Carman (The Trustee In Bankruptcy of Hollier) v Letchford

This judgment is divided into twelve sections as follows: (1) Background. (2) The applicable law. (3) The written evidence. (4) The course of the hearing. (5) The witnesses. (6) The ownership of CIA in 2002. (7) The bankrupt’s solvency in June 2006. (8) The economic effect of the June 2006 CIA Agreement. (9) The bankrupt’s desire to prefer the Respondent. (10) The amount received by the Respondent. (11) Summary. (12) A concluding tribute.

Due to the existence of related criminal proceedings pending against the Respondent and others in the Crown Court at Warwick, I direct that this judgment shall not be published until after the conclusion of those proceedings without the permission of the Judge conducting that trial (for which purpose the parties and any representative of the media shall be entitled to apply). I am satisfied that this restriction is strictly necessary because earlier publication would prejudice the interests of justice in securing a fair trial for those accused of having committed criminal offences. The Respondent is directed to inform the Applicant of the conclusion of the criminal proceedings, or of the making of any order by the trial Judge authorising publication of this judgment; and the Applicant is directed to communicate that fact to me in writing.

The Applicant, a chartered accountant and licensed insolvency practitioner, is the trustee in bankruptcy of Jayson Wayne Hollier (the bankrupt) who was adjudged bankrupt on 27 June 2007 pursuant to a petition presented by Her Majesty’s Revenue & Customs (HMRC) on 18 January 2007. On 25 June 2008 the bankrupt’s automatic discharge from bankruptcy was suspended pending compliance with his obligations under s 333 of the Insolvency Act 1986 (the 1986 Act). By an ordinary application dated 7 May 2009 (and amended by consent in April 2010) the Applicant seeks an order pursuant to either s 339 or s 340 of the 1986 Act invalidating an agreement entered into on 10 June 2006 (the June 2006 CIA Agreement) and made between the bankrupt, a company (now in creditors’ voluntary liquidation) named Bentley Group Ltd (Bentley), and Andrew Booth (Mr Booth), who was Bentley’s sole director and shareholder. The sole Respondent, who is 58 years of age and a qualified solicitor, is the bankrupt’s mother. The application is supported by Bentley’s liquidator, David Bottomley.

On 23 December 2002, the bankrupt had entered into a written agreement (the 2002 CIA Agreement) to sell the trade and goodwill of an unincorporated insurance broking business known as CIA Insurance Services (CIA) to Bentley, which was to operate the business through its wholly-owned subsidiary, CIA Insurance Services Ltd (CIA Ltd), for a consideration which (in the event) amounted to some £2.25m, and was to be paid to the bankrupt on or before 31 December 2005. The bankrupt was identified in the 2002 CIA Agreement as the sole owner and vendor of CIA. Bentley’s payment obligations under that agreement were personally guaranteed by Mr Booth, but the bankrupt held no other security for them. (On 10 May 2002 the bankrupt had entered into a similar agreement for the sale to Bentley of another insurance underwriting business carried on by Shakespeare Underwriting Ltd (Shakespeare)). Neither of the parties to this application has sought to contend that the 2002 CIA Agreement was a sham. (Had it been a sham, then it is almost inconceivable that the June 2006 CIA Agreement itself was not also a sham agreement since it involved the same parties and depended upon the validity of the earlier agreement.)

On 6 January 2006 Bentley entered into an agreement (the CIA MBO Agreement) to sell CIA Ltd to a company formed by its management called LEM Ltd (LEM) for a consideration of £3m (subsequently reduced to £2.5m on 7 February 2006) which was to be payable by way of 60 equal monthly instalments, with the first payment originally scheduled to fall due on 1 February 2007. At this time, Bentley had paid no part of the consideration due to the bankrupt under the 2002 CIA Agreement; and Bentley’s sole asset of any value was the income stream created by the CIA MBO Agreement. This remained the position at the time of the June 2006 CIA Agreement. That agreement purported to acknowledge that the Respondent “has at all times retained a beneficial interest”. It went on to provide that the sums payable by LEM to Bentley under the CIA MBO Agreement (then amounting to 60 monthly payments of £41,666.66 per month, commencing in February 2007) should be paid in full to the bankrupt and the Respondent, with the first 40 monthly payments being made to the Respondent and the final 20 monthly payments being made to the bankrupt. Mr Booth was to be released from his personal guarantee, which was to be replaced by a new personal guarantee by Mr Booth in favour of the bankrupt and the Respondent in respect of the sums due from Bentley under the June 2006 CIA Agreement. The effect of this agreement was to substitute for Bentley’s liability to pay £2.25m to the bankrupt under the terms of the 2002 CIA Agreement a much smaller (and deferred) liability of £833,333.20; and to create a liability to the bankrupt’s mother of £1,666,666.40, which was to be paid in full before any payment was made to the bankrupt. It is this agreement which the Applicant seeks to challenge as amounting to a transaction at an undervalue, or alternatively a preference. For her part, the Respondent asserts that one half of her entitlement under the June 2006 CIA Agreement represents her one third share in CIA, and that she holds the other half for the benefit of her younger son, Adrian Hollier, who was also beneficially entitled to a third share in CIA.

In the middle of 2008, and prior to Bentley’s liquidation, the Applicant discovered that sums totalling £606,000 had been paid to the Respondent’s former solicitors’ practice (LM Solicitors), to a company called Bentley Group UK Ltd (Bentley UK), and to a bank account maintained by Mr Booth in Gibraltar, rather than to Bentley. It is part of the Applicant’s case that those sums were received by the Respondent; and he seeks to recover them in the course of the present application. In June 2008, the Applicant obtained an injunction against both LEM and Bentley requiring all future payments by LEM to be made into court. Initially this was done although, since Bentley’s entry into liquidation on 26 September 2008, by agreement these payments have been made to its liquidator. The Applicant has been admitted as a creditor in Bentley’s liquidation in respect of the bankrupt’s claims under the 2002 CIA Agreement (and the earlier Shakespeare Agreement). The liquidator has rejected competing claims by the Respondent and Adrian Hollier under the June 2006 CIA Agreement. On 3 February 2009 both the Respondent and Adrian Hollier issued originating applications (the Appeal Applications) appealing against the liquidator’s rejection of their respective proofs of debt; and on 19 March 2009 the Applicant issued an ordinary application (the s 423 Application) seeking relief in relation to the June 2006 CIA Agreement under s 423 of the 1986 Act. These three applications have all been stayed generally (by an Order of Mr Registrar Simmonds dated 20 March 2009) following agreement between the parties (by their respective counsel) that the resolution of the issues raised by the instant application would for practical purposes render unnecessary any further argument on those earlier applications.

There is no dispute as to the law applicable to these applications. It is their application to the facts which is in dispute. The jurisdiction under s 339 arises where the debtor, before his bankruptcy, has entered into a transaction with any person at an undervalue. For present purposes, this occurs if either (1) he makes a gift to that person, or otherwise enters into a transaction with that person, on terms that provide for him to receive no consideration or (2) he enters into a transaction with that person for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by the individual. This requires a comparison to be made between the value of the consideration flowing from the bankrupt (the outgoing value) and the consideration flowing back to him pursuant to the transaction (the incoming value). As appears from the leading judgement of Jonathan Parker LJ in Re Thoars Decd (No 2), Reid v Ramlort Ltd [2004] EWCA Civ 800, [2005] 1 BCLC at [101] to [108] and [119], the court is not required, for the purposes of deciding whether there is a significant difference between the incoming and outgoing values, to have reference to expert evidence as to values but is entitled to apply a common sense approach and can, if necessary, take from a range of possible values those which are most favourable to the party seeking to uphold the transaction in question. Before any order can be made under s 339, the transaction at an undervalue must have been entered into at a "relevant time" within the meaning of s 341; but this requirement is clearly satisfied because the 2006 CIA Agreement was entered into within two years of the presentation of the bankruptcy petition. In the present case, there is no additional requirement that the bankrupt should have been insolvent at the time he entered into the 2006 CIA Agreement or should have become insolvent in consequence of entering into it. If the 2006 CIA Agreement constitutes a transaction at an undervalue, the court shall make such order as it thinks fit for restoring the position to what it would have been if the bankrupt had not entered into it.

If the Applicant is unable to satisfy the court that the 2006 CIA Agreement was a transaction at an undervalue, he makes an alternative claim that it constituted a preference. On the hypothesis that the Respondent was a creditor of the bankrupt, it is said that the effect of the 2006 CIA agreement was to put her in a position which, in the event of his bankruptcy, would be better than the position she would have been in but for the agreement. Since the Respondent is the bankrupt's mother, and thus an “associate” of his, any preference was given at a relevant time. However, the Applicant must show that the bankrupt was insolvent at the time of the 2006 CIA Agreement or became insolvent in consequence of entering into it. Moreover, the court will not grant relief under s 341 if the Respondent can show (the burden being upon her) that when he entered into the 2006 CIA agreement the bankrupt was not influenced by a desire to put the Respondent into a position which, in the event of his bankruptcy, would be better than the position she would have been in if that agreement had not been entered into.

By s 283 of the 1986 Act (defining the bankrupt’s estate) property held by the bankrupt upon trust for any other person falls outside the scope of the bankrupt’s estate which vests in his trustee in bankruptcy. Mr Boeddinghaus of counsel (who appears for the Applicant) accepts that if (contrary to the Applicant’s case) the Respondent and Adrian Hollier were each beneficially entitled to a third share in CIA, then when the bankrupt sold that business to Bentley (which the Respondent accepts was done with their knowledge and authority), such beneficial entitlement would have attached to their corresponding share of the sale proceeds. However, he submits that the June 2006 CIA Agreement would still remain a transaction at an undervalue (from the bankrupt’s point of view) because Bentley still received significantly more (in terms of the deferral of its liability) than it returned to the bankrupt, and the Respondent herself benefited at the bankrupt’s expense because she acquired priority over the bankrupt’s claims under the 2002 CIA Agreement.

In his closing submissions, Mr Drew of counsel (who appeared for the Respondent at various times during the course of the hearing but was not retained when the witnesses were giving their evidence) sought to rely upon the principle expounded by the House of Lords in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 that a resulting trust will arise where a person receives money for a specific purpose which fails. However, I am satisfied that that principle is not engaged on the facts of the present case, where the Respondent actually made payments to a number of the bankrupt’s creditors in the hope, which ultimately proved unfounded, that this would enable him to avoid bankruptcy. As Mr Boeddinghaus observed, the motive in making the payments may have failed, but that is a separate (and entirely irrelevant) point.

Mr Registrar Simmonds’s Order of 5 August 2009 dispensed with disclosure of documents and directed that all documentation relied on should be exhibited to the parties’ witness statements. He directed that all witness statement evidence should stand as evidence in chief, and all witnesses were to attend for cross-examination, failing which no reliance was to be placed on their evidence without the permission of the court. The initial round of written evidence comprised the witness statements of Adrian Hollier dated 2 January 2009 and the Respondent dated 2 February 2009 made in support of the Appeal Applications, the first witness statement of the Applicant dated 19 March 2009 made in support of the s 423 Application, and the fourth witness statement of the Applicant dated 1 May 2009, adopting his earlier witness statement and clarifying, in two minor respects, his evidence and case against the Respondent. The Respondent’s evidence in answer took the form of her witness statement dated 3 August 2009, to which were exhibited signed statements from Abigail Lane, Georgina Bridges, Rachel Gow and Lewis Scannell (who all gave evidence before me), and from Martin Hollier (the Respondent’s former brother-in-law, who was not called as a witness by the Respondent on the expressed basis that he added nothing to the evidence of the other witnesses) and an unsigned statement from the bankrupt. (On 17 September 2010 I directed that the Respondent should be permitted to rely upon the bankrupt’s statement, but only if this was signed and verified by a statement of truth. This was not done, and I therefore ignore his statement.) The Applicant replied by way of his fifth witness statement dated 24 August 2009 and his seventh witness statement dated 6 April 2010. The Respondent did not take the opportunity afforded to her by Mr Registrar Nicholls’s Order of 7 April 2010 to serve any evidence in response. Shortly before the start of the substantive hearing of this application on 29 July 2010, the Respondent made two witness statements in support of her applications to adjourn the trial (as did the legal executive from Sebastians who were then acting as her solicitors), but these statements are not relevant to the substantive issues in dispute between the parties.

On 2 August 2010 the Respondent served a witness statement from Mr Booth, purporting to correct alleged errors in two earlier statements made by him in July 2008 in the course of the proceedings for the freezing injunction obtained by the Applicant against Bentley and LEM. Although Mr Booth ultimately refused to give evidence before me because of the existence of the pending criminal proceedings against him, on 17 September 2010 I gave the Respondent permission to rely upon this statement, although I bear in mind that neither this statement, nor his earlier statements (upon which the Applicant seeks to rely), have been the subject of cross-examination. On the same day I gave the Respondent permission to rely upon the witness statement of Adrian Hollier made in support of the Appeal Applications since I was told that he was too unwell to attend court for cross-examination. Once again, I bear in mind that this (evidently self-serving) witness statement has not been the subject of cross-examination. On the morning of 17 September 2010, the Respondent produced a witness statement, dated the previous day, exhibiting a mass of recently-discovered documents which, she claimed, supported her evidence both that she had a beneficial interest in the sale proceeds of CIA and that the written documents were deficient in not reflecting that reality. I permitted the Respondent to rely upon these documents, although I bear in mind that they were not available to Mr Boeddinghaus at the time she was cross-examined. (I record that it was Mr Boeddinghaus’s submission that, on analysis, none of these documents assisted the Respondent’s case.)

On 20 October 2009 the court notified the parties that this hearing was in a five day window from Monday 26 July 2010. The application (estimated to last up to 3 days) was listed before me on Tuesday 27 July 2010. Because the previous case in my list overran, it was not called on until after 3.00 pm. I dealt first with an application (which was not really opposed by the Respondent) for an order (pursuant to CPR 42.3) declaring that the solicitors originally retained by her, a firm called Sebastians, had ceased to act for her. I then started to hear an application by the Respondent (as a litigant in person) for an adjournment of the trial which I adjourned, part heard, at 5.00 pm. The next morning the Respondent did not attend court, and her adjournment application was presented (entirely competently) by her son, Adrian Hollier. One of several grounds for seeking an adjournment was the existence of related criminal proceedings which are pending against the Respondent, together with the bankrupt and Mr Booth, in the Crown Court at Warwick (in the course of which a restraint order had been made against the Respondent in January 2010). For the reasons which I gave in an extemporary judgment delivered that morning, I refused the adjournment application; but I made an order directing that the trial should take place in private, and that no witness statements served or documents disclosed by the Respondent, and no oral evidence given in these proceedings by or on behalf of the Respondent, might be used for any purposes other than these proceedings without the permission of the court. After the terms of my decision had been communicated to the Respondent through her son, she indicated that she would wish to attend court the following day to defend this application in person; and I therefore adjourned the hearing until the following morning. On Thursday 29 July the Respondent was present at court; but I was initially addressed on her behalf by Mr Drew (instructed by Tuckers Solicitors) who renewed the Respondent’s application for an adjournment. In an extemporary judgment delivered that morning, I gave my reasons for refusing that renewed application. Mr Drew then withdrew, and the Respondent continued as a litigant in person.

After an abbreviated opening by Mr Boeddinghaus (which he shortened when the Respondent belatedly indicated that she intended to call her various witnesses as well as giving evidence herself), the Respondent briefly outlined the nature of her case to me. Mr Boeddinghaus then called the Applicant as his only live witness. He was cross-examined by the Respondent for about 4 hours in total, from a little after 3.00pm on Thursday 29 July until about 3.00pm the following day. On at least one occasion, the Respondent acknowledged that she was “going round in circles”; and more than once I had to warn her to confine her questions to matters which were relevant to the issues in the case. Nevertheless, in her cross-examination of the Applicant I found the Respondent to be an astute individual who, whilst on occasion professing not to do so, demonstrated a capacity to understand the issues in the case and was well able to defend herself.

Because she was unable to attend court the following week, Abigail Lane, the Respondent’s former personal assistant, was her first witness. She gave evidence for about 30 minutes. The Respondent then went in to the witness box and was cross-examined for about 30 minutes before the court adjourned until the following Wednesday, 4 August. On that day, the Respondent was cross-examined for a further 2 ¾ hours, concluding at about 2.30pm. There was then a short break to enable the Respondent to consult Mr Drew concerning a matter about which, in the event, he found it unnecessary to trouble the court. The court then heard from Georgina Bridges, Rachel Gow, and Lewis Scannell, whose evidence occupied about an hour in total. The court then adjourned for the Respondent to locate Mr Booth, who had been present at court earlier in the day, for him to be called to give evidence. Unfortunately, it was established that he had left court and was in North London, being under the impression that he would not be required to give evidence that day. In the course of seeking to find Mr Booth, the bankrupt had also gone missing and could not be found to be called to give evidence. By this time, it was about 4.25pm; and the court was left with no alternative but to adjourn until Friday 17 September 2010 (which was the next available date for a case which had already overrun its allotted time), when it was anticipated that the Respondent’s remaining four witnesses (Mr Booth, the bankrupt, Adrian Hollier and his uncle, Martin Hollier) would be called to give evidence.

On Friday 17 September 2010 Mr Drew appeared on behalf of the Respondent. He indicated that he would not be calling any further witnesses: Adrian Hollier was said to be unwell. Martin Hollier was said to add nothing to the evidence of the Respondent’s other witnesses. Despite the terms of my earlier order of 28 July 2010 by which I had sought to safeguard their interests, both the bankrupt and Mr Booth were said to be unwilling to give evidence on behalf of the Respondent until after the conclusion of the criminal prosecution. Mr Drew therefore invited me to adjourn the trial until after that point in time, a course opposed by Mr Boeddinghaus. For the reasons I gave in an extemporary judgment delivered that afternoon, I refused the adjournment application. Having given directions for the sequential exchange of written closing submissions I adjourned the hearing to 2.00 pm on Tuesday 9 November 2010. Written closing submissions (extending to 74 pages) were served by Mr Boeddinghaus on 7 October and by Mr Drew (a more modest 21 pages) at about 12.30pm on 5 November 2010. Mr Boeddinghaus was able to serve abbreviated written closing submissions (8 pages) by close of business on that day. I received abbreviated oral closing submissions from Mr Drew, and then from Mr Boeddinghaus, on the afternoon of Tuesday 9 November 2010. I then reserved judgment.

I found the Applicant to be an entirely honest, straightforward and thoughtful witness who gave considered evidence. I acquit him of any conscious or deliberate bias against the Respondent (contrary to the case she sought to advance during the course of his cross-examination). However, inevitably, as an insolvency office-holder, the Applicant had no direct personal knowledge of the matters in issue in this litigation. The answers elicited from the Applicant during the course of the Respondent’s rambling, “stumbling” - Mr Drew’s adjective - and disorganised cross-examination (which was directed more to challenging the Applicant’s conduct of the bankrupt’s insolvency than addressing the issues in the case) were of only limited assistance to me; and his cross-examination proved to be largely a waste of the court’s time.

I found the Respondent to be un-cooperative, argumentative and evasive, and a thoroughly unsatisfactory witness. She was deliberately vague about matters I am satisfied she knew about. She also displayed a marked reluctance to engage with Mr Boeddinghaus or to answer certain of his questions. Thus, the Respondent displayed a marked reluctance to acknowledge that her solicitor’s firm (of which she was by then the principal) had acted for the bankrupt in defending insolvency proceedings against him in the middle of 2006: see T/30.7.2010/22 & T/4.8.2010/71-73 & 77. The Respondent’s evidence and case were unsupported by documents which, if it was well-founded, should have existed and been available to her at the time when (with the benefit of professional legal advice) she made her principal witness statement in August 2009. Significant aspects of the Respondent’s evidence and case were inconsistent with her own earlier statements and conduct. Thus, her present position (that she had received only sums totalling £70,000 out of the moneys paid by LEM under the CIA MBO Agreement) is inconsistent with that which she had adopted in September 2008, when she had sought to intervene in the Applicant’s proceedings against Bentley expressly on the basis that the existence of his freezing injunction was preventing her from continuing to receive her monthly entitlement under the June 2006 CIA Agreement. The Respondent’s answers in cross-examination on this subject (at T/30.7.2010/31-43 and T/4.8.2010/2-4) were lacking in conviction. The Respondent’s present assertion that she (and Adrian Hollier) had a one-third beneficial interest in CIA cannot be reconciled with her sworn evidence (in her affidavit of 11 October 2002 at D1/88-138) in the disqualification proceedings brought by the Secretary of State against the bankrupt and Adrian Hollier (amongst others), which were finally determined by Etherton J on 17 July 2006 (in a judgment bearing the neutral citation number [2006] EWHC 1804 (Ch), and reported at [2007] BCC 11). I do not accept the Respondent’s attempts to explain away her earlier, and inconsistent, sworn evidence at T/4.8.2010/102-110. I am satisfied that she was deliberately lying to the court. I appreciate that people lie for many reasons, and that the significance of lies will vary from case to case: see R v Lucas [1981] QB 720 at 724F per Lord Lane CJ and MA (Somalia) v Secretary of State for the Home Department [2010] UKSC 49 at [32-3] per Sir John Dyson JSC. Thus a witness may give fabricated evidence in order to bolster a genuine case, in which event the court may conclude that the lie is of no great consequence. But in other situations, where the witness lies about a central issue in the case, the court may conclude that this is of great significance. I am satisfied that this is the position in the present case.

Parts of the Respondent’s evidence and case were contrary to the inherent probabilities suggested by other evidence in the case which is either common ground or which I find to be reliable. Thus, she was unable to provide any satisfactory explanation for her failure to raise any objection or complaint about the alleged non-payment of the monthly instalments due to her (and to Adrian Hollier) under the June 2006 CIA Agreement. Indeed, her evidence about whether she ever complained in writing to Mr Booth or to Bentley was equivocal and inconsistent: contrast T/30.7.2010/32-3 with T/4.8.2010/38-9. I accept the criticism of Mr Boeddinghaus that she was making this up as she was going along. One of the more unsatisfactory aspects of the Respondent’s evidence was her persistence in maintaining, contrary both to the clear effect of Mr Booth’s email to Richard Wayman (CIA Ltd’s accounts manager) dated 20 July 2006 (D1/220) and the Respondent’s own previously expressed understanding of the position (as set out in her letter to CIA Ltd’s solicitors dated 20 November 2008 at D2/517), that the £50,000 paid by CIA Ltd to LM Solicitors on 20 July 2005 represented the repayment of a loan made to CIA Ltd by the Respondent and her husband, Rodney Letchford, rather than (as I am satisfied was the case) an accelerated, and discounted, payment of the first two monthly instalments (each of £41,667) due from LEM to Bentley in February and March 2007 under the terms of the CIA MBO Agreement. The Respondent’s answers to questions on this topic (at T/4.8.2010/4-16 & 42-5) were unconvincing and unsatisfactory. From my observations of the Respondent in court, both in and out of the witness box, I formed the view that she was an assertive, controlling, devious and manipulative individual, with a flexible approach to business morality, who has sought every opportunity to delay and to impede the trial of this claim. I am satisfied that the Respondent is prepared to trim her evidence to suit her own immediate purposes and even to lie to the court in support of her case. I find that I cannot accept her evidence on any matter unless it is supported by other evidence which I consider to be reliable.

I accept that the Respondent’s other live witnesses (Abigail Lane, Georgina Bridges, Rachel Gow and Lewis Scannell) were all honest individuals who, whilst trying their best to support the Respondent’s case, were also seeking to assist the court. With the exception of Miss Gow, whose evidence at T/4.8.2010/140-141 as to the separate nature of the bankrupt’s business (CIA) and the Respondent’s own business (CIA Associates) ran counter to the Respondent’s own evidence and case, the evidence of the Respondent’s other live witnesses as to the ownership of CIA supported her case; but their evidence was essentially vague and impressionistic. Whilst it testified to the force of the Respondent’s personality, I did not find it to be of material assistance on the issue of the beneficial ownership of CIA before its sale to Bentley.

Adrian Hollier’s witness statement supports the Respondent’s own evidence and case. However, his evidence is self-serving and was untested in cross-examination. I do not consider that I can safely accept his evidence to the extent that it is inconsistent with other evidence I find to be reliable or runs counter to the inherent probabilities suggested by other objectively reliable evidence.

The evidence of Mr Booth was also untested in cross-examination. I note that at the time he left AXA Sun Life in December 1998 Mr Booth apparently held a responsible position as its Head of Finance and Commercial Development. Nevertheless, Mr Boeddinghaus invites me to reject the evidence given by Mr Booth in July 2008 in response to the freezing order, but only insofar as it suggests that the June 2006 CIA Agreement properly reflected the true beneficial interests of the Respondent and Adrian Hollier in CIA before its sale to Bentley. He points out that this evidence is inconsistent both with the terms of the 2002 CIA Agreement (which was both negotiated and executed by Mr Booth) and also with Mr Booth’s own evidence in the disqualification proceedings in May 2006. However, Mr Boeddinghaus invites me to accept as truthful and accurate Mr Booth’s July 2008 evidence that sums totalling £606,000 were paid to the Respondent by LEM at Bentley’s direction in accordance with the terms of the June 2006 CIA Agreement despite the fact that in his latest witness statement (produced for the purpose of this application on Monday 2 August 2010) Mr Booth has substantially qualified his earlier evidence in this regard. Mr Drew submits, with some force, that Mr Boeddinghaus is applying double standards in relation to Mr Booth’s evidence, treating those parts of his evidence which support the Respondent’s case as to her beneficial interest in CIA as unreliable, but treating other parts of his evidence, which support the Applicant’s case as to the Respondent’s receipt of payments totalling £606,000 from LEM, as reliable. He makes the point that Mr Booth had strong reasons to be less than frank in his original evidence about the ultimate recipient of the LEM payments, and that his evidence in that regard is clearly self-serving. Mr Drew submits that as a witness, Mr Booth is a problem for both parties; and that the Court may feel that it is dangerous to rely upon any of his evidence, given that it contains contradictions and has not been tested in cross-examination, either in these or in other proceedings. In my judgment, there is justification in Mr Drew’s submission. I consider that I should regard all of Mr Booth’s evidence with considerable scepticism and reserve. To the extent that it is confirmed by, or is consistent with, other evidence which I am satisfied is reliable, then I consider that I can safely accept it. But otherwise, I consider that Mr Booth’s evidence should carry little, if any, weight.

Against this background, I turn to consider the various issues raised by the present applications. I agree with Mr Drew that the logical starting-point is to consider whether, immediately before the entry into the 2002 CIA Agreement, the Respondent (and Adrian Hollier) had any beneficial interest in CIA. Mr Drew accepts that the Respondent both knew and approved of the sale by the bankrupt of CIA to Bentley; but he submits that her earlier beneficial interest in CIA (and that of Adrian) means that in June 2006 they enjoyed a beneficial interest in the income stream from Bentley, and consequently that they were more than mere creditors of the bankrupt at the time of the June 2006 CIA Agreement. By s 283 of the 1986 Act, as property held in trust, that interest did not vest in the Applicant in his capacity as trustee in bankruptcy of the bankrupt.

I reject the Respondent’s evidence and case on this issue. It derives no real or substantial support from any of the contemporaneous documents which were put in evidence (including the documents exhibited to the Respondent’s witness statement dated 16 September 2010). It was contrary to Miss Gow’s evidence in cross-examination; and it derives only limited support from the Respondent’s other live witnesses. As previously noted, it is inconsistent with the Respondent’s own evidence in the disqualification proceedings, where she clearly stated (consistently with the bankrupt’s own evidence) that it was the bankrupt who had traded CIA as a sole trader. Moreover, the Respondent’s present evidence and case is inconsistent with the express terms of the 2002 CIA Agreement, which acknowledged the bankrupt to be the sole owner, and vendor, of CIA. Although this agreement was apparently drafted by Mr Booth, and not by a lawyer, as an apparently experienced businessman I cannot accept that he would have entered into an agreement upon this basis had he appreciated (as he now says he did) that the bankrupt was not the sole owner and seller of CIA, but that the Respondent (or Adrian Hollier) had any beneficial interest therein. Rather, Mr Booth would have insisted that they join in the sale agreement with the bankrupt, giving appropriate warranties as co-sellers. I am satisfied that I cannot safely rely upon this aspect of Mr Booth’s July 2008 evidence.

Chronologically, the next issue is the bankrupt’s solvency at the time of the June 2006 CIA Agreement, although this only becomes a live issue if the Applicant fails in his claim that that agreement was a transaction at an undervalue. Here the evidence (as set out at paragraphs 79 to 81 of the Applicant’s witness statement of 20 March 2009 and paragraph 16 of his witness statement of 6 April 2010) is overwhelmingly to the effect that the bankrupt was insolvent at the time he entered into the June 2006 CIA Agreement; and I so find. Indeed, this evidence was not effectively contradicted or challenged by the Respondent, except by way of bare assertion. No doubt, like Mr Micawber, the bankrupt (and his family) hoped that something would turn up which would enable him to stave off bankruptcy. But I am satisfied on the evidence (which was put to the Respondent in cross-examination at T/4.8.2010/58 and following) that the bankrupt was insolvent, both on a cash-flow basis (unable to pay his debts as they fell due) and on a balance-sheet basis (the value of his assets was less than the amount of his liabilities, taking into account his contingent and prospective liabilities), at the material time. Indeed, the Respondent acknowledged in cross-examination that she knew from May 2006 onwards that the bankrupt was “struggling for money” (T/30.7.2010/22-23), and that the family “were helping Jayson out” by lending him money to fund his defence to the disqualification proceedings and to pay for his accommodation during the trial (T/4.8.2010/58 and following). The Respondent even paid funds of her own to help the bankrupt reduce the amount owed to his creditors, including a payment to Mr Akhter said to be “in excess of £120,000” (paragraph 107 of the Respondent’s witness statement of 3 August 2009).

I next turn to consider whether the June 2006 CIA Agreement constituted a transaction at an undervalue. As Mr Boeddinghaus points out, the arithmetic is straightforward. Before the entry into the June 2006 CIA Agreement, the bankrupt had a claim against Bentley under the 2002 CIA Agreement for £2.25 million (plus, arguably, interest for late payment). Bentley itself was entitled to an income stream from LEM under the CIA MBO Agreement totalling £2.5m. Given that Bentley was also subject to an additional claim by the bankrupt for £2.25m that was due to him for the sale of Shakespeare, effectively the minimum value of the bankrupt’s claim under the 2002 CIA Agreement (viewed at its most favourable from the perspective of the party seeking to uphold the June 2006 CIA Agreement) was some £1.25m, representing 55.55p in the £1. After entering into the June 2006 CIA Agreement, the bankrupt had a claim against Bentley for only £833,333.20 (with receipt deferred until after the first 40 monthly instalments had been paid to the Respondent, thereby increasing the commercial risk of default in receiving payment in full); and the Respondent acquired a claim against Bentley for £1,666,666.40 (which enjoyed priority, in terms of payment, over the bankrupt’s claim).

I have already rejected the Respondent’s evidence and case that she (and Adrian) had been entitled to a beneficial interest in CIA before it was sold to Bentley and was therefore entitled to claim (as the beneficiary under a trust) against the bankrupt for her (and Adrian’s) share of the sale proceeds. Thus the June 2006 CIA Agreement did more than merely to accelerate the payment to the Respondent of her (and Adrian’s) share. Rather, it conferred an entitlement to payment where none previously existed. It follows that, viewed from the bankrupt’s perspective, the June 2006 CIA Agreement operated (1) to transfer value to Bentley worth significantly more, on any view, than the value transferred in exchange by Bentley to the bankrupt (at least £1.25m against, at most, £833,333.20); and (2) to transfer £1,666,666.40 to the Respondent for no consideration, and thus by way of gift. I therefore find that the June 2006 CIA Agreement falls squarely within the scope of s 339 of the 1986 Act.

Had I found that the Respondent was entitled to a valid equitable interest in a share of the sale proceeds under the 2002 CIA Agreement, I would still have held the June 2006 CIA Agreement to constitute a transaction at an undervalue (from the bankrupt’s point of view) for the two distinct reasons advanced by Mr Boeddinghaus at paragraph 7 of his written closing submissions in reply. First, Bentley still received significantly more under the terms of that agreement than it returned to the bankrupt since its liability to the bankrupt was deferred by several years yet the bankrupt received nothing in return. Secondly, the Respondent herself received significantly more under the terms of the June 2006 CIA Agreement than she could have expected to receive in satisfaction of her equitable interest, and she gave nothing in return to him since the agreement (if upheld) enabled her to claim directly against Bentley (which had an assured income stream from LEM) as well as against the bankrupt (who was on the verge of being made bankrupt), and it also gave her priority over his claims against Bentley (which were deferred to a later date, thereby subordinating the bankrupt’s interest to that of the Respondent in terms of credit risk).

In the light of my finding that the June 2006 CIA Agreement constituted a transaction at an undervalue, it is strictly unnecessary for me to go on to consider whether the Respondent has rebutted the statutory presumption which arises under s 340 (5) of the 1986 Act that the bankrupt (as her son) was influenced in deciding to enter into that agreement by the desire to put the Respondent into a better position in the event of the bankrupt’s bankruptcy than if he had not done so. However, I am satisfied that the Respondent has not succeeded in rebutting this presumption. On the contrary, had it been necessary for me to do so, I would have found that the Applicant had positively established that by entering into the June 2006 CIA Agreement the bankrupt was influenced by the desire to prefer the Respondent over his other creditors. My reasons are: (1) The close family relationship between the bankrupt and the Respondent (in contrast to the commercial relationship with most of his other creditors). (2) The evidence of close co-operation at the material time between the bankrupt and the Respondent (in contrast to the absence of co-operation evident in his dealings with many of his other creditors). (3) The bankrupt’s parlous financial circumstances at the material time, and the awareness of his position on the part of himself and the Respondent (whose solicitor’s practice represented him in relation to claims by certain of the bankrupt’s creditors at that time). (4) The Respondent’s frank acknowledgments (at T/4.8.2010/90-91) that “I did want my money first” and “felt absolutely exposed”. (5) The absence of any sensible objective commercial justification for the June 2006 CIA Agreement (or for the similar contemporaneous agreement relating to Shakespeare) and the fact that it was precisely the opposite of what a prudent debtor, who was being pressed by his creditors, would do. (6) The fact that the Respondent, Mr Booth and Jim Robertson (an accountant who had long acted for the Respondent and members of her family, as well as for Mr Booth) appear to have taken steps to conceal from LEM the true ultimate destination of the payments it was making under the CIA MBO Agreement in a manner that is not easily reconcilable with an open and even-handed approach to creditors generally.

To the extent that the Respondent was a creditor of the bankrupt at the time of the June 2006 CIA Agreement, had it been necessary for me to do so I would have found that the his entry into the June 2006 CIA Agreement amounted to the giving of a preference within the meaning of s 340 of the 1986 Act.

Finally, I turn to consider the question of who received the sums totalling £606,000 which were paid out by LEM before payments ceased as a result of the freezing order obtained by the Applicant in June 2008. A schedule of these payments, supplied to the Applicant by Richard Wayman, LEM’s accounts manager, in or about May 2008 (as related at paragraph 57 of the Applicant’s witness statement of 20 March 2009), appears at D1/291. It is the Applicant’s case (founded upon Mr Booth’s evidence in July 2008) that LEM paid these sums at his direction (acting on behalf of Bentley); and that, consistently with the terms of the June 2006 CIA Agreement, all of these moneys were paid over to the Respondent (or to third parties on her behalf) and should be treated as having been received by her. The Respondent, in contrast, maintains that only a small part of the £606,000 made its way to her. Mr Boeddinghaus contends that this is inherently implausible because both the Respondent and Mr Booth have sought to assert the validity of the June 2006 CIA Agreement, yet the Respondent’s case on quantum relies on the premise that she and Mr Booth contrived to direct that payments were made otherwise than in accordance with that agreement.

According to Mr Wayman’s schedule, between 20 July 2006 and 1 June 2007 sums totalling £274,000 were paid to LM Solicitors, the Respondent’s solicitors’ practice. (The Respondent’s partner, Mr Peter Miles, had died unexpectedly in April 2006, and her evidence was that thereafter she took on locum partners in order to comply with Law Society regulations governing the activities of recently-qualified solicitors, such as herself.) The Respondent accepts that these payments were made; but she asserts that the first £50,000 was the repayment of a loan which she (and her husband) had made to LEM; and that of the £224,000 balance, only £70,000 was actually paid over to her. The Respondent’s own schedule of these payments is to be found at D2/689. This shows how the Respondent claims that these payments were disbursed, although there is no independent supporting documentation. In addition to £70,000 which the Respondent accepts was paid to herself and her husband, £72,000 was paid to Misoft (a computer business owned by the Respondent), £15,000 to the bankrupt, £20,000 to Hopelane Ltd and £59,500 to Oxlowes Properties Ltd. (The resulting total is £236,500, rather than £224,000.) I have already (in paragraph 19 above) rejected the Respondent’s evidence and case in relation to the first payment of £50,000. I am satisfied that this was made by way of an accelerated, and discounted, payment of the first two monthly instalments due from LEM under the terms of the CIA MBO Agreement rather than by way of the repayment of a loan made by the Respondent and her husband to LEM. I shall consider the £154,000 balance which the Respondent denies having received below.

The next three payments under the CIA MBO Agreement, which totalled £92,000, were made between 4 July and 3 September 2007 to a newly incorporated company called Bentley UK. According to emails from Jim Robertson to the Respondent in July 2009 (at D2/597-9 and 690), upon which she relies at paragraphs 74-77 of her witness statement of 3 August 2009, Bentley UK was established by Jim Robertson (at Mr Booth’s request) to act as the recipient of the moneys coming from LEM because LM Solicitors was closing, and so would no longer be able to receive the payments due under the CIA MBO Agreement, and the bank refused to open an account in Bentley’s name because county court judgments had been registered against it. Mr Booth had told Jim Robertson that the new company had to have a similar name to the original company “as he did not want LEM Ltd to have any excuse for withholding the monthly instalments”. Out of the £92,000, £12,000 was apparently paid over to Mr Booth, £4,700 to Jim Robertson’s accountancy practice, £60,500 to Misoft, and £14,000 to an account held by the Respondent with her husband. A further £293.75 was apparently expended on company formation costs, leaving a balance of £506.25 unaccounted for.

Between 1 October 2007 and 1 May 2008 8 monthly payments of £30,000 each (and totalling £240,000) were made to Mr Booth into a bank account in his name in Gibraltar.

The Respondent was cross-examined about the payments made by LEM at T/30.7.2010/30-43 and T/4.9.2010/2-4 & 17-42. With the exception of the six payments made to Misoft between December 2006 and June 2007 and totalling £72,000, I cannot accept the Respondent’s evidence that she was not the ultimate recipient of the disputed LEM payments. As noted at paragraph 18 above, her present position is inconsistent with the basis for her challenge to the freezing injunction in September 2008; and I am satisfied that I cannot accept the Respondent’s explanation for her change of position. Having observed the Respondent closely during the course of the trial, I have no doubt that, had she not been receiving the income stream from LEM which was transferred to her by the June 2006 CIA Agreement, she would have objected in clear terms, and that her objections would have been evidenced in writing. No documentary evidence of this has been produced; and, as noted at paragraph 19 above, her evidence in this regard was both equivocal and inconsistent.

The Respondent owned Oxlowes Properties Ltd and was interested in Hopelane Ltd. She could offer no reason as to why Bentley should have been directing payments, totalling £79,500, to those two companies. According to Bentley’s unaudited accounts for the year ended 31 December 2005 (which were signed off by Mr Booth as its sole director on 25 October 2006) Bentley was then a non-trading holding company with no turnover. I am satisfied that these were in truth payments which were applied for the Respondent’s own benefit. The Respondent could provide no satisfactory explanation as to why (on the footing that the June 2006 CIA Agreement was genuine) Bentley should have directed two payments totalling £15,000 to be made to the bankrupt in March and April 2007 (at a time when the petition upon which the present bankruptcy order is founded was pending against him). I am satisfied that those payments were received into the bank account of LM Solicitors by way of payment to the Respondent pursuant to the terms of the June 2006 CIA Agreement. If she distributed £15,000 to the bankrupt thereafter, at a time when he was facing bankruptcy pursuant to a petition presented by HMRC, then that would seem to me to be a matter for her.

However, the position does seem to me to be different in relation to the Misoft payments totalling £72,000. The company known as Misoft Ltd had been dissolved on 19 September 2006. The Respondent asserts that she had previously bought Misoft’s business from Bentley, although (at T/4.9.2010/21-26) she was vague about the price she had paid for it; and she says that the money was paid to that business. The 6 monthly payments totalling £72,000 recorded as having been paid to Misoft between December 2006 and June 2007 were therefore received by the Respondent. But she relies upon the letters of 28 and 29 November 2006 at D1/236-7 as explaining, and commercially justifying, these 6 payments (although they cannot explain the 3 later payments made to Misoft, and totalling £60,500, which are recorded in Jim Robertson’s schedule at D2/690). Whilst I entertain reservations about the genuineness of the £72,000 payments to Misoft, in the absence of any challenge to the validity of these documents, or the good faith of the three directors of LEM who apparently signed them, I am not prepared to find that these payments were received by the Respondent for her own account and use pursuant to the terms of the June 2006 CIA Agreement. Mr Boeddinghaus relied upon the Respondent’s inability (at T/4.8.2010/22) to say that any similar payments had been made to Misoft by Bentley before the 29 November 2006 letter (and despite the fact that she owned Misoft); but it seems to me that the relevant issue (about which the Respondent was not asked) was whether CIA Ltd (or LEM) had previously been making such payments to Misoft. In the result, I find that between June 2006 and June 2007 the Respondent received sums totalling £202,000 (£50,000 plus £224,000, less £72,000) pursuant to the terms of the June 2006 CIA Agreement.

As Mr Boeddinghaus points out, my rejection of the Respondent’s denial that she received any payments in excess of the £70,000 admitted in her own schedule is highly destructive of her general credibility as a witness. Further, the considerations identified at paragraph 35 above apply also to the post- June 2007 payments made by LEM. It is clear (from her acceptance of Jim Robertson’s schedule) that the Respondent received a further £14,000 into her joint account with her husband at Coutts. Since they cannot be justified by reference to the 29 November 2006 letter, there is no reason to treat the payments totalling £60,500 made to Misoft after June 2007 as anything other than moneys received by the Respondent pursuant to the June 2006 CIA Agreement. Mr Boeddinghaus submits that there was no valid commercial reason why Bentley should have paid sums totalling £16,700 to Mr Booth and Jim Robertson’s accountancy practice between July and September 2007. He therefore invites me to infer that they represented sums paid at the Respondent’s direction, by way of payment for their services in transmitting Bentley’s moneys to her (and concealing the true position from LEM), or alternatively as payment for some other service performed by them for the Respondent; and to treat her as having benefited from those payments. That is a possible inference, but it is not the only, or necessarily the most probable, one. Nor does it follow that these payments would not have been made had the bankrupt not entered into the June 2006 CIA Agreement, which would seem to me to the true touchstone for relief under both s 339 and s 340 of the 1986 Act (which requires the court to make an order restoring the position to what it would have been if the bankrupt had not entered into that agreement). I therefore find that between July and September 2007, the Respondent received sums totalling £74,500 pursuant to the terms of the June 2006 CIA Agreement.

As for the last 8 payments totalling £240,000 which were made to Mr Booth, the Respondent’s evidence is that she knows nothing about these moneys or what has happened to them. For the reasons I have already given, I simply cannot accept this evidence. In the absence of any alternative, and satisfactory, explanation, I infer that the Respondent received all of these payments. Having concluded that the Respondent had already been receiving substantial payments in accordance with the terms of the June 2006 CIA Agreement, the absence of any protest at any cessation of this income stream becomes even more telling. I therefore find that the Respondent has received for her own benefit and use sums totalling £516,500 (£202,000 plus £74,500 plus £240,000) pursuant to the June 2006 CIA Agreement.

For the reasons I have given, I conclude as follows: (1) The June 2006 CIA Agreement falls fairly within the scope of s 339 of the 1986 Act and should therefore be set aside, with all payments made thereunder to the Respondent (totalling £516,500) being restored by her. The provision for Bentley to make payment to the Respondent (in place of the bankrupt) amounted to a gift in her favour pursuant to s 339 (3) (a). Further, the partial release of Bentley’s liability to make payment to the bankrupt of £2.25m (and arguably also interest for late payment) was a transaction which, in terms of value, significantly benefited Bentley at the expense of the bankrupt, thereby satisfying the requirements of s 339 (3) (c). (2) Had I concluded that the June 2006 CIA Agreement was not a transaction at an undervalue, and on the footing that the Respondent was a creditor of the bankrupt at the time it was made, I would have ordered it to be set aside (with the like consequences) as a preference under s 340. The bankrupt was clearly insolvent at the time. The agreement clearly favoured the Respondent over other creditors of the bankrupt; and in entering into it the bankrupt was clearly influenced by the desire to produce that effect.

I invite the parties to attempt to agree a minute of Order which reflects the terms of this judgment. To the extent that this is not possible, I shall hear submissions on the form of the order, and on any consequential matters, at the formal hand-down of this judgment.

I cannot conclude this judgment without paying tribute both to Mr Boeddinghaus and to Mr Drew. Mr Boeddinghaus produced detailed and helpful submissions on the law and the facts. He displayed a mastery of the documents, which had not been assembled in the most user-friendly fashion. The slow and faltering progress of this case, and the attitude displayed by the Respondent, must have been sources of deep frustration to Mr Boeddinghaus, but rarely did he permit his resulting sense of exasperation to become too apparent. For Mr Drew, his late and intermittent involvement in this application, at a time when he was in the course of undergoing major surgery, must have made this an anxious, and difficult, case for him to present. His concern for his client, and his attention to her best interests, were evident from his written and oral submissions, which were presented with courtesy and due regard for professional propriety. I cannot say that it was a pleasure to try this case; but the approach of both counsel made it far easier than might otherwise have been the case.