Mr Justice Blackburne :
- This is the respondent's application to strike out the applicant's originating application for relief against the respondent under section 212 of the Insolvency Act 1986 ("the 1986 Act"). The respondent's application is made pursuant to CPR 3.4(2)(a) on the ground that the claims against him are statute-barred, alternatively pursuant to CPR Part 24 on the ground that, for the same reason, the claims against him have no real prospect of success and there is no other compelling reason why the matter should be disposed of at trial.
- The proceedings relate to the affairs of Eurocruit Europe Ltd ("the Company") which went into creditors' voluntary liquidation on 12 October 1999. The applicant, Kevin Goldfarb, a chartered accountant and licensed insolvency practitioner, was appointed liquidator on the same day.
- The Company, which was incorporated on 17 July 1997, carried on business as a recruitment agency. The respondent, Richard Poppleton, was appointed a director of the Company on the day of its incorporation and remained a director until the Company went into liquidation just over two years later on 12 October 1999. Mr Poppleton was from 13 July 1998 the Company's sole director.
- As at the date of liquidation the Company, according to its statement of affairs, had liabilities of £326,601 and assets of just £22,982. Its major creditors were and are Customs and Excise (as they then were) with an admitted debt of £107,629 and the Inland Revenue (as it then was) with an admitted debt of £117,438.45. Those two debts comprise roughly 70% of the Company's overall indebtedness and roughly 75% of the resulting deficiency. According to the statement of affairs Mr Poppleton is a debtor in the sum of £23,000 which represents just under 25% of the Company's creditors ignoring the two Crown debts.
- By his originating application Mr Goldfarb seeks an order requiring Mr Poppleton to pay £303,719 to him by way of contribution to the Company's assets, or such other sum as the court considers just. That amount is exactly equal to the Company's deficiency. Interest and costs are also claimed. As is made clear by the particulars of claim, the relief is sought pursuant to section 212 of the 1986 Act on the ground that Mr Poppleton acted in breach of the duty of care and skill which he owed to the Company and also in breach of the fiduciary duty which he owed to act in good faith in the best interests of the Company and its creditors. Particulars are given of the alleged breaches. It is alleged that Mr Poppleton's breaches of duty resulted in the Company's deficiency of £303,719 and therefore that he is liable to account to the Company for that sum or to compensate the Company for such other sum as the court shall consider just pursuant to section 212. In answer to a Part 18 request, Mr Goldfarb states that the breaches of care and skill continued from January 1999 until the Company ceased to trade. The evidence indicates - and I did not understand this to be in controversy - that the Company ceased to trade in the second half of September 1999 when the decision was made, on professional advice, to convene meetings to place the Company in creditors' voluntary liquidation and appoint Mr Goldfarb as liquidator.
- Mr Poppleton has served a defence in which he denies any breaches of duty. By paragraph 21 of his defence he pleads as follows:
"If, which is denied, the Respondent breached his duty of care and skill and/or fiduciary duty to act in the best interests of the Company as pleaded it is averred that any such breaches of duty that occurred prior to 7 October 1999 (being 6 years before the date of issue of these proceedings) are statute barred by reason of the Limitation Act 1980. For the sake of clarity it is averred that no breaches of duty occurred after 7 October 1999 and thus all claims made by the Applicant are time barred."
In fact, as I understand it, these proceedings, although dated 7 October 2005, were only issued on Monday 10 October 2005. This means that they were issued only one clear working day before the sixth anniversary of the commencement of the Company's liquidation and Mr Goldfarb's appointment as liquidator.
- For the purposes of Mr Poppleton's strike-out application, I proceed on the basis that the allegations of fact set out in the particulars of claim are true so far as relevant to the basis of that application. It has not been suggested that I should proceed on this application on any other basis. The only issue has been when the applicable limitation period began to run.
- For Mr Poppleton, Mr Nicholas Briggs submits that the relevant limitation period is six years, under section 2 of the Limitation Act 1980 ("the 1980 Act") (concerned with actions founded on tort) in the case of the alleged breaches of the duty of care and skill and, given the nature of the sole breach that is alleged, under sections 2 and 36 of the 1980 Act (applying the time limits under section 2 by analogy) in the case of the alleged breach of fiduciary duty. He submits that the six year periods run in each case from the date damage was suffered by the Company in respect of the breach relied upon. He submits that since the Company ceased trading on 21 September 1999 (see paragraph 17.1.2 of his defence) the latest date on which any cause of action could have accrued was more than six years before these proceedings were brought. If that is correct then, prima facie, the claims were statute-barred when these proceedings were issued on 10 October 2005.
- For Mr Goldfarb, Mr Richard Wilson accepts that the relevant limitation period is six years but submits that the material provision is section 9 of the 1980 Act, namely the time applicable to "an action to recover any sum recoverable by virtue of any enactment". The enactment in question is, he says, section 212 of the 1986 Act. He submits that, in any event, whichever is the relevant section of the 1980 Act, the causes of action only accrued to Mr Goldfarb on 12 October 1999 when the Company was wound up and he was appointed its liquidator. If that is correct then, on any view, the proceedings were brought in time, if only just. But Mr Wilson also goes on to submit that if, contrary to those submissions, the relevant limitation period began at the date of breach, so that the claims were prima facie statute-barred when these proceedings were issued, nevertheless time began to run afresh, under section 32(1)(b) of the 1980 Act, by reason of Mr Poppleton's conduct in deliberately concealing from Mr Goldfarb facts relevant to his rights of action against him.
The primary limitation period
- Section 212 of the 1986 Act provides, so far as material, as follows:
"(1) This section applies if in the course of the winding up of a company it appears that a person who -
(a) is or has been an officer of the company…
has misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company.
…
(3) The court may, on the application of the official receiver or the liquidator, or of any creditor or contributory, examine into the conduct of the person falling within subsection (1) and compel him -
(a) to repay, restore or account for the money or property or any part of it, with interest at such rate as the court thinks just, or
(b) to contribute such sum to the company's assets by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just."
- Mr Briggs reminded me that section 212, like its statutory predecessors stretching back very many years, has been regarded, at least since 1880 (see Re Canadian Land Reclaiming and Colonizing Company (1880) 14 ChD 660 at 670), as procedural in nature, enabling the liquidator of a company to bring proceedings in his own name in respect of breaches of duty or the like suffered by the company which, but for that provision, the company would have to pursue in its own name. He drew my attention to various passages in the authorities which are to this effect including, most recently, the following from the judgment of Chadwick LJ in Cohen v Selby [2001] 1 BCLC 176 at 183 (paragraph [20]):
"Section 212 is the successor to s333 of the Companies Act 1948. It, and its statutory predecessors, have been in the Companies Acts since 1862. It provides a summary procedure in a liquidation for obtaining a remedy against delinquent directors without the need for an action in the name of the company. It does not, of itself, create new rights and obligations: see Re City Equitable Fire Insurance Co Ltd [1925] Ch 407 at 507. The scope of the section was enlarged by the 1986 Act (or, more accurately, by the Insolvency Act 1985, in which s212 was enacted as s19) to include 'breach of other duty'; thereby removing the limitation imposed by he concept of misfeasance which had been identified by Evershed MR in Re B Johnson & Co (Builders) Ltd [1955] 2 All ER 775 at 781, [1955] Ch 634 at 648. There can be no doubt, now, that a liquidator can proceed under s212 of the Insolvency Act 1986 where all that is established is common law negligence. But, if he does so, he must establish a cause of action at common law; that is to say he must show that the breach of duty of which he complains has caused loss or damage. In my view, when exercising the power, conferred by s212(3)(b), to compel a delinquent director 'to contribute such sum to the company's assets by way of compensation in respect of the … breach of …other duty' in a case where the breach of duty complained of is a breach of the common law duty to take care, the court has to be satisfied that the negligence has caused a loss in respect of which compensation can be awarded. The position, in this respect, is the same as it would be if the company had brought an action in its own name."
- Given that that is the purpose of the section, Mr Briggs submitted that the relevant limitation period for a claim by the liquidator under section 212, as much as for a claim by the company brought independently of section 212, is calculated from the date of the actionable breach of duty.
- Mr Wilson submitted that the fact that the provisions of section 212 are procedural only merely means that no duty is owed to the liquidator independent of that owed to the company of which he is the liquidator. It does not mean that the cause of action against the defaulting director which vests in the liquidator does so at the same time as the cause of action vests in the company. This is because duty and breach are not the only components of the cause of action; a further component which must be alleged and proved is the event which enables the claimant to obtain from the court a remedy against the defaulting director. In the case of a claim by a liquidator proceeding under section 212, that event is the commencement of the liquidation and with it the appointment of someone as the company's liquidator on whom the right to bring the claim is thereby conferred. In short, in the instant case, unless and until the Company went into liquidation there was no scope for the application of section 212 to Mr Poppleton's alleged breaches of duty and no opportunity therefore for the Company's liquidator to pursue any remedy against Mr Poppleton under that section for his breaches.
- In making this submission Mr Wilson pointed out that, as explained in authorities such as Coburn v Colledge [1897] 1QB 702 and Letang v Cooper [1965] 1QB 232, a cause of action is, in the words of Diplock LJ in Letang v Cooper at page 242, "simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person". That factual situation, in the present case said Mr Wilson, includes the commencement of the Company's winding-up and with it Mr Goldfarb's appointment as liquidator; without that fact or event Mr Goldfarb would have no right to proceed against Mr Poppleton.
- Mr Wilson referred me in this context to the recent decision in Hill v Spread Trustee Limited [2007] 1 All ER 1106 in which, by a majority (Sir Martin Nourse and Waller LJ, with Arden LJ being in the minority on this point), the Court of Appeal found that the limitation period applicable to a claim under section 423 of the 1986 Act (concerned with transactions entered into at an undervalue and for the purpose of prejudicing creditors), brought by the trustee in bankruptcy of the person who had entered into the particular transaction (in that case a settlement), began to run under the 1986 Act from the date of the bankruptcy order and not from the date of the transaction in question. In particular, Mr Wilson drew my attention to the following passage from the judgment of Sir Martin Nourse (at paragraphs [148] to [150]) in which, after citing the passage from the judgment of Diplock LJ in Letang v Cooper set out above, Sir Martin went on to say this:
"That shows that the identity of the claimant or applicant is an ingredient of the cause of action and because two different persons may have the same or similar cause of action it does not follow that there is only a single cause of action.
[149] Further, I see no inherent objection to the notion that there may be separate limitation periods for different applicants under s423. While it has always been the policy of the Limitation Acts to put an end to stale claims, it has not been part of their policy to provide that time shall run against a claimant or applicant before he has been able to commence his action; see in particular s28 of the 1980 Act (disability).
[150] Three further points must be made. First, it is not an objection to the judge's view that the limitation period may begin many years after the transaction. That state of affairs is perfectly capable of arising under other sections of the 1980 Act, eg ss28 and 32. Secondly, I do not agree that the appointment of the trustee in bankruptcy is not an ingredient of the cause of action vested in the trustee. It is not until a bankruptcy order is made that the trustee is identified as the person entitled to sue. Thirdly, it is in my view immaterial that when the bankruptcy order is made there may be other victims of the transaction whose individual claims may already be statute-barred but who may nevertheless be able to claim as creditors in the bankruptcy."
- Mr Wilson emphasised that, as is well known, limitation bars the remedy and not the underlying right. That being so, he said, there could be no objection in principle to a liquidator having the right to pursue a defaulting director for a breach of duty owed to the company even though any remedy for the same conduct which the company itself might have wished to bring would be vulnerable to a limitation defence. This is because Parliament, through section 212, has empowered him to pursue such a remedy. He submitted that there was nothing objectionable in this. Indeed, he said, the contrary position, where limitation is calculated simply from the date of the breach of duty, was the more objectionable in that the conduct complained of might have occurred more than six years before the company was placed in liquidation and before therefore the liquidator would have had any opportunity to examine into the matter. He submitted that this would be particularly objectionable in a case such as this where Mr Poppleton was effectively in sole control of the Company and had been its only director during the relevant period.
- Mr Wilson went on to submit that in any event a claim under section 212 differed in certain respects from any claim that the company itself could bring based on the same underlying facts in that (a) the section only applies during the company's winding-up, hence the introductory words to section 212(1) (namely "…if in the course of the winding-up of a company …"); (b) the section enables the liquidator to pursue the claim in his own name as opposed to that of the company; (c) the section confers on the court what Park J in Re MDA Investments Limited [2004] 1 BCLC 217 at paragraph [71], described as "a measure of discretion as to the remedy…which would not exist, or at least would not be so extensive, at common law…" and (d) the section empowers the claim to be brought by any creditor or contributory of the company: see section 212(3).
- The difficulty about Mr Wilson's submissions is that they lead to a result which is contrary to the decision in Re Lands Allotment Company [1894] 1Ch 616. In that case proceedings were brought by the liquidator of a company under section 10 of the Companies (Winding up) Act 1890 to compel directors to restore to the company money that they had wrongly invested in March 1885, which was eight years before the proceedings were brought in August 1893. The liquidator also made a similar claim in relation to an investment made in 1889. The company had been placed in liquidation in January 1893. Both before Wright J and in the Court of Appeal, it was held that the claim in relation to the March 1885 investment was barred by limitation.
- The provision under which the liquidator in that case brought his claims, section 10(1) of the 1890 Act, was in all material respects the same as section 212 of the 1986 Act. Section 10(1) provided that:
"Where in the course of the winding-up of a company under the Companies Acts it appears that any person who has taken part in the formation or promotion of the Company, or any past or present director, manager, liquidator, or other officer of the company has misapplied or retained or become liable or accountable for any moneys or property of the company, or been guilty of any misfeasance or breach of trust in relation to the company, the court may, on the application of the official receiver, or of the liquidator of the company or of any creditor or contributory of the company, examine into conduct of such promoter, director, manager, liquidator, or other officer of the company, and compel him to repay any moneys or restore any property so misapplied or retained, or for which he has become liable or accountable, together with interest after such rate as the court thinks just, or to contribute such sums of money to the assets of the company by way of compensation in respect of such misapplication, retainer, misfeasance, or breach of trust as the court thinks just."
- It must follow, as Mr Wilson accepted, that if his submissions are correct, Wright J was wrong to dismiss the liquidator's claim in respect of the 1885 investment and the Court of Appeal was also wrong to dismiss the liquidator's appeal against that conclusion. Mr Wilson sought nevertheless to escape from this consequence by submitting that the attention of the courts in that case was not drawn to the point which he now advances. Rather, the focus was on whether directors of a company can avail themselves of a statutory limitation defence at all (namely, section 8(1) of the Trustee Act 1888 as applied to the directors of a company in consequence of section 1(3) of that Act). Moreover, he submitted, the limitation period relevant to Mr Goldfarb's claim under section 212 is section 9 of the 1980 Act, a provision which had no statutory equivalent at the time that Lands Allotment was decided.
- Since the Court of Appeal comprised Lindley, Kay and A.L. Smith LJJ, and there were no less than twelve counsel instructed on the appeal including, for the unsuccessful appellant liquidator, a future Lord Chancellor (and a future Master of the Rolls for one of the directors sought to be made liable), it must be thought unlikely that the point which Mr Wilson now makes was simply overlooked since, if well founded, it would have been an obvious one to take: the liquidation in that case commenced only months prior to proceedings being brought. As regards Mr Wilson's attempt to distinguish Lands Allotment on the basis of the non-existence at that time of section 9 or anything equivalent, there are in my judgment two answers. First, I do not consider that section 9 is the applicable provision in any event: the claims which Mr Goldfarb brings are claims in tort or, in the case of the alleged breach by Mr Poppleton of his fiduciary duty (and in the light of the observations of the Court of Appeal in Gwembe Valley Development v Koshy [2003] EWCA Civ 1048; [2004] 1 BCLC 131 at paragraph [111]), equivalent to a tort claim; they are founded on breaches of duty which arise independently of statute; they are not, therefore, proceedings "to recover any sum recoverable by virtue of any enactment". Second, the correctness of Mr Wilson's submission does not depend upon the particular provision of the 1980 Act applicable to the claims which Mr Goldfarb brings since, whichever it is, it is not suggested that the period in question is other than six years.
- It is also to be noted that the decision in Lands Allotment was referred to without disapproval in Re Farmizer (Products) Ltd [1997] 1 BCLC 589. In that case, which was concerned with a claim for wrongful trading under section 214 of the 1986 Act, an argument was mounted to the effect that the phrase "…if in the course of the winding-up of a company it appears…" which is to be found in section 214 meant that there was no limitation period at all applicable to such a claim. It was pointed out, however, that the same phrase appears in section 212. In particular, Peter Gibson LJ (with whom Potter and Butler-Sloss LJJ agreed) noted (at page 596) that counsel for the appellant liquidators accepted that in the case of section 212 the phrase in question did not have the consequence which he contended it had where it occurred in section 214 (namely that there was no limitation period) and also accepted that:
"…If, for example, more than six years after the commission by a director of a tort against the company the liquidator chose to proceed under s212, he could be met by a limitation defence notwithstanding that the proceedings were being prosecuted in the course of the winding-up of the company. Mr Oliver [counsel for the appellant liquidators] was compelled so to concede because of the decision in Re Lands Allotment Co Ltd …"
Peter Gibson LJ then summarised that decision and continued:
"It was not argued at first instance or in the Court of Appeal [in Lands Allotment] that 'in the course of the winding-up' excluded the Statute of Limitations. Mr Oliver does not challenge the correctness of that decision, and rightly points out that there is a material difference between s212 and ss213 and 214 in that the former is a procedural section providing a summary method for enforcing such liabilities as might have been enforced by the company itself in an ordinary action, whereas the latter sections create statutory causes of action."
- It is true, as Mr Wilson pointed out, that the Court of Appeal in Farmizer was concerned not with the date from which the limitation period applicable to a claim under section 212 begins but with whether, as was being contended, there was any limitation period at all applicable to a claim under section 214. Nevertheless it would be surprising if Peter Gibson LJ and the other members of the Court were to have mistaken the position under section 212 if, in truth, the relevant limitation period (under whichever section it arises) starts to run only when the liquidation commences.
- In my judgment, Mr Wilson's submissions on this point do not pay sufficient regard to the significance of the fact, made clear by the authorities, that section 212 is procedural in nature. The true significance of that fact is that the section merely provides an alternative means, in terms of procedure, of enabling the company, to which the defaulting director's duty was owed, to obtain recompense from that director for his breach of duty. If the liquidator chooses to name himself as the formal claimant in lieu of the company, his claim is by application, or (as appropriate) originating application, in the liquidation rather than by a claim form under CPR Part 7. The procedure is not available if it is intended to make someone other than a director (or other person falling within section 212(1)) liable for the wrong to the company, for example a claim against a non-director (along with a director) for having conspired to harm the company; in such a case or where other claims not within section 212 are brought against a director, for example a straightforward claim in debt, the claim must be brought by the company. In each case, however, the claimant is in substance the company; the relief which is granted under section 212(3) is for the repayment, restoration or accounting (to the company) of the money or property of the company or for a contribution to be made "to the company's assets by way of compensation" for the wrong in question. This is so whether the claim is brought by the company or by the liquidator or, for that matter, by a creditor or a contributory. It would be extraordinary, therefore, if, finding that a claim brought by the company in liquidation against a defaulting director had been successfully non-suited on limitation grounds, the company's liquidator could, in effect, ignore that result and advance the self-same claim again but, in his own name, shorn of any risk of a successful limitation defence merely because the claim was brought within six years of the commencement of the liquidation. The reason he cannot is that there is only a single cause of action, that of the company. All that section 212 does is give to the liquidator, if he wishes, the right to bring the claim in his own name.
- It follows from this that the fact that under section 212 the claim is brought in the name of a person other than the company does not mean that the identity of that person is, in the sense intended by Diplock LJ in the passage referred to earlier from Letang v Cooper, part of the factual situation the existence of which entitles that person to obtain from the court relief against another or, in the words of Lord Esher in Coburn v Colledge (at 706), "a fact which it must be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the Court."
- The decision in Hill v Spread Trustee Co is plainly distinguishable. That case was concerned with a claim under section 423 of the 1986 Act. Section 423, which sets out the ingredients of the cause of action and replaced section 172 of the Law of Property Act 1925, which itself replaced the Fraudulent Conveyances Act 1571 (13 Eliz cap 5), is, as its predecessors were, purely statutory in nature. The identity of the person entitled to bring the claim falls to be determined by the statute. Prior to the enactment of sections 423 and 424, the person who had entered into the impugned transaction with the purpose of prejudicing a creditor had no right to apply to the court to have the transaction set aside: it fell exclusively to the person alleging the prejudice to bring the claim. By section 424(1) of the 1986 Act, by contrast, it is open to the trustee of the person who entered into the transaction or, in the case of a company, the official receiver, liquidator or administrator of that company or, in stated circumstances, the supervisor of the voluntary arrangement (where a voluntary arrangement is in force in respect of that person) to apply for relief under section 423, as well as the victim of the transaction although even he does not have carte blanche to bring such a claim. It is evident therefore that the definition of who may bring such a claim and in what circumstances is not merely procedural but, as Sir Martin Nourse made clear (at paragraph [148] of that decision), "an ingredient of the cause of action". Moreover, a claim when so made is, by section 424(2), "to be treated as made on behalf of every victim of the transaction". Those features, in my judgment, are very different from the purely procedural nature of section 212.
- As to Mr Wilson's four factors, summarised at paragraph 17 above, which he relies on as showing that a claim under section 212 differs in substance from the claim if brought by the company, factors (a), (b) and (d) are, in truth, no more than restatements of the procedural nature of the section. In particular, factor (a) is, like the appearance of the same words in, for example, section 214, no more than a reflection of the fact that the court's jurisdiction to make an order under the section is confined to the period when the company is being wound up. See, in this connection, Re Farmizer (Products) Ltd at page 596i. Factor (c) is on analysis no more than a recognition that, even if a claim against a defaulting director is fully made out, including causation and damage, the court has power to treat the defendant more leniently than might be the case if the company's rights had been enforced at law. I do not consider that any of these factors, whether individually or collectively, justify the conclusion that a claim under section 212 has a limitation period distinct from the limitation period applicable to the underlying claim.
- It follows therefore that, subject to the argument under section 32(1)(b) of the 1980 Act, Mr Goldfarb's claims against Mr Poppleton fall to be struck out as being time-barred.
Does time start to run afresh under section 32(1)(b)?
- Mr Goldfarb's claim of deliberate concealment by Mr Poppleton so as to trigger the application of section 32(1)(b) is not pleaded by way of reply (as one might have expected and as is usual) to Mr Poppleton's defence served early in 2006 in which he raises limitation as a defence to the claims against him. Reliance on section 32 was only foreshadowed, and certainly not in so many words, in Mr Goldfarb's second witness statement served in response to Mr Poppleton's application to strike out. Indeed, Mr Briggs was taken somewhat by surprise by the section 32 point since he does not mention it in his skeleton argument. It is taken nevertheless and it has not been suggested by Mr Briggs that I should not deal with it.
- The concealment, if it is to satisfy section 32(1)(b), must relate to the facts relevant to the claimant's right of action. The concealment must be deliberate and not merely accidental. The concealment must be from the claimant. If the claimant is unaware of facts relevant to the right of action but the defendant deliberately conceals such facts from the claimant when time is still running, the result is that time ceases to run. Thereafter time will only run afresh when the claimant discovers the facts that have been concealed or could with reasonable diligence have discovered them; see Sheldon v RHM Outhwaite [1996] AC 102.
- The breaches of the duty of care and skill which Mr Goldfarb alleges are as follows:
(1) failing to ensure that the Company had in place any or any adequate procedures for management of its financial affairs, including in particular the maintenance of proper financial books and records;
(2) failing to have any or any sufficient regard to the level of the liabilities that the Company was incurring;
(3) failing to ensure that the Company complied with its obligations to account for VAT, PAYE and NIC resulting in the amounts (mentioned above) owed to the two Crown Departments at the date of the Company's liquidation;
(4) failing to ensure that the Company kept proper statutory records;
(5) failing to ensure that any or any reasonable steps were taken to ascertain whether the Company was solvent until shortly before liquidation in circumstances where, if reasonable steps had been taken, Mr Poppleton would or should have appreciated that the Company had become insolvent by January 1999 at the latest;
(6) causing or allowing the Company to continue to trade after January 1999.
The sole matter relied on by way of breach of fiduciary duty is:
(7) knowingly causing or permitting the Company to trade to the detriment of the Crown using monies which should properly have been used to meet the Company's taxation liabilities.
- I make no comment on whether each of those matters, if proved, would be causative of any and if so what loss. What instead is pleaded is simply that by reason of those breaches "the liquidation of the Company has resulted in a deficiency of £303,719" and that, accordingly, Mr Poppleton is liable to account to the Company for that amount or for such other amount as the court should consider just.
- It was not suggested by Mr Wilson that Mr Poppleton had failed to co-operate with Mr Goldfarb or that, for example, he was difficult to contact. What is relied on are answers he gave when Mr Goldfarb, acting by solicitors, finally got around to interviewing Mr Poppleton and a former employee of the Company, a Mr Lynch. Mr Poppleton's interview took place on 10 September 2004. The interview of Mr Lynch took place on 4 November 2004. (Reliance is also placed on the contents of a letter dated 16 February 2005 from a Mr Turnham). Mr Goldfarb, it seems, relies on what was said by Mr Lynch at his interview, and what was said by Mr Turnham in his letter of 16 February 2005, as disclosing to him the true scope of Mr Poppleton's role in the management of the Company's financial affairs which, at his interview, he had deliberately concealed. The position is described thus in Mr Goldfarb's witness statement in opposition to Mr Poppleton's strike-out application:
"9. I prepared an affidavit [dated 23 August 2001] for the purposes of the CDDA proceedings [referred to later] setting out what I had then discovered concerning management of the Company but by then we did not have a full picture of the management structures and processes of the Company (such as they were) and the direct responsibility for ensuring that the Company's VAT, PAYE and NIC liabilities were discharged. Indeed, as I mentioned at paragraph 9 of my affidavit in the CDDA proceedings, the Respondent [Mr Poppleton] had suggested that his duties were the "promotion and development of the company, oversight of the daily operations, and liaison with the financial director and accountant." This was the impression that the Respondent gave when interviewed by my solicitors and a member of my staff in September 2004 [he then mentions the transcript of that interview]. The Respondent suggested in interview that responsibility for the management of the financial affairs of the Company lay with a Mr Brian Turnham (a former director) and a Mr Clyde Lynch (an employee of the Company). In particular, the Respondent asserted that Mr Lynch was responsible for decision making and management in the Company.
10. Subsequent to this, on 4th November 2004, my solicitors and a member of my staff interviewed Clyde Lynch. Mr Lynch gave a very different account to that of the Respondent. Mr Lynch revealed that his role was essentially that of a bookkeeper who was not authorised to deal with the Company's bankers, and did not deal with the Company's tax or VAT affairs. This account ran entirely contrary to the Respondent's version of events, and if correct would suggest that the Respondent has sought to conceal his direct responsibility for the management of the Company's financial affairs [he then refers to the transcript of Mr Lynch's interview].
11. The Respondent's account was further contradicted by Mr Turnham who wrote to me on 16th February 2005 … in response to a letter and telephone call from my solicitors. As Mr Turnham's letter shows, he had had a considerable involvement with the Respondent's various companies, and he described the Respondent's assertion that he (Mr Turnham) had been a signatory on the company's bank account as "a lie". I suspect that the Respondent's comments in this regard had been an attempt by him to give the impression that others were responsible for the management of the financial affairs of the Company.
12. The information provided by Messrs Lynch and Turnham revealed that the Respondent had a far greater role in the management of the affairs of the Company and that the Respondent had failed to ensure that any person within the Company had had responsibility for ensuring that the Company complied with its obligations to account for PAYE, NIC and VAT and to ensure that the financial affairs of the Company were managed properly. The Respondent had given the impression that these responsibilities had been delegated to Messrs Turnham and Lynch, and that proper systems had been in place.
13. Only when I had been informed by Mr Lynch and Mr Turnham of the way in which the Company was managed, and the limited scope of their involvement in the financial affairs of the Company did it become clear that the Respondent had breached his duties in the manner complained of in this claim…"
- The complaint therefore concerns responsibility for the management of the Company's financial affairs. It relates at best to item (1), and possibly items (2), (5) and (6) of the allegations of breach set out in paragraph 31 above. It cannot plausibly relate to items (3) and (7). For it is plain that as regards those two matters Mr Goldfarb was fully cognisant of the position from October 2001 at the latest. Thus, Mr Goldfarb felt able as early as August 2001 (in his affidavit in support of the Secretary of State's application for Mr Poppleton's disqualification from acting as a director) to state, as matters of unfitness, that Mr Poppleton caused the Company to operate a policy of non-payment of its obligations to the Crown and that he allowed the Company to be in breach of its statutory obligations in respect of PAYE, NIC and VAT. Mr Goldfarb then sets out in detail in that affidavit what payments were made to the Crown departments and what liabilities were left outstanding and when they respectively arose. So far from concealing his involvement in and responsibility for those matters, Mr Poppleton readily acknowledged them. They resulted in him formally admitting, on 10 October 2001, that he caused or allowed the Company to trade to the detriment of the Crown (his admission then goes on to give details of what payments were made and what liabilities were left outstanding) and that he caused or allowed the Company to be in breach of its statutory obligations in respect of PAYE, NIC and VAT and in particular, that he caused the Company to fail to make all required payments of PAYE and NIC and that the Company failed to submit all VAT returns as required. For these, and also for matters relating to other companies, he undertook a period of disqualification in accordance with section 1A of the CDDA for a period of seven and a half years.
- Nor can it be said that Mr Goldfarb was unaware of item (1), insofar as that it related to the maintenance of proper financial books and records, or item (4) of the summarised allegations of breach and that Mr Poppleton deliberately concealed the facts relevant to them at his interview, until they were revealed at the interview of Mr Lynch in November 2005. In paragraph 7 of his witness statement in opposition to Mr Poppleton's strike-out application Mr Goldfarb stated as follows:
"However, it is incorrect for the Respondent to suggest …that I "…was aware of the factual allegations giv[ing] rise to the claim" …throughout. It is true that I took possession of some of the Company papers at a relatively early stage (October 1999). The Company's books and records were, however, in an abysmal state. They did not include the nominal ledger, nor the statutory books and records of a Company. Indeed, it is one of the complaints I make in this claim that the Respondent failed to keep proper books and records when running the Company. It is no exaggeration to describe the Company books and records kept by the Respondent as being a complete mess."
- That leaves item (1), insofar as it relates to having procedures in place for managing the company's financial affairs, and items (2), (5) and (6) of the allegations of breach. These do concern the Company's financial management in a more generalised way than the other, more specific, allegations. Mr Poppleton certainly stated in the course of interview, after some prompting by his questioner, that the accounting function was the internal responsibility of Mr Turnham and, later, Mr Lynch. That after all is why those persons were employed. But it is a mistake, in my view, to equate Mr Poppleton's comments on the internal responsibility of those persons for the accounting function with an attempt by him to conceal from Mr Goldfarb his overall responsibility as the Company's sole director (at the material time) for the Company's financial management. Nowhere does Mr Poppleton seek in the passages of his interview to which my attention was drawn to shift on to those two persons from himself or, relevantly to the issue of limitation, conceal from his questioner his own responsibility for any failings in the exercise of that function. But even if he had sought to do so, the undisputed fact, known to Mr Goldfarb from very early on in the liquidation (it is referred to in his affidavit in support of the CDDA proceedings), is that Mr Poppleton was the Company's sole director from 13 July 1998 which was before even the Company started trading. In such circumstances, Mr Poppleton's responsibility for the failure to have proper procedures in place for the management of the Company's financial affairs and for maintaining proper statutory records is obvious and indisputable.
- Lest is be thought that, by not mentioning the matter, I am to be taken as accepting its validity, I should refer to the criticism of Mr Poppleton made in paragraph 11 of Mr Goldfarb's witness statement (set out above) that, by reference to assertions made by him as to who the Company's cheque signatories were, Mr Poppleton sought, by what Mr Turnham described in his letter as a lie, to give a false impression about who was responsible for managing the Company's affairs. Mr Poppleton's evidence on the point was based upon a suggestion, put to him in the course of a very leading question, that Mr Turnham was a cheque signatory; Mr Poppleton only tentatively agreed with the suggestion. It was, in my view, a distortion of Mr Poppleton's hesitant answer on the point for Mr Goldfarb to seek to draw from it the conclusion set out in that part of his evidence. There are other criticisms that I could make of the quality of Mr Poppleton's interview and the reliance that Mr Goldfarb seeks to place upon it. It is sufficient simply to record that Mr Poppleton's answers do not justify the conclusion that he was seeking in that interview to conceal from his interviewer his responsibility for the proper management of the Company's financial affairs.
- In my judgment, there is no basis for Mr Goldfarb to rely on section 32(1)(b).
Result
- Mr Poppleton's application succeeds and I will strike out the proceedings against him.
