The case of Barrowfen Properties v Patel & Ors  EWHC 2536 (Ch) has quite a few interesting facets.
If today’s desideratum is an exegesis of iniquity, well it is here for you.
The judge broadcasted a point about the Administration Claim that led to a comment about potential claims surrounding exploitation through secrecy, not affording a ringing endorsement of the same:
“Barrowfen’s fifth and final allegation is that Girish designed and implemented a plan to place Barrowfen into administration when it was balance sheet solvent and this was not in the company’s interests. The detailed facts upon which Barrowfen relies are set out in the Particulars of Claim at paragraphs 94 to 104 and I summarise them as follows:
i) On 26 October 2015 a meeting took place between Girish, S&B and Mr Dermot Coakley, an insolvency practitioner, at S&B’s offices.
ii) On or around 28 October 2015 Girish informed Mr William Radmore and his son, Kiraj, that Barrowfen II would take an assignment of the Loan and the Charge.
iii) On 2 November 2015 Barrowfen II was incorporated. The shareholders were Girish’s children, Kiraj and Vanisha, and the statutory directors were Kiraj and Mr Radmore. At all material times Girish was a shadow director of the company.
iv) On 30 November 2015 S&B informed Kiraj and Mr Radmore that Girish wanted the assignment of the Loan and the Charge to be completed the following day.
v) On 2 December 2015 the Loan and the Charge were assigned to Barrowfen II. On 4 December 2015 S&B wrote to Kingsley Napley LLP (“Kingsley Napley”), who were acting for Suresh and Prashant, giving notice of the assignment.
vi) On 9 December 2015 a meeting took place between Girish and Prashant at which Mr King and Mr Daniel Baker of S&B were present and Ms Sophie Le Breton of Withers (who was present solely for taking notes).
vii) On 12 February 2016 Girish instructed Barrowfen II to appoint administrators over Barrowfen.
viii) Also on 12 February 2016 Girish wrote to Rajnikant, Prashant and Suresh stating that unless he had a response to a proposal to purchase shares in Barrowfen by 10 am on Monday 15 February 2015 he would take steps to protect his position as a creditor of the company.
ix) By letter dated 16 February 2016 S&B, acting on behalf of Barrowfen II, wrote to Kingsley Napley demanding the immediate repayment of £853,300.88. Mr Radmore also sent a letter to Suresh and Prashant to the same effect.
x) By letter also dated 16 February 2016 S&B wrote to Kingsley Napley enclosing a letter from Girish to Barrowfen resigning as a director.
xi) On 17 February 2016 a notice of appointment of administrators was filed in the High Court on behalf of Barrowfen II.
xii) By letter dated 19 February 2016 Kingsley Napley, acting for Bedford, Suresh and Prashant wrote to the administrators indicating that their clients had sufficient funds to pay the debts of Barrowfen.
xiii) On 15 April 2016 they made a formal offer to the administrators and on 14 September 2016 a loan agreement was finalised and on 16 September 2016 Barrowfen exited from administration.
Barrowfen’s case is that Girish and Barrowfen II intended to enable Girish, or an entity under his control, to purchase the Tooting Property from the administrators, thereby achieving Girish’s aim of maintaining control over Barrowfen’s business and assets without the need for the consent of the majority of its directors and shareholders: see the Particulars of Claim, paragraphs 94, 94.1 and 98A.
The Defence: In his Defence, Girish admitted that Barrowfen II was incorporated to enable him to take an assignment of the Charge. But he denied that there was any suspicious or unlawful purpose or plan. He also denied that there was any understanding that the administrators would sell the Tooting Property to Barrowfen II or “a nominated party”. His case was that Zurich had called in the Loan and that it was necessary for him to refinance. It was also his case that the majority shareholders wished to put Barrowfen into members’ voluntary liquidation. Finally, he denied that Barrowfen was the proper Claimant.
The Evidence: Ms Hilliard took me first to an email dated 28 October 2015 and timed at 10.16 from Girish to Mr Radmore in which Girish stated as follows:
“This has reference to our telephone conversation on the subject of setting up a UK company with view of taking a registered fixed and floating charge of Allied Dunbar Bank by way of assignment of the existing Allied Dunbar charge on the property 184-214 Upper Tooting Road, London SW17 and paying the bank off their loan.
In this respect as discussed of my request of your assistance in becoming a Director of the Company along with my son Kiraj Patel as myself as per advise [sic] of Stevens & Bolton will have conflict of interest being a Director of Barrowfen and to be Director of the new vehicle that will take over the charge.”
By email also dated 28 October 2015 and timed at 11.51 Mr Radmore replied asking a series of questions. Question 1 asked whether the directorship was intended for the short term until Barrowfen was dissolved. Question 2 asked who would run the company on a day to day basis and Question 5 was whether the company intended to progress the development of the Tooting Property. By email also dated 28 October 2015 and timed at 12.49 Girish answered those questions as follows:
“1. At the moment the company will hold the assignment of the charge from Allied Dunbar. After which to appoint a special receiver who will undertake a valuation under instruction from the company Directors and arrange a sale of the Property. It is my intention to have you as an officer of the company which will undertake the development once I am free from my family grip.
- The day to day affairs will be managed by myself and the registered office will be at Stevens & Bolton or an accountant firm. The duties of Director is at some stage appoint a receiver under the terms of the charge and value the property and sell the same to nominated party…..
- The nominated party will progress the development. At the moment the idea is to get control of the property.”
Ms Hilliard also took me to a witness statement dated 3 June 2016 in which Mr Coakley confirmed that he met Girish on 26 October 2015. She also took me to an email dated 30 November 2015 in which Mr Andrew Dodds of S&B wrote to Kiraj and Mr Radmore asking them to complete the assignment of the Loan and the Charge on the following day.
Ms Hilliard also took me to S&B’s attendance note of the meeting on 9 December 2015. This meeting and the attendance note are important documents in the context of Barrowfen’s claim against S&B and I stress that I make no comment about S&B’s role at that meeting. It is clear from the attendance note, however, that Girish did not inform Prashant, who was his fellow director, that he was proposing to put Barrowfen into administration or to resign as a director or to purchase the Tooting Property through Barrowfen II.
Finally, Ms Hilliard took me to an email dated 15 April 2016 from Girish to Mr Michael Bowell, one of the joint administrators in which Girish stated as follows:
“Myself and other creditors are extremely concern [sic] at the tone of your email and the agreement reached with Dermot in conjunction with Stevens & Bolton last year in relation to your appointment as administrator. I had specifically agreed with Dermot on the exercise that Barrowfen was entering into and the role MBI Coakley will provide. Dermot had agree to this.”
Determination: I am satisfied that Barrowfen has a strong prima facie case that Girish designed and implemented a plan to place Barrowfen into administration and that he intended to take control of the Tooting Property by purchasing it from the administrators. Girish’s emails dated 28 October 2015 to Mr Radmore provide direct evidence of this plan and these intentions (although at that stage he may have been contemplating the appointment of a receiver rather than administration). Girish’s email to Mr Bowell also shows that he believed that he had reached agreement with Mr Coakley to appoint him at their meeting on 28 October 2015.
It is also clear that Girish gave almost no notice to Prashant or the majority shareholders of his intention to call in the Loan and put the company into administration. Ms Hilliard submitted that if Girish had been acting honestly and in the best interests of Barrowfen he would have revealed this information at the meeting on 9 December 2015. But as it was, he gave them virtually no time to pay off the Loan and redeem the Charge before putting Barrowfen into administration.
I am also satisfied that there is a strong prima facie case that Girish was a shadow director of Barrowfen II and its directing mind and that his intention can be attributed to the company. In his Defence he admitted that the company was incorporated to enable him to take an assignment of the Charge and told Mr Radmore that he could not be a director of Barrowfen II because of the conflict between its interests and Barrowfen itself. However, he also told Mr Radmore that he would be responsible for the day to day management of the company and instructed S&B to give directions to the statutory directors to complete the assignment.
It is Barrowfen’s case that Girish wrongfully withheld from Suresh and Prashant the fact that he was taking steps and intended to place Barrowfen in administration thereby depriving the company of the opportunity to discharge the Loan and the Charge. It is also Barrowfen’s case that he wrongfully disclosed to Barrowfen II the existence of the Loan and the Charge and acted as a shadow director and also that he attempted to bring about a situation whereby he or an entity controlled by him would be able to acquire the Tooting Property at below market value: see the Particulars of Claim, paragraphs 107o to 107r. For present purposes, I ignore the claims for conspiracy and deceit pleaded at paragraphs 107n and 107s.
I am satisfied that Barrowfen has a strong prima facie case that those actions amounted to a breach of Girish’s statutory duties. In particular, I am satisfied that Barrowfen has a strong prima facie case that in breach of section 175 Girish placed himself in a position in which he had a direct or indirect interest which conflicted with the interests of Barrowfen and in breach of section 172 he deliberately tried to exploit that position for his own interests rather than to promote the success of the company.
I am also satisfied that Barrowfen rather than its shareholders is the proper Claimant and has a valid claim against Girish for breach of his duties as a director. Again, he owed those duties to the company rather than to the individual shareholders and if Barrowfen’s case is made out, then the company has suffered loss as a consequence of those breaches of duty.
Finally, I am satisfied that the iniquity exception is engaged in relation to these breaches of duty. In my judgment, a director of a company who deliberately attempts to exploit a corporate opportunity by implementing a secret plan to put it into administration and acquire its principal asset is not acting honestly or in good faith. Put another way, Barrowfen has a strong prima facie case that Girish consciously or deliberately preferred his or her own interests over the interests of Barrowfen “under a cloak of secrecy”.”