (emphasis added).

The standard of proof

67. It is common ground between the parties that the applicable standard of proof is the ordinary civil standard. If and to the extent, however, that what is alleged is inherently improbable, that is a factor to be taken into account when considering whether the event in question is more likely than not to have occurred. Having regard to the gravity of what is alleged against Mr Mistry in relation to the payments to IIAS and Dreamcast, I approach the matter on the assumption that it is inherently improbable that he behaved as alleged and, therefore, that cogent evidence is required to substantiate the allegations.

Conclusions

68. I have arrived at these conclusions on this part of the case:

i) The £750 payments to IIAS were not made for "additional work" but on the basis that the money would be passed on to Dreamcast for the benefit of Mr Mistry;

ii) Mr Mistry was well aware that IIAS was not carrying out "additional work" for the £750 payments and, hence, that the justification given for the payments in IIAS's invoices was false;

iii) Mr Mistry nevertheless approved the £750 payments to IIAS;

iv) The money out of which the £750 payments were made belonged to the PSCs regardless of whether it had been derived from funding provided by the Safe Solutions group;

v) The £750 payments to IIAS were passed on to Dreamcast pursuant to the invoices it raised;

vi) With the exception of Thatemp Productions Limited, Dreamcast invoiced IIAS at the rate of £1,000 per PSC. The intention was that Dreamcast would retain £750 (representing the £750 paid to IIAS in respect of the company) and pay £250 on to the Prosper Trust;

vii) Dreamcast's third invoice to IIAS, for £26,250, related to the 27 PSCs in respect of which figures were given in the "Hammersmith Jobs" spreadsheet. 20 of these went into administration rather than liquidation so cannot be the subject of complaint in the present proceedings. However, the other seven companies went into liquidation;

viii) In all, sums totalling £27,000 (i.e. £750 multiplied by 36) were paid to Dreamcast for the benefit of Mr Mistry in respect of PSCs that had gone into liquidation with Mr Mistry as a liquidator.

69. Relating these conclusions to the four allegations set out in paragraph 36 above, I consider allegations (i), (ii) and (iv) to have been proved. As regards allegation (iii), I am satisfied (a) that Mr Mistry caused IIAS to be paid fees to which it was not entitled and (b) that some of the money that IIAS paid to Dreamcast was passed on to the Prosper Trust for the benefit of Mr Williamson. On the other hand, I do not think it has been established that Mr Mistry paid IIAS or Mr Williamson fees to which they were not entitled "[t]o secure Mr Williamson's co-operation". The "fees … to which IIAS/Mr Williamson were not entitled" comprised the £750 payments, and those were retained by Dreamcast for the benefit of Mr Mistry.
70. Mr Ewan McQuater QC, who appeared for the Claimants with Mr Matthew Parker, raised the possibility that the £750 payments were made in return for Mr Mistry "burying" the PSCs without proper investigation. In this context, Mr McQuater referred, for example, to a letter of October 2003 in which Mr Williamson referred to HKM as "our tame insolvency practitioners". In my view, however, the evidence does not establish that the £750 payments were made for the suggested motive.

Failure to take steps in the liquidations

71. The final allegation made against Mr Mistry is this:

"Mr Mistry continued to accept bulk instructions to place the Companies into creditors' voluntary liquidation without taking any steps to recover monies that were owed to the Companies by the Safe Solutions Companies. In particular, he failed to demand that the Safe Solutions Companies pay the sums retained by them for payment of the Companies' tax and NICs to the Companies".

72. In the course of his submissions on this allegation, Mr McQuater criticised Mr Mistry for failing (a) to obtain proper books and records for the PSCs of which he was liquidator and (b) to do enough to investigate the reasons for the PSCs going into liquidation. It is important, however, to remember that the focus of the allegation, as framed, is on Mr Mistry's failure to take steps to recover money from the Safe Solutions Companies. What Mr Mistry did or did not do to obtain books and records or to investigate the reasons for the liquidations will thus be relevant only in so far as it casts light on whether Mr Mistry took adequate steps to recover money from the Safe Solutions Companies.
73. Guidance as to a liquidator's investigative responsibilities is to be found in Statement of Insolvency Practice 2 ("SIP 2"), which is one of a number of such statements approved by the professional bodies concerned with insolvency. Paragraph 3 of SIP 2 explains that the purpose of an investigation is "to determine the property … and liabilities of the company and to identify any actions which could lead to the recovery of funds" and that "[t]he standard of investigation set out in [SIP 2] should be applied in every case". Paragraph 9 states that, at the outset of the winding up, the liquidator "should normally arrange to make enquiries of the officers of the company and other senior officials as to the company's affairs, including the reasons for failure and the location of its records and property". Paragraph 16 stipulates that "material transactions [with associated companies or connected persons] should be examined in detail".
74. Mr Mistry confirmed in evidence that he was familiar with SIP 2 and that it applied to the liquidations of the PSCs. In fact, HKM had an "Investigation checklist" one of the objectives of which was stated to be, "To identify any actions which could lead to the recovery of funds (SIP 2)".
75. As mentioned earlier (paragraph 4), the PSCs were set up pursuant to a tax-saving scheme. The scheme involved earnings generated by participants being paid to them partly as wages and partly by way of dividends. The Safe Solutions Companies retained sums to cover administration charges and corporation tax.
76. As Mr Wood explained, there should have been no question of PSCs becoming insolvent. Administration charges should not have been so high as to preclude dividends: otherwise, participants would clearly have lost rather than gained money by using the scheme. Moreover, money was being withheld to meet administration charges and tax liabilities.
77. In the event, PSCs went into liquidation on the basis that, rather than being owed money by the Safe Solutions group, large sums were due to the group in respect of administration charges. Mr Mistry claimed that he had been told by Goddards that they had forgotten to charge costs. Mr Wood, however, expressed the view that "it should have been obvious to [Mr Mistry] that the Safe Solutions Companies were retaining funds from the personal service companies (at the expense of HMRC) to which they were not properly entitled"; it was, he said, as "plain as a pikestaff" that those behind the Safe Solutions Companies were trying to avoid paying tax. He observed that "any sensible chartered accountant or insolvency practitioner" would have realised that something was wrong even at the stage of the first batch of appointments.
78. I find Mr Wood's comments compelling. The nature of the scheme to which PSCs were integral was such that (a) they should not have become insolvent and (b) the Safe Solutions group could be anticipated to owe money to them rather than to be owed money by them. Mr Mistry was, moreover, never supplied with evidence substantiating the charges that were said to be outstanding to SSAS; to the contrary, he was told in letters from Mr Williamson that no further books or records were available. Further, the debts alleged by SSAS were implausibly large: had 100 PSCs each owed as much as Asegaai was claimed to owe, the total due to SSAS would have been in excess of £10 million. Another point is that the supposed debts to SSAS were at odds with accounts that had been approved by the Safe Solutions group itself. For example, Asegaai's most recent filed accounts, for the year ended 31 October 2001, recorded that the company had made profits after tax of £94,512 and £148,170 in respectively 1999-2000 and 2000-2001, that dividends of £94,415 and £148,007 had accordingly been paid and that the company had net assets of £1,148. Had Asegaai incurred management charges to SSAS on the scale alleged when it went into liquidation, it would seem that it would not have earned the profits shown, should not have paid the dividends it had and would have had a large liability that was not reflected in its balance sheet. Yet the accounts had been approved by a company in the Safe Solutions group as Asegaai's director.
79. Mr Mistry himself said during cross-examination that he could not say that he had properly investigated the claims that the Safe Solutions group was making. He also accepted that he had "SIP 2 failures", though he "wouldn't say it was for want of … trying"^[1].
80. Mr Lilly argued that I was precluded from deciding that Mr Mistry ought to have done more by the absence of independent expert evidence. However, the Courts do not normally regard expert evidence as necessary in disqualification cases: see e.g. Re Barings plc (No 5) [1999] 1 BCLC 433, at section IIIC, Re Barings plc (No 5) [2000] 1 BCLC 523, at paragraphs 37-39, and Secretary of State for Trade and Industry v Aaron [2007] EWHC 1720 (Ch), [2007] Bus LR D95. Moreover, guidance as to what can be expected from a liquidator is available from both SIP 2 and Mr Wood's evidence.
81. Mr Lilly also drew attention to the risks of being wise after the event (compare Re Living Images Ltd [1996] 1 BCLC 348, at 356). While it could be seen now that the Safe Solutions scheme was extremely concerning, Mr Mistry should not (Mr Lilly said) be judged with the benefit of hindsight. It should be remembered, Mr Lilly submitted, that the liquidations were coming to Mr Mistry through apparently reputable accountants (viz. Goddards) and that he was working on a shoestring. Mr Lilly pointed out that the Review Committee of the ICAEW had recognised that it was appropriate to "take into account the level of fees charged for the services carried out by [Mr Mistry] when establishing whether he did behave in a fit and proper manner".
82. It seems to me, however, that Mr Mistry ought to have challenged the debts that were said to be outstanding to SSAS and taken steps to recover the money that the Safe Solutions Companies had kept back to meet tax liabilities. The circumstances were such that the claims of SSAS were obviously anomalous. If funding was a problem, the obvious remedy was to approach HMRC for assistance. A passage from Mr Wood's cross-examination is relevant in this context. He said:

"What you should be doing is going to HMRC and saying, 'This is what's happened in your case, I think that something is wrong here and I'm going to help you prove that there's something wrong here'".

83. Mr Mistry made reference to the fact that he and Mr Harlow had suggested that "the question of whether expenses charged …, were in fact legitimately allowable, should be conducted in a 'test' case before the … Commissioners". However, this possibility does not appear to have been raised until early 2005, 18 months or so after the first batch of PSCs went into liquidation. In any case, much the more obvious course was surely to reject SSAS's claims.
84. In all the circumstances, it seems to me that Mr Mistry failed in his duties in taking no steps to challenge the claims made by SSAS and, following on from that, to recover the sums that the Safe Solutions Companies had kept back to meet tax liabilities.

Consequences

85. As noted earlier, disqualification under section 4 of the CDDA is discretionary. I am in no doubt, however, that I should make a disqualification order in the present case. It may be that the last of the allegations discussed above (viz. that relating to taking steps to recover money from the Safe Solutions Companies) would not have warranted a disqualification order on its own, but the totality of the misconduct I have found proved certainly does.
86. Section 4(3) of the CDDA provides that the maximum period of disqualification under the section is 15 years. Guidance as to length of disqualification orders can be found in In re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164. The Court of Appeal there endorsed (at 174) the following three brackets:

"(i) the top bracket of disqualification for periods over 10 years should be reserved for particularly serious cases. These may include cases where a director who has already had one period of disqualification imposed on him falls to be disqualified yet again. (ii) The minimum bracket of two to five years' disqualification should be applied where, though disqualification is mandatory, the case is, relatively, not very serious. (iii) The middle bracket of disqualification for from six to 10 years should apply for serious cases which do not merit the top bracket."

87. To my mind, the present case is a "particularly serious" one meriting an order in the top bracket. The sums which Dreamcast received from the liquidations may not have been that large (£27,000 in total), but Mr Mistry's conduct was still grossly improper. It was not confined to an isolated incident or incompetence. Mr Mistry dishonestly caused sums to be paid for his benefit over an extended period in respect of some 36 companies.
88. I shall make a 12-year disqualification order against Mr Mistry.

Note 1   The transcript records that Mr Mistry said “for want of not trying”, but he clearly meant “for want of trying”.    [Back]