En désastre - request to the Viscount to apply to the court to review both decisions.
Before : |
Sir Michael Birt, Esq., Commissioner, and Jurats Ramsden and Pitman. |
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Between |
Viscount |
Applicant |
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And |
ACJ Air Conditioning Jersey Limited (in liquidation; acting through its joint liquidators Dermot Joseph Boylan and Adrian John Denis Rabet) |
First Respondent |
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And |
Building and Technical Services Limited (in liquidation; acting through its joint liquidators Dermot Joseph Boylan and Adrian John Denis Rabet) |
Second Respondent |
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And |
David Mabbs |
Third Respondent |
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IN THE MATTER OF ROCKINGHAM INVESTMENTS LIMITED (EN DÉSASTRE)
The Viscount in person.
Advocate J D Garrood for the First and Second Respondents.
The Third Respondent in person
judgment
the commissioner:
1. Rockingham Investments Limited ("Rockingham") is a Jersey company which was declared en désastre on 27th October, 2017, on the application of the joint liquidators ("the liquidators") of the First Respondent ("ACJ").
2. On 31st August, 2018, the Viscount rejected the claim in the sum of £447,138 lodged by the liquidators on behalf of ACJ. At the same time she refused to extend the period for lodging two alternative claims, one by ACJ and one by the liquidators ("the BTS liquidators") of the Second Respondent ("BTS") (together "the Alternative Claims").
3. Pursuant to Article 31(7) of the Bankruptcy (Désastre) (Jersey) Law 1990 ("the Law") a creditor who is dissatisfied with the decision of the Viscount to reject his claim may request the Viscount to apply to the Court to review the decision. ACJ and BTS, through their respective liquidators, have requested the Viscount to apply to the Court in respect of both the decision to reject the main ACJ claim and also the decision not to extend time for the Alternative Claims. The Viscount has therefore brought the current application.
4. There is a clear line of authority to the effect that when reviewing a decision to reject a claim pursuant to Article 31(7) the Court reaches its own decision on the merits and exercises its own discretion. A convenient summary is to be found in the judgment of Le Cocq, Deputy Bailiff in Viscount -v- Booth [2018] JRC 170 at para 14 in the following terms:-
"The nature of the review that the Court conducts in these circumstances has been confirmed in the case of Re Amy [2013] 2 JRC 193 in which Bailhache, Deputy Bailiff (as he then was) delivering the judgment of the Court considered the approach that the Court should take in the light of the decision of the Court of Appeal of [sic] Shirley v Deputy Viscount [1999] JLR 256 and said, at paragraph 21:-
"We think we are bound by the Court of Appeal's decision in Shirley v Deputy Viscount, and we apply it. Accordingly although the statute describes the application to the Court as being for a review of the Viscount's decision, it is in effect an appeal at large. Even if we had not regarded ourselves as bound by the decision of the Court of Appeal, we would have reached the same conclusion. The Viscount is the executive officer of the Court, and in administering the désastre, is doing so in that capacity. It is clear to us that when questions arising out of the Viscount's administration are referred to the Court, the Court has a free discretion to exercise unless there should be express statutory provision to the contrary.""
5. The Court went on to say that the burden lies on the party seeking to have the Viscount's determination reviewed.
6. It is to be noted that the approach of the Court in relation to Article 31(7) - where the Law specifically provides for a review by the Court - is to be distinguished from those cases where the statute has left the decision to the Viscount. In those cases, although a disappointed party may apply to the Court to overturn a decision of the Viscount taken pursuant to the Law, the test to be applied is akin to that applicable to judicial review. As the Court of Appeal put it in Booth -v- The Viscount [2016] JCA 218 at para 8, the question is whether the Viscount's decision "falls within the range of reasonable responses open to the decision-maker". In other words, in those cases the Court will not interfere merely because it would not have reached the same decision as the Viscount. But, as already stated, that is not the position in connection with the present application.
7. ACJ was incorporated in Jersey in 1973 at the instance of the Third Respondent ("Mr Mabbs") and carried on the business of fabrication and installation of air conditioning systems. It was owned by Mr Mabbs and his wife, with the accounts from 2007 onwards indicating this was in the proportion of two thirds to Mr Mabbs and one third to Mrs Mabbs. At all material times Mr and Mrs Mabbs were directors of ACJ together with various other individuals.
8. Unfortunately ACJ ran into financial difficulties and it entered a creditors' winding up in March 2013, with the liquidators being appointed as joint liquidators of the company.
9. BTS is a Guernsey company which, according to Mr Mabbs, was incorporated about 5 years after ACJ. It carried on business as a building services contractor in Guernsey. It too was owned by Mr and Mrs Mabbs although the percentage ownership of each does not appear from the accounts. They were both directors at all material times together with others. It too has been placed in liquidation and the BTS liquidators are the joint liquidators of BTS.
10. Rockingham is a Jersey company which has at all times been owned solely by Mr Mabbs. It was used to acquire a property in Scotland ("the Property") in March 2000. The Property is the home of Mr and Mrs Mabbs. Since February 2005, the directors of Rockingham have been Mrs Mabbs, Mr H Mabbs (who is the son of Mr and Mrs Mabbs and whom we shall refer as "the son") and Miss G K Mabbs (who is the daughter of Mr and Mrs Mabbs and to whom we shall refer as "the daughter"). From March 2000 until February 2005, the directors were the son and A Mabbs (who is presumably a member of the Mabbs family although we were not given any information about this person).
11. Rockingham's sole asset is the Property which has been valued at £350,000 - £450,000. Rockingham has not carried on any other activity. It has not received any income and has at no stage had a bank account. The sole activity has been to be the owner of the Property.
12. It follows that the three companies have at all times been owned by Mr and Mrs Mabbs or Mr Mabbs alone and the directors have comprised of members of the Mabbs family (with additional directors in the case of ACJ and BTS). It was therefore a family group of companies.
13. ACJ, through its liquidators, contends that it is owed £447,138 by Rockingham. It applied for a declaration of désastre which was opposed by Rockingham. However, on 27th October, 2018, after hearing from the advocate of ACJ in support of the application and an advocate on behalf of Rockingham opposing the application, the Court declared the property of Rockingham en désastre.
14. Subject to the Alternative Claims, ACJ is the sole claimant in the désastre. As indicated at paragraph 2 above, the Viscount has rejected ACJ's claim.
15. When the Viscount's application was first presented to the Court on 12th October, 2018, it was directed that the liquidators, the BTS liquidators and Mr Mabbs (as beneficial owner of Rockingham) be convened and they all subsequently appeared at the hearing.
16. We propose to concentrate on ACJ's main claim as the Alternative Claims only come into play if ACJ's main claim is rejected.
17. The liquidators relied upon three types of evidence in support of ACJ's claim.
18. First, they relied on the accounts of ACJ for the years 2005 - 2009. It is apparently the case that no subsequent accounts have been prepared. These accounts were prepared by the firm of chartered accountants who previously practised under the name of Le Rossignol, Scott-Warren and Company but have more recently been known as Rosscot. We shall for convenience refer throughout to Rosscot. Rosscot were the accountants for Mr Mabbs and prepared the accounts of all three companies, namely ACJ, BTS and Rockingham.
19. Each of the accounts of ACJ for the years 2005 - 2009 showed on the balance sheet a 'loan receivable' from Rockingham. The loan was described as 'interest free, unsecured and [has] no specified date of repayment'. The amounts shown as outstanding under the loan were as follows:
Year of Account |
Amount |
2005 |
£443,242 |
2006 |
£443.762 |
2007 |
£444,952 |
2008 |
£445,342 |
2009 |
£445,443 |
20. It is to be recalled that Mr and Mrs Mabbs were both directors of ACJ. All of the accounts show that they were approved by the board of directors on a date that was specified on the balance sheet. The accounts have also each been signed by one or more directors, including Mr Mabbs himself in 2007 and in 2009. Mr Mabbs was also the secretary and appears to have signed all the directors' reports as secretary except for 2008, which is unsigned.
21. The second piece of evidence relied upon by the liquidators was the accounts of Rockingham. These had not originally been available to the liquidators but were helpfully obtained from Rosscot by the Viscount during the course of the désastre. Only the accounts for 2006 - 2009 were obtained but the 2006 accounts contained comparative figures from 2005 and we therefore include them. They too showed Rockingham being indebted to ACJ by way of loan account as follows:-
Year of Account |
Amount |
2005 |
£443,242 |
2006 |
£443.762 |
2007 |
£444,952 |
2008 |
£445,342 |
2009 |
£445,443 |
It is to be recalled in connection with Rockingham that Mr Mabbs was the beneficial owner, Mrs Mabbs, the son and the daughter were the directors and Mrs Mabbs was the secretary. Again, all of the accounts show that they were approved by the board of directors on a specified date which was inserted in the balance sheet and each set of accounts was signed by Mrs Mabbs as director and she also signed the directors' report as company secretary. Again, the loan from ACJ was said to be 'interest free, unsecured and has no specified date of repayment'.
22. The third item of evidence relied upon by the liquidators was a Statement of Affairs in respect of ACJ sworn by Mr Mabbs as a director. Article 160(2) of the Companies (Jersey) Law 1991 ("the Companies Law") requires the directors to produce a statement of affairs of the company verified by affidavit by some or all of the directors prior to the meeting of creditors which is an essential step in a creditors' winding up. On 22nd March, 2013, immediately prior to the creditors' meeting in respect of ACJ, Mr Mabbs swore a Statement of Affairs in respect of ACJ as at 22nd March, 2013. Under assets was listed:-
"Rockingham Investments Limited; loan recoverable estimate £447,138."
23. The certificate at the foot of the Statement of Affairs certified that it was true to the best of Mr Mabbs' knowledge, information and belief and was sworn by him in the presence of a notary public.
24. In summary therefore, the accounts of both ACJ (as alleged creditor) and Rockingham (as alleged debtor) were at one and agreed that there was a loan account between ACJ and Rockingham and were agreed as to the outstanding amount from 2005 to 2009. Furthermore, Mr Mabbs had sworn on oath in March 2013 that there was such a loan with the outstanding amount being estimated at £447,138.
25. The Viscount sought further information from the liquidators such as bank statements, proof of payment, etc., but the liquidators were unable to produce this as Rockingham had never had a bank account and it was not possible to obtain bank statements from ACJ's bank as that bank only kept statements for a certain period which had expired. It appears that the accounting records kept by Mr Mabbs were incomplete and there was nothing further within the records of ACJ available to the liquidators to explain the loan account.
26. The Viscount asked Mr Mabbs if he had any observations on the claim by ACJ. He responded by letter dated 16th April, 2018, in which he sought to challenge both the quantum and the basis of ACJ's claim. It was a lengthy letter which repeated points he had made in an affidavit dated 20th March, 2018, in turn, according to Mr Mabbs, contained information which he had communicated to the Viscount at various meetings going back to 31st October, 2017. We would summarise the main points made by Mr Mabbs in the letter and affidavit as follows, drawing on the helpful summary contained in the affidavit of Mrs Allo of the Viscount's Department sworn for these proceedings:-
(i) When the Property was purchased in 2000, Rosscot consulted a tax adviser who advised that the purchase should be through a Jersey company (Rockingham) and that, although Mr and Mrs Mabbs had disposable personal funds, they should withdraw funds from the trading companies (i.e. ACJ and BTS) to fund the purchase. To Mr Mabbs' mind, the funding arrangement was a "nominal loan" or a "'loan' in small letters". He thought that it was no more than a tax advantageous transfer to abate the risk of capital gains and inheritance tax. He said that the true nature of the arrangement was evidenced by the fact that Rockingham had no bank account and this showed that there was never any intention that Rockingham would repay any funds. It was devoid of any means to repay what the liquidators were now claiming to be a loan.
(ii) He produced a letter dated 13th March, 2000, from himself and his wife to HSBC in Jersey instructing them to transfer a total sum of £500,000 to the solicitors acting in connection with the purchase of the Property. The letter explained that the sum exceeded by a safe margin the total sum required for the purchase including stamp duties, fees etc. The letter instructed that the sum of £160,000 should be taken from the account of ACJ, £140,000 from that of BTS and £200,000 from a joint account of Mr and Mrs Mabbs.
(iii) He said that the liquidators' case was based almost exclusively upon the Statement of Affairs. He said that he had had health problems at the time and that the Statement of Affairs was signed under stress and duress. The Statement of Affairs was presented to him minutes before the commencement of the creditors' meeting. He had not taken independent legal advice or been offered or advised to take the opportunity of doing so and he suspected that the figures had been massaged by Mr Rabet (one of the liquidators) who told him that it was in his best interests and those of ACJ to sign.
(iv) He said that he had introduced substantial personal sums into ACJ since 2011 and estimated these as totalling at least about £394,500. He said that all these funds would have been perceived by him as being an abatement of the nominal loan recorded for the purchase of the Property. These funds should, he claimed, be offset against the amount allegedly due by Rockingham to ACJ.
27. In the letter Mr Mabbs also criticised the handling of the liquidation of ACJ by Mr Rabet as one of the joint liquidators. As Mrs Allo pointed out in her affidavit, it was clear from the material provided by each of the parties that the relationship between Mr Mabbs and Mr Rabet had deteriorated significantly.
28. Following further exchanges between the Viscount, the advocates to the liquidators and Mr Mabbs, the Viscount issued her adjudication by letter dated 31st August, 2018. She gave the following reasons for rejecting the claim:-
(i) The Statement of Affairs described the loan to Rockingham only as being a 'recoverable estimate'.
(ii) The information supporting that figure was based on unaudited financial statements dated 31st December 2009.
(iii) No further documentary evidence to support ACJ's claim had been provided, such as bank statement entries showing relevant financial transactions.
(iv) Mr Mabbs had provided documentary evidence by means of the letter of 13th March, 2000, that ACJ had only provided £160,000 to Rockingham in March 2000 to assist with the purchase of the Property.
(v) Mr Mabbs had provided documentary evidence of funds contributed by him to ACJ since March 2000 totalling £188,390.
(vi) Mr Mabbs had produced evidence of funds paid by him and/or Mrs Mabbs in settlement of their guarantee liabilities in respect of ACJ totalling £75,635.
(vii) Mr Mabbs had referred to payment of other sums which he had paid to or on behalf of ACJ but had not produced evidence thereof satisfactory to the Viscount.
(viii) As Rockingham did not hold a bank account and Mr Mabbs was a director of both ACJ and Rockingham, the Viscount accepted Mr Mabbs' contention that the funds paid into ACJ by Mr and Mrs Mabbs should be set off against the sums paid by ACJ to Rockingham.
29. This matter was originally heard on 8th January, 2019. During the course of that hearing, the Court identified that there was inconsistency between the amounts referred to in the letter to HSBC of 13th March, 2000, and the amount of the Rockingham loan in the accounts of both ACJ and Rockingham from 2005. When Mr Mabbs said that he thought he had earlier accounts of the companies back in Scotland, the Court agreed to an adjournment in order that this could be investigated.
30. At the resumed hearing, earlier sets of accounts had been obtained both from Scotland and, through the offices of the Viscount, from Rosscot. There were signed accounts of ACJ and BTS for the years 2000 - 2004.
31. We would extract the following relevant information from those accounts:-
(i) The accounts of ACJ for 2000 showed as assets in the balance sheet loans of £160,000 to Rockingham and £197,854 to BTS. The accounts of BTS showed a loan payable to ACJ of £197,854 and a loan receivable from Mr and Mrs Mabbs of £144,970.
(ii) The 2001 accounts of ACJ showed the loan to Rockingham having increased by £144,970 to £304,970. There had been a corresponding reduction of £144,970 in the loan to BTS. The accounts of BTS showed the amount receivable from Mr and Mrs Mabbs of £144,970 having disappeared and the loan payable to ACJ having been reduced by the same amount to £52,884. In a nutshell, there had been in accounting terms a repayment by Mr and Mrs Mabbs of the sum of £144,970 to BTS which had in turn repaid this sum to ACJ which had in turn lent it to Rockingham.
(iii) The 2002 accounts of ACJ showed the loan to Rockingham increasing by £134,336 to £439,306 and the amount payable to Mr and Mrs Mabbs increasing by the same amount.
(iv) The 2003 accounts of ACJ showed the loan to Rockingham unchanged in the sum of £439,306 as did the 2004 accounts.
(v) In summary, the accounts of ACJ showed the loan account owed by Rockingham to ACJ as follows:-
Year of Account |
Amount |
2000 |
£160,000 |
2001 |
£304,970 |
2002 |
£439,306 |
2003 |
£439,306 |
2004 |
£439,306 |
32. The Court only received one additional set of signed accounts in relation to Rockingham, namely the 2004 accounts. These showed a loan payable to ACJ of £442,147. It is not clear on what date these accounts were approved by the directors but it was clearly after 7th February, 2005, because the directors' report refers to the change in the constitution of the board on that date.
33. The Court was also provided with what appear to be draft accounts of Rockingham for the years 2000 - 2003. These were apparently extracted from the records of Rosscot but there is no evidence that they were ever considered by anyone. Furthermore, it is clear that they were only produced at the same time as the 2004 accounts because they all refer in the draft directors' report to the change in the constitution of the board dated 7th February, 2005. Be that as it may, the draft accounts of 2000 show a loan from ACJ of £439,306. This increases to £439,416 in 2001, £439,531 in 2002, £439,586 in 2003 and, as previously mentioned, £442,147 in 2004.
34. It is clear therefore that the draft Rockingham accounts for 2000 and 2001 are inconsistent with the ACJ accounts as to the amount of the Rockingham loan by quite a substantial margin. From 2002 - 2004, the loan account is a very similar but not identical figure in the accounts (or draft accounts as the case may be) of each company. From 2005 onwards, the accounts of ACJ and Rockingham are in agreement as to the amount of the Rockingham loan.
35. The Viscount submitted that the new information did not lead her to change her decision. On the contrary, production of the earlier accounts had if anything thrown more doubt upon the position. There was no sufficient explanation for the increase in the Rockingham loan (as shown in ACJ's accounts) from £160,000 in 2000 to £439,306 by 2002. In the absence of a satisfactory explanation, the reasons for her decision to reject ACJ's claim remained valid.
36. In his oral submissions, Mr Mabbs maintained the points made in his letter of 16th April, 2018, to which we have referred earlier. We would summarise his key submissions as follows:-
(i) He maintained the position that the amounts provided for the purchase of the Property were as set out in the letter to HSBC, namely £160,000 from ACJ, £140,000 from BTS and the balance from him and his wife. The accounts of ACJ now produced supported the fact that the amount obtained from ACJ was only £160,000. There was no justification for the subsequent increase in the amount of the loan so as effectively to treat the full amount required for the purchase of the Property as being provided by ACJ.
(ii) In any event, the sums provided were only a 'nominal loan'. ACJ was not entitled to demand repayment in circumstances where Rockingham would never have any funds with which to pay it and could only repay any sums by selling the Property.
(iii) The Statement of Affairs did not set out the true position. He had had to sign it under enormous pressure without any time to consider it properly. He had annexed to his affidavit five different versions of the Statement of Affairs which had all been produced sequentially by Rosscot on the day of the creditors' meeting under great pressure of time. The first two versions did not include the Rockingham loan; it was only the last three versions, including the final one which he signed, which included it. Furthermore, the figure for the loan was only an estimate. He was under enormous pressure to sign because of the imminent creditors' meeting and was advised by Mr Rabet, one of the liquidators that it would be in his best interests. He had not been given the opportunity to obtain independent legal advice.
(iv) The fact that the purchase of the Property was funded in this way was done entirely on professional tax advice. He and his wife had sufficient monies at that time to provide the purchase price themselves. There were also sufficient monies which they could have extracted from ACJ and BTS by way of a dividend before themselves providing the purchase price to Rockingham.
37. We have carefully considered the arguments put forward by the Viscount and Mr Mabbs but we are in no doubt that ACJ's claim should be accepted. We would summarise our reasons as follows:-
(i) We remind ourselves of the importance of company accounts. Article 103 of the Companies (Jersey) Law 1991 requires a company to keep financial records which disclose the financial position of the company with reasonable accuracy and Article 105 requires the preparation of financial accounts. Article 109 makes it an offence to breach Article 103 or 105.
(ii) The accounts of ACJ, BTS and Rockingham were all prepared by a firm of chartered accountants, Rosscot. From 2005 to 2009, the accounts of ACJ and Rockingham agree that there is a loan between ACJ and Rockingham which was in the sum of £443,242 in 2005 gradually increasing each year to £445,443 in 2009. The explanation for the modest annual increase appears from some working papers of Rosscot, namely that Rockingham had no income and therefore could not meet its annual expenses. These were therefore paid on its behalf by ACJ and added to the loan account.
(iii) The Viscount asserted that the fact that the loan was expressed in the accounts to have no specified date of repayment did not indicate that it was repayable on demand (or at all) and also indicated significant ambiguity about the precise terms of the alleged loan. We cannot agree. It is well established that, where money is lent without any stipulation as to the time of repayment, the Court will normally imply a term that it is repayable on demand or on reasonable notice. Although we were not referred to them by the parties, two Jersey cases are of assistance in this connection. In Sibley -v- Berry [1987/33] 7th July 1987, Mr Sibley lent the sum of £22,000 to Mrs Berry to assist in the purchase of a guest house. There was evidence in writing that a term of the loan was that it was repayable upon sale of the guest house. Mr Sibley's widow subsequently brought a claim demanding repayment of the loan at a time when the guest house had not been sold. The Court of Appeal upheld the decision of the Royal Court that, given the existence of the express provision concerning repayment, it would not be right to imply a term that the loan was repayable on reasonable notice. However, at page 5 of the judgment, Le Quesne JA said:-
"Had there been no express provision governing repayment, Mr Sibley's right would have been to get repayment on giving reasonable notice at any time."
(iv) Similarly, in Grove -v- Baker [2005] JRC 095, there was a loan which contained no express provision concerning repayment. The Court held that it was an implied term that the capital was repayable upon demand. Furthermore, the Court takes judicial notice of the fact that the terminology used in the accounts in respect of the loan in this case (i.e. 'no specified date of repayment') is used in many sets of accounts in Jersey where there are the inter-company loans within a group. The use of such terminology cannot possibly throw any doubt on whether there is in fact a loan at all.
(v) It is true that no accounts appear to have been prepared after 2009 but, if so, this must be the responsibility of Mr and Mrs Mabbs as owners and directors of the companies. In some circumstances it may of course be very significant that accounts showing a loan are out of date as there may be a real likelihood that the position in relation to the loan will have changed since the date of the accounts. However, that is not the case here. Rockingham has no assets other than the Property and has no income available to it. It is therefore not in a position to repay the Rockingham loan other than by selling the Property or re-financing by taking another loan. It has not sold the Property and there is no evidence that there has been any re-financing. In those circumstances the only inference must be that the loan continues to exist in at least the sum shown in the 2009 accounts of both ACJ and Rockingham.
(vi) The fact that the accounts for 2005 - 2009 of both the alleged creditor (ACJ) and the alleged debtor (Rockingham) agree as to both the existence and the amount of the loan is of itself powerful evidence that the position is indeed as described in the accounts. This is even more so when one notes that the two companies were at all times owned by Mr and Mrs Mabbs or Mr Mabbs alone, and that they and their children were the directors who approved the accounts. Yet it is Mr Mabbs who now seeks to assert that the accounts for all these years are wrong.
(vii) The accounts of ACJ and Rockingham are not however the only evidence of the loan. Under Article 160(2), a statement of affairs must be prepared and laid before the creditors' meeting in connection with a proposed creditors' winding up. The importance attached to a statement of affairs is shown by the fact that it must be verified by affidavit i.e. on oath. As already mentioned, Mr Mabbs swore the Statement of Affairs in connection with the creditors' winding up of ACJ which showed the Rockingham loan as one of ACJ's assets. The amount shown as 'recoverable estimate' is £447,138. No doubt this was an estimate which assumed annual increases since 2009 in respect of payments made on behalf of Rockingham's annual expenses as previously.
38. At this stage of the analysis, we would therefore describe the evidence in support of the loan as compelling. The accounts of both the creditor and the debtor are in agreement as to the existence and amount of the loan for the years 2005 - 2009, the accounts were drawn up by chartered accountants and approved by the Mabbs family, and Mr Mabbs has sworn on oath in 2013 that there is a loan by ACJ to Rockingham in broadly the same amount. So what is it which is said to negate this evidence or render it sufficiently uncertain that the claim of ACJ should be disallowed?
39. First, Mr Mabbs' claims that this was only a 'nominal' loan or a 'loan in small letters' coupled with the assertion that the transaction was structured this way on tax advice in circumstances where he could easily have provided the money for the purchase of the Property himself either out of existing resources or by arranging for ACJ and BTS to pay a dividend. Rockingham did not have a bank account and could never repay the 'loan'.
40. We do not accept this argument for two reasons. First, there is no such legal animal as a 'nominal' loan or a 'loan in small letters'. It is either a loan (in which event the money is repayable to the lender) or it is not, in which event the transaction is of some other nature such as a gift, purchase price etc. The fact that the purchase of the Property could have been funded in a different way is irrelevant. The question is what in fact occurred. We have not seen details of the tax advice outlined to us by Mr Mabbs. But the fact is that if a person says that something is a loan for tax purposes, it is not permissible for that person then to say that it is really not a loan for all other purposes. Secondly, the fact that Rockingham did not have a bank account and was not in a position to repay the loan other than by selling the Property is irrelevant. It is frequently the case that a shareholder funds his company by way of loan so that the company may purchase a non-income producing asset. The shareholder as lender accepts that he will only be able to obtain repayment if and when the asset is sold. That was the position here. The fact that the loan was made by a company which was owned by the shareholder rather than by the shareholder direct makes no difference.
41. Secondly, the Viscount accepted Mr Mabbs' assertion that monies advanced by him to ACJ could be set off against the Rockingham loan. We cannot agree that that is correct. If A advances monies to B, that constitutes a loan by A to B. It cannot of itself affect the position between B and B's debtor C. On the evidence, that is the position here. Mr Mabbs advanced money to ACJ in order to assist its financial position and that would constitute him a creditor of ACJ for the sums advanced, assuming they were advanced by way of loan account. It cannot of itself affect the position between Rockingham and ACJ.
42. It would of course theoretically be possible by tripartite agreement for Mr Mabbs to be treated as advancing money to Rockingham with Rockingham in turn being treated as repaying its loan account to ACJ, such that Mr Mabbs became a creditor of Rockingham for the amounts advanced and Rockingham reduced its loan from ACJ. However, clear evidence of that would be needed and there is none. For example, Mr Mabbs has not sought to prove as a creditor of Rockingham. All that is available is Mr Mabbs' assertion well after the event that "...all the private equity funds made to ACJ would have been perceived by me to be and have been an abatement of the nominal loan as was recorded for the purchase of [the Property]" (see his affidavit of 20th March 2018 and letter of 16th April 2018). In our judgment, that is a wholly insufficient basis on which to find that monies advanced by Mr Mabbs to ACJ somehow had the effect of reducing the amount owed by Rockingham to ACJ.
43. Thirdly, Mr Mabbs argued that no weight should be placed on the Statement of Affairs. He says that this was signed under enormous pressure and a very tight timescale and he had not been in a position to review the Statement of Affairs properly before he swore it. We can readily accept that there was considerable time pressure because of the forthcoming creditors' meeting and it does appear that five versions of the Statement of Affairs were produced, with only the last three including the Rockingham loan as an asset of the ACJ.
44. However we cannot accept Mr Mabbs' assertion that one of the liquidators somehow massaged the figures or exerted undue pressure. A letter dated 5th April, 2018, from Rosscot to Advocate Garrood, on behalf of ACJ states:-
"The company's Statement of Affairs was drafted by Rosscot for the consideration and approval of the Company's directors from the Company's own accounting records and additional information and explanations received from and provided by the directors."
45. This is consistent with contemporaneous emails which have been produced. Thus on 22nd March, 2013 at 09:27, Mr O'Flaherty of Rosscot sent an email to Mr Rabet and Mr Mabbs saying the following:-
"Please see attached a draft Statement of Affairs and supporting schedules in advance of the creditors meeting at lunchtime today. I have also included an unmarked copy of the SOA. I met with David [Mr Mabbs] this morning to go through the draft figures and have since made some adjustments. The main changes are the inclusion of (a) an approximation of net assets for BTS and (b) the Rockingham Investments Limited loan receivable. [emphasis added]
I would point out that little notice was given requesting that Rosscot assist the directors in preparing the SOA. It then took additional time to receive the available documentation. Due to this it has been problematic to produce the SOA and it has not been possible to finalise many of the assets and liabilities. As such estimates have been included as necessary." [emphasis added]
46. Mr Rabet replied to Mr O'Flaherty at 10:22 (copied to Mr Mabbs) saying that there appeared to be serious doubts about the recoverability of certain amounts shown in the draft Statement of Affairs, namely:-
"Trade debtors - some of the larger amounts are in dispute.
Rockingham Investments Limited - who is behind this and are there assets to realise?"
This negates any suggestion that Mr Rabet was previously aware of the Rockingham loan or had any part in its inclusion in the Statement of Assets or its amount.
47. Mr O'Flaherty replied by email at 10:38 copied to Mr Mabbs in which he said amongst other things "Rockingham; David can fill you in on this. It owns a property/hotel in the UK and has no liquid assets." Given this exchange of emails, one would have expected the liquidators and/or the creditors to explore the issue of the Rockingham loan at the creditors' meeting which was due to take place that lunchtime. The Court was provided with what purported to be the minutes of that meeting and paragraph 3 stated:-
"The signed Statement of Affairs was presented to the meeting and the contents of this were discussed in some detail including the recoverability of debts and the monies owed to the company by Rockingham Investments Limited and its Guernsey subsidiary [BTS]."
It is fair to point out that the Court was not provided with a signed version of these minutes and indeed it is not clear whether they were ever supplied to Mr Mabbs as chairman of the meeting. It seems probable they were drawn up by or on behalf of the liquidators. Nevertheless, the minutes are entirely consistent with the exchange of emails.
48. It is clear from these various emails that the information about the Rockingham loan came entirely from Rosscot and not from the liquidator, to whom existence of the Rockingham loan was news. The mere fact, if it be so, that Mr Rabet expressed the view to Mr Mabbs that it was in the best interests of ACJ/Mr Mabbs to sign the Statement of Affairs cannot begin to amount to 'massaging the figures' or undue influence.
49. At the end of the day, we consider that the Court is entitled to place weight on the Statement of Affairs. However much time pressure Mr Mabbs was under, this was an important document which he was swearing under oath. Most importantly, the existence of the Rockingham loan in the Statement of Affairs would not have come as a surprise to him. That is because the accounts of ACJ from 2005 to 2009, which he had approved as a director, had shown the Rockingham loan as an asset of ACJ in a broadly similar amount. Furthermore, the accounts of Rockingham, which he owned, and which accounts were approved by his wife and children as directors, showed the same. There was therefore nothing which came out of the blue to Mr Mabbs in the Statement of Affairs so far as Rockingham was concerned. The information was entirely consistent with the most recent accounts of both ACJ and Rockingham.
50. Fourthly, Mr Mabbs and the Viscount refer to the fact that the evidence shows that ACJ only initially provided £160,000 towards the purchase and that the balance was provided by BTS and Mr and Mrs Mabbs personally. They say that the accounts of ACJ from 2000 until 2004 do not explain how and why matters were rearranged so that the amount owed by Rockingham to ACJ increased from £160,000 in 2000 to the entire purchase price of nearly £440,000 in 2002. We acknowledge that this is so. The key changes were in 2001 when the loan increased in the accounts from £160,000 to £304,970 and in 2002 when it increased again to £439,306. These increases were however matched by changes in the various loan accounts as between ACJ, BTS and Mr and Mrs Mabbs. It is not uncommon for there to be considerable changes in inter-group loan accounts where companies are in common ownership. The fact remains that from 2002 onwards, the directors of ACJ, including Mr and Mrs Mabbs who were also the beneficial owners, signed off accounts year after year which showed a loan due from Rockingham in the sum of £439,306 gradually increasing to take account of minor expenses paid on behalf of Rockingham. We only have signed accounts for Rockingham from 2004 onwards. The figure in 2004 was very similar (but not identical) to that shown in the ACJ accounts but from 2005 onwards, the figures for the loan account in the accounts of ACJ and Rockingham were identical. Whilst Mr Mabbs has sought to explain the circumstances in which he came to sign the Statement of Affairs in 2013, he has offered no satisfactory explanation as to how it was that year after year (when there was no pressure of events such as a creditors' meeting) he and his fellow directors signed accounts on behalf of both ACJ and Rockingham which showed the Rockingham loan as an asset of ACJ when he now says that there was no such loan.
51. Fifthly, we acknowledge the Viscount's point that there are no bank accounts or other contemporaneous records to show the transfer of monies underlying the loan account figures in the accounts. Clearly it is often helpful to have such documents, but we do not regard it as essential. In this case Rockingham did not have a bank account and it is now too late to obtain copies of bank statements in respect of ACJ. It is clear the financial records of all the companies under the management of Mr and Mrs Mabbs were not in good order which may explain the lack of any other contemporaneous evidence. But, as we have said earlier, financial statements are important documents upon which weight can properly be placed unless there is clear evidence to show that they are erroneous. In our judgment, such queries as have been raised in this case as to the original source of funds and development of the loan account do not come near to overcoming the fact that both creditor (ACJ) and debtor (Rockingham) have agreed year after year until 2009 as to the existence and amount of the loan, that the existence and amount of the loan was confirmed on oath by Mr Mabbs as a director of ACJ in 2013 and that, in the circumstances where Rockingham still owns the Property, there is no reason to think that the loan has been repaid or has significantly changed in amount since 2009.
52. We would mention certain arguments which Mr Mabbs raised in his skeleton argument but which he did not press in his oral submissions and which were not relied upon by the Viscount. These all related to the Statement of Affairs and (very briefly) were as follows:-
(i) Consent in the formation of a contract has, he submitted, to be reached subjectively. He did not subjectively consent to the Statement of Affairs as he did not have time to consider its contents properly, was not offered the opportunity of taking legal advice and did not realise that, by signing it, he was placing the Property, in which his family lived, within the purview of the liquidation.
(ii) He had signed the Statement of Affairs under the undue influence of Mr Rabet, who had advised him that it was in the best interests of him and ACJ to sign. He had no opportunity to take independent legal advice.
(iii) There had been innocent (i.e. not fraudulent) misrepresentation by Mr Rabet when he advised Mr Mabbs that it would be in his best interest to sign.
(iv) He had signed the Statement of Affairs as a result of 'erreur' so that there was a 'vice du consentement'. The erreur related to the subject matter of the agreement because there was confusion as to whether the Rockingham matter fell within the ambit of the agreement, there was no settled knowledge as to the quantum of that matter and the effect of the inclusion was not clear to Mr Mabbs while Mr Rabet, the other party, did nothing to clarify the issue and in fact perpetuated the misunderstanding.
(v) Because the Statement of Affairs only quantified the Rockingham loan as a 'recoverable estimate', there was insufficient certainty for a contract and there was therefore insufficient certainty for an objet.
53. In our judgment, none of these submissions assists Mr Mabbs. The principles which he seeks to rely upon arise in the context of the law of contract. However there was no contract here. The Statement of Affairs was simply a unilateral assertion by Mr Mabbs on oath as to the financial position of ACJ as required by the Companies Law. Accordingly the various principles which he describes - and we are not to be taken as accepting that he has summarised them correctly - do not arise. As to the suggestion of undue influence, we have dealt with that as a factual matter at para 48 above.
54. We acknowledge the point made by the Viscount that Mr and Mrs Mabbs will suffer the loss of their home if the claim of ACJ is admitted, as the Property will have to be sold by the Viscount. This point is emphasised by Mr Mabbs and we acknowledge its force. However, sympathy for Mr Mabbs cannot be allowed to influence the decision. On the other side of the coin, ACJ is in a creditors' winding up and the creditors of ACJ are entitled to expect the liquidators to recover any assets of ACJ so as to reduce the amount by which the creditors of ACJ are left out of pocket. The issue ultimately must be determined on the evidence, namely is the Court satisfied that Rockingham is indebted to ACJ. For the reasons we have given, we are satisfied that it is.
55. The final point we would make relates to the exact amount of the claim. The last accounts of ACJ and Rockingham in 2009 show an amount owing of £445,443. The only later figure is that contained in the Statement of Affairs in 2013 in the sum of £447,138, which is the amount claimed by the liquidators. However, that was expressly said to be an estimate in the Statement of Affairs and was obviously calculated by assuming a continuation of ACJ paying for Rockingham's expenses. That may well have occurred but there is no evidence to that effect or of how much each year those expenses would have been. In the circumstances, the liquidators have only shown satisfactorily that an amount of £445,443 is owing.
56. Accordingly, we direct the Viscount to admit ACJ's claim in the désastre of Rockingham in the sum of £445,443.
Authorities
Bankruptcy (Désastre) (Jersey) Law 1990.
Viscount -v- Booth [2018] JRC 170
Companies (Jersey) Law 1991
Sibley -v- Berry [1987/33] 7th July 1987