Liquidator Succeeds at Trial

Weak But Still A Winner

Nosnehpetsj Limited Liquidator Succeeds at Trial

This post “Liquidator Succeeds at Trial” is a tale of three judgments to date in respect of the liquidation of Nosnehpetsj Limited (“the Company”). The latest one following a Trial is Nosnehpetsj Ltd v Watersheds Capital Partners Ltd & Anor [2020] EWHC 1938 (Ch).

As Liquidator of the Company, I issued legal proceedings against Watersheds Capital Partners Limited and the Company’s Director, Richard Buzzoni seeking various orders of the court.

You can navigate this post Liquidator Succeeds at Trial as follows:

The connected company Watersheds Capital Partners Limited (“WCPL”) was also controlled by Richard Buzzoni. There were hurdles to vault to obtain the first instance decision of Chief ICC Judge Briggs.

If the incurious mind was not attracted to the Company’s name “Nosnehpetsj”, it is J Stephenson spelt backwards. John Stephenson was the Company Secretary and its accountant.

If you were to consider the first judgment you might be forgiven for thinking as liquidator I was going to lose or if nothing else, it was going to be a close-run thing in view of the apparent weaknesses referred at an earlier hearing.

However, the result in the most recent judgment which justifies the proposition ‘Liquidator Succeeds at Trial’ was the following statement in the judgment:

The liquidator is entitled to relief on behalf of the Company.”.

What this case appears to highlight is that what you put on your balance sheet and what you declare in your annual returns (now referred to as confirmations statements) does matter. In other words, those documents can have an impact for example on the assets that are declared within them, in the context of who they belong to if there is a dispute. In the case where errors arise you perhaps ought to consider taking action to correct, amend and rectify the same expeditiously.

Background to Liquidator Succeeds at Trial

The case involved an application as Liquidator for a declaration that the Company was entitled to the fruits of the Ordinary Shares in WCPL, which sprouted on the balance sheet of the Company and in the Annual Returns of WCPL:

Abbreviated Accounts 31 March 2011 (Source: Companies House)

This appeared to show the Company as the owner at certain relevant material times. I also sought a declaration that a redemption of 220,000 Preference Shares had not been paid for at £2 per share, as seemingly stipulated on the Annual Returns of WCPL.

Mistakes

It appeared to be the position of the Defendants that the reason that the Ordinary Shares in WCPL appeared in the Company’s 2011 balance sheet and in some of the Annual Returns of WCPL, recording them held by the Company, was down to a mistakes made by the Company’s accountant. Further, the recording in the Annual Return of the redemption price for the Preference Shares at £2 per share instead of £1, was also such a mistake.

In the judgment of ICC Chief Judge Briggs the following was said about this:

Mr Stephenson expressed embarrassment at making what he considered to be mistakes in the accounting records of the Company and Capital. In short, he says he made an error when completing the accounts in 2011 and 2012. He says that he made a mistake about the ownership of the ordinary shares, made a mistake by carrying forward the error to subsequent accounting years, that his “straightforward error[s]” were based on a “misunderstanding”, that he gave mistaken advice about group tax relief, made a mistake in his evidence about how an electronic submission form did not provide a drop down box for the date of transfer of shares, and made an error in respect of the preference shares.The number of mistakes admitted by Mr Stephenson would appear, at the very least, to reflect a careless attitude toward work or incompetence, yet his answers were at times precise and he was careful when giving his responses.

Books, Records and Provision of Information

In the most recent judgment, ICC Chief Judge Briggs referred to the matter of the provision of information:

A running theme through the liquidation and this litigation is Mr Buzzoni’s failure to produce books and records of the Company of the type and scale expected by Mr Green. Mr Buzzon’s account of the whereabouts and existence of records has altered over time… Mr Green did not receive adequate books and records to enable him to fully understand the dealings of the Company and in particular the transfer and re-transfer of the ordinary shares of Capital.”

Judgment 1: Summary Judgment and Strike Out

The matter first came before Deputy ICC Judge Baister who heard an application by the Defendants in respect of the Ordinary Shares claim. This application sought to strike this claim out or in the alternative for summary judgment on it.

In a nutshell, the Register of Members of WCPL always showed Mr Buzzoni as the owner of the Ordinary Shares. Further, the appearance of the Ordinary Shares in the accounts of the Company in 2011 and in the relevant Annual Returns of WCPL was suggested to be a mistake by the Company’s accountant.

The strike out and summary judgment application appeared rooted in the suggestion that my case on the Ordinary Shares relied upon the proposition that I needed to produce a transfer document.

The issue involved the proposition that the legal and or beneficial interest in respect of the Ordinary Shares in WCPL were transferred from Mr Buzzoni to the Company and then later from the Company back to Mr Buzzoni.

At the hearing Deputy ICC Judge Baister commented on the case in respect of the Ordinary Shares as follows:

“It is jolly weak, but I see your point. In this context, I mean, it strikes me as jolly weak for trial, but then I am not conducting a mini trial, am I, one must remember…. But it is about as weak a case as I have come across. But that is not the question on the strike out or summary – it is a question of whether it is so weak …”

In a Judgment issued by Deputy ICC Judge Baister the following was said:

“… it does strike me that the liquidator’s case has very, very substantial weaknesses indeed, though that of course is not the test that applies as to either striking out or giving summary judgment.”

Nevertheless, the application for strike out and or summary judgment did not succeed. The matter was appealed.

Judgment 2: Appeal of Summary Judgment and Strike Out Application

The appeal came before Sir Aliastair Norris. I have issued an earlier post on this in respect of the case of Nosnehpetsj Ltd v Watersheds Capital Partners Ltd & Anor [2020] EWHC 739 (Ch) as follows: “Alternative Analysis not Fanciful: Strike Out or Summary Judgment Not Warranted” in which the Court said:

“Impressive as this argument is, I do not consider that either striking out or summary judgement is warranted. An alternative analysis is not fanciful, and on the presently available material the issue ought in any event to be disposed of at trial.”

To get down to brass tacks the appeal did not succeed.

Judgment 3: Trial of the Share Claims

The trial of this case therefore culminated as Nosnehpetsj Ltd v Watersheds Capital Partners Ltd & Anor [2020] EWHC 1938 (Ch) and came before ICC Judge Briggs over three days commencing on 29 June 2020.

In the judgment ICC Judge Briggs commented on the witnesses as follows:

Witness Number 1 – The Liquidator: “I accept the evidence of Mr Green who gave his evidence in a straight-forward manner. His evidence was not undermined in cross-examination.”.

Witness Number 2 – Mr Stephenson: he said that he could not discount a bond with Mr Buzzoni affected his evidence and was “likely to have created a powerful bias… I consider he overstated his own incompetence.

Witness Number 3 – Mr Buzzoni: “He could be precise and vague…. My assessment of the evidence he gave is that it was not always reliable and needs to be treated with caution.”.

Ordinary Shares Battleground

The battleground on the Ordinary Share concentrated on the equitable maxim concerning equity and a volunteer. The rationale was that the Ordinary Shares went from Mr Buzzoni to the Company. In consideration of this point, submissions entailed a discussion of the case of Pennington v Waine [2002] 1 WLR 2075 (“Pennington”), which also considered shares in the context of an equitable assignment and Chief ICC Judge Briggs said the point at large from Pennington was:

“Once an intention to gift had been found it would be unconscionable to resile…. Equity will not strive officiously to defeat a gift.

The Burden of Proof

The well-known proposition came up for discussion ie. with whom the burden of proof rested. On behalf of the Defendants, Mr Lord QC adopted the stance articulated by Chief ICC Judge Briggs:

he who asserts must prove

On my behalf, Mr Fennell appears to have persuaded the Court that in the context of insolvency the matter is somewhat more nuanced.

In considering matters it is arguably notable how the judge articulated the importance of historical documents compared to witness evidence:

These contemporaneous documents are more reliable than Mr Buzzoni’s “vague” memory.”.

Group Tax Relief

An interesting feature in the case was the timing of the Ordinary Shares appearing in the Company’s balance sheet and the claim of the Company to Group Tax Relief. A material part of the judgment referred to that matter.

It appears that Preference Shares (depending upon their rights), might conceivably qualify as ‘ordinary shares’. The Defendant’s case appeared predicated upon the proposition that the Preference Shares would have enabled the Group Tax Relief to have been claimed.

However, the Court had this to say:

“Obtaining tax relief is more likely than not to have been the reason why Mr Buzzoni would have transferred the ordinary shares in Capital to the Company as reflected in the annual returns and accounts of both companies.”

The Finding on the Ordinary Shares

The Court found that deploying public documents to show the ordinary shares of WCPL were assets of the Company, was deliberate and that HMRC had relied upon the same. Consequently, the Court held:

It would have been unconscionable to recall the gift in the circumstances I have described, after tax relief had been received and after 1 March 2012 as the assets of the Company were no longer held for the benefit of its members, but for creditors. In these circumstances I find, on the balance of probabilities that there was an equitable assignment of the ordinary shares in favour of the Company.”.

The Preference Shares

The redemption of the preference shares was an issue for two reasons: 1) should the redemption have been undertaken at £1 or £2 per share and 2) was the redemption void “due to failure to comply with the provisions of the Act.“.

The matter of £1 or £2 was settled because the Court determined it ought to have been at £2 as was set out in the annual returns.

This post “Liquidator Succeeds at Trial” is provided for information purposes only. It is not legal advice and no liability is accepted for any reliance upon it.

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