Pui -Kwan v Kam-Ho & Ors

The central issues on this application are whether the second defendant, Melodious Corporation (“Melodious”), a company incorporated in the British Virgin Islands and which is registered at Companies House as having a branch in England, is or has ever been in administration or liquidation here.

The records at Companies House currently show that Melodious went into administration on 1 November 2007 with the fourth defendant, Simon Paterson, as its administrator, and then went into creditors’ voluntary liquidation on 23 October 2008 with Mr Paterson as its liquidator.

The applicant, Esther Chan Pui-Kwan (“Miss Chan”), who is a director and a 51 per cent shareholder of Melodious, claims that Melodious never went into administration because the meeting of the board of directors of Melodious purporting to place Melodious into administration out of court pursuant to paragraph 22(2) of schedule B1 (“schedule B1”) to the Insolvency Act 1986 (“the 1986 Act”) was inquorate. She further contends that, if Melodious did go into administration, the administration expired by effluxion of time on 31 October 2008 before Mr Paterson sent or, at any event, the Registrar of companies (“the Registrar”) received a notice under paragraph 83(3) of schedule B1 for conversion of the administration into a creditors’ voluntary liquidation (“a conversion notice”).

Mr Paterson disputes those contentions.

The application is made against the backdrop of a suite of proceedings between Miss Chan and Mr Leung, which first began in 1998. The factual background to those proceeding is set out in the judgment handed down on 30 November 2001 by His Honour Judge McGonigal, sitting as a High Court judge, in Chan Pui-chun v Leung Kam-ho [2002] BPIR 723.

It is only necessary to state the following parts of that background for the purpose of this application.

In 1992 Miss Chan, then aged 26, began to work for the first respondent, Gilbert Leung Kam-Ho (“Mr Leung”), in Hong Kong as a political assistant. He was a chartered surveyor and property developer and a member of Hong Kong’s Legislative Council. They developed a personal relationship. He promised to marry her. In June 1993 he was convicted of a criminal offence of bribery in connection with his election to the Legislative Council and was sentenced to three years imprisonment. Miss Chan managed his property business for him while he was in prison.

In May 1995 Miss Chan came to England and found Hill House, which is a large house in Woking, Surrey, as a property in which she and Mr Leung would live together when Mr Leung was released from prison. The purchase was completed in June 1995 in the name of Melodious, which, as I have said, is a BVI company, whose shares are owned as to 51 per cent by Miss Chan and as to 49 per cent by Mr Leung. Mr Leung was released from prison in June 1995 and he and Miss Chan then began living together in Hill House.

From December 1996 Melodious was also used to buy nine properties in England for renting out. They generated a significant rental income. Those properties were then sold. The net proceeds of the sales of the investment properties amounted to some £1.3 million, realising a capital profit of some £108,000 subject to deduction of the costs of sale.

The relationship between Miss Chan and Mr Leung broke down in 1998.

Being unable to obtain joint instructions from Miss Chan and Mr Leung, the original corporate nominee director of Melodious resigned. Miss Chan was appointed a director in its place on 26 June 1998. Her mother, Ho Mo Ching (“Madam Ho”), was subsequently appointed a further director on 1 July 1998.

Mr Leung presented two winding up petitions in relation to Melodious. One, presented on 29 August 1998, was a creditor’s petition based on Melodious’ alleged insolvency and its indebtedness to Mr Leung in the amount of £644,366. The other petition, presented on 18 January 1999, was a contributory’s petition on the ground that Melodious was a quasi-partnership between Miss Chan and Mr Leung and, the personal relationship between them having irretrievably broken down, it was just and equitable that Melodious should be wound up.

Miss Chan, for her part, commenced proceedings under section 33 of the Family Law Act 1996 and section 15 of the Trusts of Land and Appointment of Trustees Act 1996 for, among other things, a declaration as to her beneficial interest in Hill House. She claimed a 51 per cent interest. Those proceedings were opposed by Mr Leung, who claimed that Hill House belonged beneficially to Melodious.

On an application by Mr Leung, in the creditors’ winding up petition, for the appointment of a provisional liquidator of Melodious, Mr Justice Park ordered that the net proceeds of sale of the investment properties be paid into an account (“the stake-holder account”) with HSBC Bank plc (“HSBC”) in the joint names of Fenwick & Co, Miss Chan’s then solicitors, and Penningtons, Mr Leung’s then solicitors.

The three sets of proceedings were eventually all heard together at a five day trial in the Chancery Division by Judge McGonigal, sitting as a High Court judge. So far as relevant to the present application, Judge McGonigal made an order declaring that Melodious holds Hill House on trust for Miss Chan as to 51 per cent and for Mr Leung as to 49 per cent. He ordered that Hill House should be sold but not until the end of the academic term in the summer of 2003 unless, before that date, Miss Chan ceased to be engaged on the course of study she was then undertaking or she consented to an earlier sale; and, until then, Miss Chan would be entitled to occupy Hill House as her residence. Judge McGonigal dismissed both winding up petitions. He ordered an account to be taken in order to ascertain the sums (if any) that were due and ought to be paid or distributed by Melodious to its creditors (including Miss Chan and Mr Leung) and its contributories. He ordered that, for the purpose of that account, each of Miss Chan and Mr Leung should file and serve their evidence on or before 31 January 2002.

Mr Leung appealed Judge McGonigal’s decision. The appeal was dismissed by the Court of Appeal: [2002] EWCA Civ 1075, [2003] BPIR 29.

Following the judgments of Judge McGonigal and of the Court of Appeal, no steps were taken by either Miss Chan or Mr Leung to proceed with the sale of Hill House or the taking of the account.

Miss Chan having become dissatisfied with her solicitors, Fenwick & Co, she filed Notice of Change stating that she would be acting in person. Fenwick & Co no longer exists as a firm of solicitors.

Mr Leung was made bankrupt in Hong Kong in 2002 and the Hong Kong Official Receiver took control of his bankrupt estate. The bankruptcy was discharged on 30 December 2006.

Miss Chan has entered into a number of business transactions since 2002. It is not necessary to describe them here. It is sufficient to say that some of them involved John Gurney, with whom she also formed a personal relationship and who lived in Hill House from about 2005 until excluded by court order in November 2008. Those business dealings and her relationship with Mr Gurney brought her into contact with Mr Paterson, who is an insolvency practitioner and, until very recently, a partner in the accountancy firm Moore Stephens LLP, based in their office in Chatham, Kent.

On the breakdown of her relationship with Mr Gurney in 2007, Miss Chan wished to have advice about how to sell Hill House. It is common ground that in early September 2007 she went to see Mr Paterson with her brother Tony Chan to discuss how such a sale might be brought about. Much of what took place and was said on that occasion is disputed between Miss Chan and Mr Paterson. It is common ground, however, that one suggestion made by Mr Paterson was that Melodious be put into administration. Miss Chan decided to pursue that course.

Mr Paterson completed and Miss Chan signed, as director, an application (viz Form BR1) dated 1 October 2007 for the registration at Companies House of a branch of Melodious at the Hill House address. Miss Chan and Madam Ho were stated to be directors. In relation to each of them, in the box dealing with “Scope of Authority”, there was handwritten by Mr Paterson the words “Full Powers”. He ticked the box indicating that those powers “may be exercised alone”.

A certified copy of the memorandum and articles of association of Melodious had to be supplied with Form BR1. Mr Paterson requested a corporate services company in the BVI to supply them. They were sent to him on about 10 October 2007. Article 106 of Melodious’ articles of association states that the quorum for a directors’ meeting is not less than one half of the total number of directors unless there are only two directors, in which case the quorum is two. Article 105 states that a director may by a written instrument appoint an alternate, who shall be entitled to attend and vote at meetings in place of the appointing director. There was no written instrument appointing an alternate to act for either Miss Chan or her mother.

The duly completed Form BR1 was received at Companies House on 17 October 2007. The branch was registered on 27 October 2006.

On Monday 29 October 2007 Miss Chan met Mr Paterson at the London head office of Moore Stephens at St Paul’s House, Warwick Lane, London EC4M 7BP. Mr Paterson contends that Madam Ho also attended the meeting. Miss Chan and Madame Ho deny that Madam Ho attended. Minutes of a meeting of Melodious’ directors had been prepared by Mr Paterson which stated that the company was unable to pay its debts, and the board of directors would seek an administration order out of court pursuant to paragraph 22(2) of schedule B1 and that Mr Paterson would be appointed administrator. The minutes also stated that Miss Chan was authorised to swear the statutory declaration on the notice of intention to appoint an administrator and that the notice be filed in the Medway County Court forthwith. The minutes recorded Miss Chan alone of the directors as being present. She signed the minutes as chairman.

The minutes were attached to the notice of appointment of Mr Paterson pursuant to the Insolvency Rules 1986 (“the 1986 Rules) rule 2.23. The statutory declaration in that notice was sworn and signed by Miss Chan before a commissioner for oaths on 29 October 2007. The notice was filed with Medway County Court on 1 November 2007.

On 2 November 2007 Mr Paterson sent to Melodious at the address of his own Chatham branch of Moore Stephens notice of his appointment as administrator with effect from 1 November 2007.

Mr Paterson, as the “engagement partner”, also completed and signed internal Moore Stephens forms dated 2 November 2007 verifying that Melodious and its directors, Miss Chan and Madam Ho, were acceptable clients. The copy documents which Mr Paterson made for that purpose included a copy of the photograph page of Miss Chan’s UK passport and her driving licence showing Hill House as her address. They also included a copy of the photograph page and three other pages of Madam Ho’s passport, which was issued by the government of the Honk Kong Special Administration Region of the People’s Republic of China and showed that she was a Chinese citizen holding a Hong Kong permanent identity card and a right to abide in and return to Hong Kong. One of the copy pages had a stamp showing that she had entered the UK on 25 September 2007 at Heathrow. All those copies, which were made by Mr Paterson from the originals he had received at the meeting on 29 October 2007, were certified by Mr Paterson to be true copies.

Mr Paterson prepared a statement of Melodious’ affairs as at 1 November 2007 pursuant to rule 2.29 of the 1986 Rules. It was dated 21 November 2007 and was signed by Miss Chan. It showed Hill House as an asset of Melodious, with a value of £1 million. It stated that Hill House was subject to charges securing £838,566 due to Tony Chan and £262,000 due to Miss Chan. It showed as an asset £170,000 held in the stake-holder account. It stated that there were no preferential creditors and that there was an estimated deficiency of £129,566 as regards unsecured creditors and £129,666 as regards members.

Mr Paterson signed a statement of his proposals dated 21 December 2007 pursuant to rule 2.33 of the 1986 Rules and paragraph 49 of schedule B1. That document referred to the earlier High Court proceedings between Miss Chan and Mr Leung and the declaration of the court that Hill House was held on trust for Miss Chan and Mr Leung in the proportions 51/49 and that the property be sold. It recorded that Hill House had not been sold and no assets had been recovered.

In the statement of proposals Mr Paterson said that, provided the sums held in the stake-holder account could be recovered, there could be a return to the unsecured creditors of 56p in the £ (before costs). He stated that, if sufficient funds were realised to discharge the unsecured creditors, Melodious may be placed into creditors’ voluntary liquidation to enable a distribution of surplus funds to the unsecured creditors and that, in that eventuality, Mr Paterson would be appointed as liquidator.

Mr Paterson, as administrator, signed a notice dated 8 January 2008 pursuant to rule 2.46 of the 1986 Rules reporting that at a meeting of Melodious’ creditors dated 8 January 2008 his proposals were approved without modification.

On 17 April 2008 Mr Paterson wrote to Penningtons, Mr Leung’s solicitors, asking for their consent to the funds in the stake-holder account being paid to him as Melodious’ administrator. In their reply dated 15 May 2008 Penningtons stated that they were unable to do so without either the consent of Mr Leung’s trustee in bankruptcy or an order of the court. They said that there were serious question marks about the rationale for the administration, the assumptions made in Mr Paterson’s statement of proposals, and the outcome envisaged, which would adversely affect the rights of Mr Leung’s trustee in bankruptcy and the Legal Services Commission. They emphasised that Hill House was held on bare trust for Miss Chan and Mr Leung and that Melodious had no beneficial interest in it and so it was irrelevant to meeting the claims of Melodious’ creditors. So far as concerned the money in the stake-holder account, they stated that the court order required the taking of accounts and enquiries to determine the claims of Miss Chan and Mr Leung respectively to the remaining assets of Melodious and that administration was neither appropriate nor necessary to enable that process to be undertaken. They pointed out that anything due to Mr Leung from the sale of Hill House and the money in the stake-holder account was an asset of his bankrupt estate, and that Miss Chan’s beneficial interest in Hill House and anything due to her from the stake-holder account were subject to the statutory charge in favour of the Legal Services Commission. Penningtons stated that it appeared to them that the purpose of the administration was to defeat the claims of Mr Leung’s creditors and the statutory charge of the Legal Services Commission.

In accordance with paragraph 76(1) of schedule B1, Mr Paterson’s appointment as administrator was due to expire on October 31 2007, being 12 months after his appointment.

There are a number of critical disputes of facts as to what occurred on and after 23 October 2008. I shall address these in due course. For the present, it is sufficient to refer to the following facts and matters, which, save where I indicate otherwise, are not in dispute.

On about 23 October 2008 Mr Paterson prepared a final progress report pursuant to rules 2.47 and 2.110 of the 1986 Rules. He stated in it that it was not possible to rescue the company as a going concern and that it was therefore appropriate for him to adopt a strategy to protect the assets while undertaking an orderly realisation of them. He stated that no offers had been received for Hill House and no agreement had been reached for the money in the stake-holder account to be released and it was likely that an application to the court for directions might be required. He stated that the realisation of the assets would now be achieved through a liquidation. Under the heading “Outcome” it was stated that the administration was complete and steps would be taken to apply to the Registrar to place the company into creditors’ voluntary liquidation and that the liquidation would commence once the Registrar registered Form 2.34B.

Form 2.34B is the conversion notice under paragraph 83(3) of schedule B1 which gives notice to the Registrar that the provisions of paragraph 83 apply, that is to say where the administrator of a company thinks that a distribution will be made to unsecured creditors. Paragraph 83(4) provides that, on receipt of such a notice, the Registrar shall register it. Paragraph 83(6) provides that, on registration of the notice, the appointment of the administrator in respect of the company shall cease to have effect, and the company shall be wound up as if a resolution for the voluntary winding up under section 84 of the 1986 Act were passed on the day on which the notice is registered. Paragraph 83(7) provides that the liquidator shall be the person nominated by the creditors of the company or, if no person is nominated by them, the administrator.

On 23 October 2008 Mr Paterson signed a letter to the Registrar enclosing Forms 2.35B and 2.24B together with his final progress report. The letter requested acknowledgment of receipt by returning a copy of the letter in the enclosed prepaid envelope. Form 2.35B was a notice that the provisions of paragraph 84 of schedule B1 apply. That paragraph applies where the administrator of a company thinks that the company has no property which might permit a distribution to its creditors. Paragraph 84(3) provides that, on receipt of such a notice, the Registrar shall register it. Paragraph 84(4) provides that, on registration of the notice, the appointment of the administrator shall cease to have effect. Paragraph 84(6) provides that at the end of the period of three months beginning with the registration of the notice the company is deemed to be dissolved.

Form 2.35B did not, therefore, accord with Mr Paterson’s final progress report, which stated that a final dividend would become available to unsecured creditors through the subsequent liquidation of Melodious and that steps would be taken to apply to the Registrar to place the company into creditors’ voluntary liquidation, which would commence once the Registrar registered Form 2.34B.

The letter of 23 October 2008 enclosing Form 2.35B was received at Companies House on 24 October 2008. Mr Paterson became aware of that on 27 October 2008 when, as requested by him in the letter, a copy of the letter was returned endorsed with a dated receipt by Companies House.

On 5 November 2008 Companies House received a letter from Mr Paterson (apparently unsigned) dated 23 October 2008 in exactly the same terms as his letter of that date enclosing the incorrect Form 2.35B but this time referring to an enclosed Form 2.34B. Mr Paterson’s evidence, which is disputed, is that this was the second time he sent such a letter referring to and enclosing Form 2.34B. His evidence is that the first occasion was on 23 October 2008 when it was realised that a mistake had been made in sending Form 2.35B and he gave instructions for the letter with the incorrect Form 2.35B to be withdrawn from the DX and a letter with the correct Form 2.34B to be sent. His evidence was that, on the second occasion, he gave instructions for a copy of the earlier letter to be sent.

Mr Paterson had a telephone conversation with someone at Companies House on 17 November 2008. In a letter of that date, signed by him, he referred to his telephone conversation that afternoon and he said that he enclosed further copies of Forms 2.34B and 2.24B together with his final progress report for filing. He then said:

“As discussed this is the third time that I have sent these documents and should be grateful if you would acknowledge receipt by returning a copy of this letter to me in the enclosed prepaid envelope.”

There is an attendance note dated 2 December 2008 by Lynn Tremain, Mr Paterson’s assistant, in which she records that she had a telephone conversation on that day with someone at Companies House, who informed her that Forms 2.34B and 2.24B had not been entered on the system because Melodious was a foreign company and needed an “action code”.

Mr Paterson sent the Registrar a letter dated 5 January 2009, in which he stated that, further to previous telephone conversations, he enclosed Forms 703P(1) and 703P(3). Form 703P(1) was a return by an overseas company that the company was being wound up. The Form 703P(1) submitted by Mr Paterson stated that Melodious moved from administration to liquidation on 23 October 2008 when Form 2.34B was lodged with the Registrar and that the winding up became effective on 23 October 2008. Form 703P(3) was a notice of appointment of a liquidator of an overseas company. The Form 703P(3) submitted by Mr Paterson stated that he was appointed liquidator of Melodious on 23 October 2008.

On 7 January 2009 Mr Paterson wrote to the Registrar stating that he had noticed that the filing history of Melodious showed that a Form 2.35B notice had been entered. He stated that the Form 2.35B had been sent in error and a Form 2.34B was then sent and acknowledged by the Registrar on 5 November 2008. He said he sent a further Form 2.34B on 17 November 2008 and received an acknowledgment of receipt dated 18 November 2008. He referred to the subsequent advice given by Companies House and to the recent filing of Forms 703P(1) and 703P(3) showing that the company entered into liquidation on 23 October 2008. He said that he should be grateful if the Registrar would enter the details supplied on Form 2.34B on the company’s filing history to reflect the correct position of the company and that a further copy of that form was attached for the Registrar’s convenience.

Sally Stenning, an insolvency caseworker at Companies House, replied to that letter on 22 January 2009. She confirmed that Forms 703P(1) and 703P(3) had been received and placed on the company record. She said that they had received advice that an overseas company which has a branch registered in the UK should notify particulars of the winding up under section 703P of the Companies Act 1985; the UK company administration forms should not have been accepted for filing and that error could not be compounded by placing Form 2.34B on the company file and so she was returning the Forms 2.24B and 2.34B.

Carys Jones, senior legal adviser at Companies House, wrote a letter dated 7 July 2014 to Jane Golledge of SBP Law, Mr Paterson’s then solicitors, in which she stated, among other things, that it would have been inappropriate for the Registrar to have registered Form 2.34B once Form 2.35B had been registered. She also stated that Forms 2.35B and 2.24B were removed from the register on 20 February 2012 but ought not to have been.

Ms Jones sent a letter dated 25 August 2014 to Max Davis of Speechly Bircham LLP (now Charles Russell Speechlys), Miss Chan’s solicitors, in which she stated, among other things, that no Form 2.34B had ever been registered in respect of Melodious. She said it appeared that a Form 2.34B dated 23 October 2008 was delivered and rejected on 22 January 2009 but it was possible that other attempts were made to file that form. She said that their systems and procedures were in a state of flux in 2008/2009 because of the need to prepare for the implementation of the Companies Act 2006 on 1 October 2009; and, consequently, whilst they had an accurate record of documents registered and removed post registration, they might not have a complete history of those filings that were rejected pre-registration.

On 29 August 2014 Miss Chan made an application, to which Mr Leung, Melodious, HSBC and Mr Paterson were respondents, for an order: (1) that the register be rectified by removing Forms 703P(1) and 703P(3); (2) that the balance standing in the stake-holder account be transferred into a joint account in the names of Speechly Bircham LLP (Miss Chan’s solicitors) and Penningtons Manches LLP (Mr Leung’s solicitors); and (3) that the costs be paid by Mr Paterson personally.

There does not appear to be any opposition to the first head of relief in the application, namely for an order that Forms 703P(1) and 703P(3) be removed from the register. The grounds are set out in the skeleton argument for Miss Chan. There was no challenge to them. It is not necessary for me to repeat them here, both for that reason and because, for the reasons I give below, Melodious never went into administration or liquidation.

On 29 August 2014 Chief Registrar Baister directed that the application be set down for hearing before a Judge to determine the following two issues, namely:

“(A)

the status of the Company, including whether or not Simon Paterson is the Liquidator, alternatively the Administrator of the same; and

(B)

what should be done with the monies in the joint stake-holder account now held with the Respondent Bank under the Order of the Honourable Mr Justice Park made in Petition No. 004911 on 7 September 1998”

As I have already indicated, Miss Chan’s primary position is that Melodious has never been placed in administration or liquidation because Mr Paterson was never validly appointed its administrator or liquidator; and the money in the stake-holder account should be transferred into an account in the joint names of the solicitors for herself and for Mr Leung.

Mr Paterson’s primary position is that he was validly appointed administrator and the Registrar should register Form 2.34B, whereupon Melodious will be in creditors voluntary winding up; and the money in the stake-holder account should be transferred to him as an asset of Melodious.

Mr Leung’s primary position, as expressed in a witness statement made by his solicitor Noel McMichael dated 24 September 2014 and in a letter from his solicitors to Miss Chan’s solicitors dated 18 February 2015, is the same as Miss Chan’s. The Hong Kong Official Receiver, who took charge of Mr Leung’s bankruptcy, has been notified of the application but has not sought to be joined as a party and has not communicated to the court his views on these proceedings.

HSBC has not expressed any view about the merits.

Unsurprisingly, Melodious has not expressed any view about the merits independently of its directors, Miss Chan and Madam Ho, and its shareholders, Miss Chan and Mr Leung.

On the hearing of the application, Miss Chan was represented by Mr John McDonnell QC and Mr Paterson was represented by Mr James Pickering, counsel. None of Mr Leung, Melodious or HSBC were represented. Mr Leung’s solicitor, Mr McMichael, sat at the back of the court but made no submissions or representations.

Evidence was given in support of the application by Miss Chan, Madam Ho and Mr Davis, all of whom made witness statements and gave oral evidence. Madam Ho, who lives in Hong Kong and does not speak English, gave her oral evidence through an interpreter. Evidence was given by Mr Paterson, who made a number of witness statement and gave oral evidence. No one wished to cross-examine Mr McMichael on his written statement on behalf of Mr Leung.

It is common ground that the intention was to appoint Mr Paterson as administrator of Melodious pursuant to paragraph 22(2) of schedule B1, that is to say by resolution of Melodious’ directors. That is apparent from the minutes of the directors’ meeting on 29 October 2007 signed by Miss Chan and the notice of the appointment of Mr Paterson as administrator filed in the Medway County Court on 1 November 2007 pursuant to paragraph 29 of schedule B1 and rule 2.23 of the 1986 Rules.

As I have said, there were two directors of Melodious at that time, Miss Chan and Madam Ho. According to Melodious’ articles of association, both had to be present in order for a meeting of the directors to be quorate. The minutes of the directors’ meeting on Monday 29 October 2007 at Moore Stephens’ London head office, which were prepared by Mr Paterson, refer to Miss Chan alone as being present. She signed the minutes as chairman.

Mr Paterson’s evidence was that Madam Ho also attended the meeting on 29 October 2007. In his fourth witness statement he said that the minutes were based on a standard template which had been prepared by him at his Chatham office on the previous day. In his oral evidence he said he thought they had been prepared on the previous working day, namely the previous Friday. His oral evidence was that he was not expecting Madam Ho and did not know she was in the country. His evidence, in both his written and oral evidence, was that he relied on Miss Chan’s assurance, when he was completing Form BR1, that she had full powers to represent the company and could exercise those powers on her own. In his second witness statement he said that Miss Chan had confirmed to him previously that she had the ability to pass any resolution on her own in view of the limited nature of Madam Ho’s involvement and ability to engage in the business activity of Melodious.

In his second witness statement Mr Paterson said that Madam Ho did not speak at the board meeting. His oral evidence was that he had previously told Miss Chan that he would need to carry out money laundering checks for all the directors. He said that he asked Miss Chan to bring her passport and something to show her address and he would need something similar for her mother. He also said that he would have required Madam Ho to send him a certified copy of her passport but he did not have to do that in the end because she was personally at the meeting. In his fourth witness statement and in his oral evidence he said that at the meeting on 29 October 2007 he was given Madam Ho’s passport and took a copy of it.

I do not accept that Madam Ho was at the meeting on 29 October 2007. The overwhelming probability is that she was not.

There is no independent evidence, such as entries in a visitors’ book for Moore Stephens’ head office, that Madam Ho attended the meeting on 29 October 2007. So far as concerns the accuracy of Mr Paterson’s memory, Mr Paterson’s evidence (in his first witness statement) was that the point was raised for the first time in a letter from Miss Chan’s solicitors dated 4 July 2014, almost seven years after the event.

Both Miss Chan and Madam Ho gave evidence that Madam Ho did not attend the meeting. She was 65 years of age, was ordinarily resident in Hong Kong, did not speak or understand English and had only a very limited education in China. Mr Paterson did not require her to be present at the meeting on 29 October 2007 and did not expect her to be. He needed to carry out money laundering checks and other suitability checks on both Miss Chan and Madam Ho before Moore Stephens could act for them and Melodious and, for that reason, he required a certified copy of Madam Ho’s passport. His assumption was that this would be provided without her having to attend personally.

Madam Ho had arrived in the UK on 25 September 2007. I accept Miss Chan’s evidence that one of the principal reasons for her mother’s visit was a family crisis involving an inappropriate relationship between Miss Chan’s teenage niece, Melanie, and Mr Gurney, who was living at Hill House. It was hoped that her mother, who had a close relationship with Melanie, would help to resolve the crisis. Mr Gurney had taken over the whole of Hill House. Miss Chan was living in Croydon with her brother Tony. Madam Ho was also staying with Tony. Miss Chan and Madam Ho were having difficulty getting access to Hill House to see Melanie. Madam Ho was very upset by the situation. There would have been absolutely no reason in those circumstances for Miss Chan to require or request Madam Ho to travel with her on the train from Croydon to attend the meeting with Mr Paterson and it is highly improbable that Madam Ho would have wanted the distraction, inconvenience and fatigue of doing so.

Without translation from her daughter, Madam Ho would not have been able to understand what was being said at the meeting. If the only purpose of Madam Ho attending would have been to hand over her passport for copying, that could just as well and, from her perspective, more conveniently be achieved by giving her passport to Miss Chan to take with her to the meeting. Miss Chan did not think it was necessary for her mother to attend the meeting in order to deal with the affairs of Melodious. I accept the evidence of Madam Ho that she would expect her daughter to discuss important matters with her if Madam Ho was being asked to sign something as a director but that she did not have a problem with her daughter signing documents on her own. Critically, Mr Paterson did not require Madam Ho to attend the meeting and had no expectation that she would and both he and Miss Chan believed that it would be sufficient for Miss Chan to attend on her own.

Miss Chan’s evidence was that she did not mention Melodious to her mother at that time. She said that was the last issue in view of the family crisis. Madam Ho, on the other hand, agreed in cross-examination that she took some interest in Melodious and that Miss Chan had mentioned to her something about a company going into administration. Madam Ho did not state, and was not asked to state in cross-examination, precisely when she was told about the administration of Melodious and what she understood that to involve. It is probable that Miss Chan will have given some explanation to her mother as to why Miss Chan wanted to take her mother’s passport but I accept Miss Chan’s evidence that her mother would not have understood what “administration” was and that Miss Chan herself was not entirely clear what it involved. I find that Madam Ho would have agreed to Melodious being put into administration if that had been explained and desired by Miss Chan but, in fact, there was no such explanation and no such agreement by Madam Ho.

Madam Ho had never met Mr Paterson before and had no personal reason to meet him. She said that her daughter thinks that Madam Ho is in her way, even when they are just going out. Having seen both her and Miss Chan give evidence, that statement is entirely credible.

Accordingly, I find that the meeting of Melodious’ directors on 29 October was inquorate and so, on the face of it, the resolution to appoint an administrator pursuant to paragraph 22(2) of schedule B was invalid.

Mr Pickering has submitted that the resolution is saved by the provisions of rule 7.55 of the 1986 Rules. That provision is as follows:

“No insolvency proceedings shall be invalidated by any formal defect or by any irregularity, unless the court before which objection is made considers that substantial injustice has been caused by the defect or irregularity, and that the injustice cannot be remedied by any order of the court.”

I reject Mr Pickering’s submission. Rule 7.55 applies to insolvency proceedings. There were no insolvency proceedings unless there was a resolution of the directors pursuant to paragraph 22(2): see the analysis of Henderson J and the cases cited by him in Re Frontsouth (Witham) Ltd [2011] EWHC 1668 (Ch), [2011] BCC 635 at [16] to [25]; and also Re Euromaster Ltd [2012] EWHC 2356 (Ch), [2013] 3 Bus LR (Norris J) at [34] approving the following statement by Judge Purle QC at paragraph [35] in Re Assured Logistics Solutions Ltd [2011] EWHC 3029 (Ch), [2012] BCC, 541:

“Rule 7.55 has not hitherto proved to be of significant help in this area of the law. But the cases where it has been held to be inapplicable (helpfully summarised in the Frontsouth (above) decision) may be characterised as cases where the defect in question has resulted in the appointments in question being treated as nullities. If a particular appointment is a nullity because some essential pre-condition has not been complied with, then, as Proudman J. correctly pointed out in [Re Kaupthing Capital Partners II Master LP Inc [2010] EWHC 836 (Ch), [2011] BCC 338] no insolvency proceedings ever come into being and r.7.55 can have no application.”

Many of the cases were reviewed by Norris J in the Euromaster case. For the purposes of rule 7.55 he drew the broad distinction between the appointment of an administrator which has no legal effect because it is a nullity and one which has some conditional effect because it is defective or irregular and the irregularity may be regarded as curable. That was, he said, a question of construction. In paragraph [27] he said that schedule B1 contains a mixture of provisions, some of which are naturally read as defining the circumstances in which the power to appoint arises and some of which are naturally read as prescribing procedural requirements that must be fulfilled before the appointment is properly made. He cited Minmar (929) Ltd v Khalastchi [2011] EWHC 1159 (Ch), [2011] BC 485 as an example of the former.

In that case Sir Andrew Morritt C held that the so-called meeting of the directors of the company, at which there was a purported appointment of an administrator pursuant to paragraph 22 of schedule B1, was not a proper meeting complying with the company’s articles because there was only one person present and so there was no quorum or indeed any meeting. He said that it followed that the appointment was invalid and ought to be set aside. He held that it was not saved by either rule 105 of schedule B1 (a reference in schedule B1 to something done by the directors of the company includes a reference to the same thing done by a majority of the directors) or rule 2.22 of the 1986 Rules (the notice of intention to appoint an administrator is to be accompanied by either a copy of the resolution of the company (if the company intended to make the appointment) or a record of the decision of the directors (if they intended to make the appointment)). He held that, for there to be a valid appointment pursuant to paragraph 22(2) of schedule B1, there must be a decision of the directors as such in compliance with the usual rules of internal management.

I see no reason to disagree with Norris J’s approach in the Euromaster case. By parity of reasoning, rule 7.55 of the 1986 Rules has no application in the present case since there never was a decision of the directors of Melodious to appoint an administrator pursuant to paragraph 22(2) of schedule B1 which complied with the company’s rules of internal management.

That situation was brought about by Mr Paterson’s failure to check the articles of association of Melodious even though he had received them well in advance of the meeting on 29 October 2007. He knew that there were two directors but proceeded on the assumption that it was sufficient for Miss Chan alone to pass the resolution pursuant to paragraph 22(2) of schedule B1. Mr Paterson has sought to cast at least some of the responsibility on Miss Chan for that assumption on the ground of what he said she told him when he was completing Form BR1 on 1 October 2007: in particular, that she had full powers which she could exercise on her own.

I do not accept that Miss Chan bears any culpability for Mr Paterson’s oversight. In cross-examination he said that, in connection with Form BR1, he asked Miss Chan whether she wanted full powers to deal with the company’s affairs and that she said she did and she wanted to be able to do so alone because her mother was not resident in the UK. That is quite different from an enquiry as to whether she believed that under the company’s existing constitution a quorum for decisions of the directors was one director alone. Moreover, the relevant part of Form BR1 concerned the authority of the director to represent the company not the quorum for decisions of the directors under the company’s constitution. Finally, on this point, he did not repeat in his oral evidence the statement in his second witness statement that Miss Chan had confirmed to him previously that she had the ability to pass any resolutions on her own in view of the limited nature of Madam Ho’s involvement and ability to engage in the business activity of Melodious. Miss Chan’s evidence was that she never told him that she had full powers and could act alone. In the light of all the evidence, I do not accept what Mr Paterson said on this point in his second witness statement.

Mr McDonnell also attacked the validity of Mr Paterson’s appointment as administrator on the ground that the administration was not truly for the purpose of, or capable of achieving, any of the objectives in paragraph 3 of schedule B1, which were also those stated in Mr Paterson’s proposals (pursuant to paragraph 49 of schedule B1 and rule 2.33 of the 1986 Rules): rescuing the company as a going concern; achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration); realising property in order to make a distribution to one or more secured or preferential creditors. It is not necessary in the circumstances for me to address those submissions.

That is sufficient to dispose of the application but, for the sake of completeness, I shall deal with the factual position in October 2008 when Mr Paterson’s one year term of office was due to expire and the legal consequences of what in fact occurred.

The critical disputes of fact on this aspect are whether, as Mr Paterson alleges, (1) on 23 October 2008 he gave instructions for the letter of that date to the Registrar enclosing Form 2.35B and Form 2.24B to be withdrawn from the DX and destroyed and he signed and left for delivery by DX a letter to the Registrar enclosing Form 2.34B and Form 2.24B; and (2) on 29 October 2008 he sent another letter which was an exact copy of that earlier one.

I have found these disputes of fact to be very finely balanced. There are several factors supporting Miss Chan’s case that Mr Paterson’s evidence on this is untrue. The letter of 23 October 2008 enclosing Form 2.35B was not in fact withdrawn from the DX but was sent. The receipt stamp of Companies House shows that it was received on 24 October 2008. The date stamp of Moore Stephens on the copy returned to them shows that Mr Paterson would have known that fact on 27 October 2008. Mr Paterson’s evidence is that was only then that he realised that Form 2.35B had actually been sent to the Registrar.

A letter dated 23 October 2008 enclosing Form 2.34B was undoubtedly sent to and received at Companies House. The receipt stamp of Companies House on the copy returned to Moore Stephens shows that it was received at Companies House on 5 November 2008. I find that it is probable that the letter was sent on Monday 3 November or Tuesday 4 November, that is to say after 31 October 2008 when Mr Paterson’s appointment would have expired by effluxion of time. That timing is consistent with a realisation by Mr Paterson or his staff, at some time between 27 October 2008 and 3 or 4 November 2008 that Form 2.35B had been sent in error because it did not reflect the statement in Mr Paterson’s final progress report that steps were to be taken to put the company into creditors’ voluntary liquidation and Form 2.34B was to be sent to the Registrar. It is consistent with the letter enclosing Form 2.34B being backdated in order to deal with the fact that Form 2.35B had been sent in error on that day.

All that is consistent with the fact that no copy of a letter dated 23 October 2008 enclosing Form 2.34B was returned by Companies House to Moore Stephens before the one received by Companies House on 5 November 2008. Mr Paterson’s version of events is inconsistent with the fact that the letter alleged by Mr Paterson to have been signed by him on 23 October 2008 enclosing Form 2.34B requested the Registrar to acknowledge receipt by returning a copy of the letter in an enclosed prepaid envelope and with Companies House’s history of complying with a similar request on several other occasions in relation to Melodious. The letter from Ms Jones to Miss Chan’s solicitors dated 26 August 2014, to which I have referred earlier, does refer to the “systems and procedures” in Companies House being “in a state of flux in 2008/2009 because of the need to prepare for the implementation of the Companies Act 2006 on 1 October 2009”. That, however, has nothing to do with the administrative step of returning copies of documents with a date receipt stamp when requested to do so, as was indeed done during, before and after October 2008 in relation to several communications between Mr Paterson and Companies House in connection with Melodious. It has not been suggested by Mr Paterson that Companies House failed to return a copy of a document relating to Melodious, when requested to do so, on any other occasion than in respect of the alleged letter signed by him on 23 October 2008 enclosing Form 2.34B.

Mr Paterson has suggested that the staff at Companies House may have failed to respond due to confusion arising from the sending of Form 2.35B. They did, however, respond to the letter enclosing Form 2.34B which was received at Companies House on 5 November 2008.

Furthermore, in a letter dated 7 January 2009 to the Registrar Mr Paterson said that Form 2.35B was sent in error and a Form 2.34B was then sent and acknowledged as received on 5 November 2008. He said he sent a further Form 2.34B on 17 November 2008. He made no reference to a further Form 2.34B having been sent before the one received at Companies House on 5 November 2008. In other words, he referred to there being only two letters enclosing Form 2.34B between 23 October 2008 and 17 November 2008.

Mr Paterson’s evidence in his first witness statement is that he was away from his office on 23 October 2008 and that during the course of the day the “mistake was noticed” and that “instructions were given for the letter to be amended and the correct Form 2.34B to be prepared and the original letter to be destroyed”. He has given no evidence, however, as to who discovered the mistake and to whom his instructions were given. No such person has given evidence. No internal memoranda of Moore Stephen have been disclosed corroborating those matters.

There is no record or indeed any evidence that Mr Paterson or his staff telephoned Companies House prior to sending the letter dated 23 October 2008 which was received by Companies House on 5 November 2008 (and was probably sent on 3 or 4 November 2008). Such a telephone call might have been expected if a letter had been sent on 23 October 2008 in the same terms as that which was received at Companies House on 5 November 2008 bearing in mind that Mr Paterson became aware on 27 October 2008 that the incorrect Form 2.35B had been sent and received by Companies House and that his term of office as administrator was due to expire on 31 October 2008. Mr Paterson did make a telephone call to enquire what was happening at Companies House but not until 17 November 2008.

Despite all those evidential pointers, I have concluded, albeit with hesitation, that it would be wrong to disbelieve Mr Paterson’s evidence on this issue on a balance of probabilities. It is clear from Mr Paterson’s final progress report submitted with Form 2.24B on 23 October 2008 that he intended Melodious to be placed in creditors’ voluntary winding up and that he intended to submit Form 2.34B to the Registrar. It is clear, therefore, that the sending of Form 2.35B on 23 October 2008 was a mistake. On 17 November 2008 Mr Paterson wrote to the Registrar enclosing further copies of Form 2.34B and Form 2.24B and stating that it was the third time he had sent those documents. That is consistent with his having sent Form 2.34B twice before. Finally, as Mr Pickering submitted, the suggestion that Mr Paterson deliberately backdated the letter enclosing Form 2.34B and has persisted in lying about having signed it on 23 October 2008 and about having given instructions for it to be sent immediately by DX is an allegation of serious misconduct against a professional person. The likelihood of such conduct must itself be weighed in the balance when considering the probabilities.

Even if, as I have concluded, Mr Paterson probably did sign a letter on 23 October 2008 enclosing Form 2.34B and it was sent on that day or the next, there remains the possibility that Companies House did not receive it until after 31 October 2008. There is no evidence of Companies House having received such notice earlier than 5 November 2008.

Mr McDonnell submitted that, in such circumstances, Melodious did not move into creditors’ liquidation and Mr Paterson’s office as administrator would have expired on 31 October 2008. He submitted that outcome is consistent with, and indeed required by, the reasoning in Globespan Airways Ltd [2012] EWCA Civ 1159, [2013] 1 WLR 1122, of Arden LJ, with whom the other members of the court agreed.

I do not agree with those submissions of Mr McDonnell.

In Re E Squared Ltd [2006] EWHC 532 (Ch), [2006] 1 WLR 3414 the court was concerned with the situation where the administrators of two companies had sent the Registrar a conversion notice under paragraph 83(3) of schedule B1 and that notice had been received at Companies House before expiry of the administrator’s one year term of office but the notice had not been registered by the Registrar until after that date. David Richards J held (at para. [15]) that, on its proper construction, paragraph 83(6) of schedule B1 is to be applied in accordance with its express and mandatory terms, so that on registration of a notice sent by administrators while still in office the company shall be wound up. He said that, if, by the date of registration, the administrators have already ceased to hold office, paragraph 83(6)(a) (“the appointment of an administrator in respect of the company shall cease to have effect”) will simply not have any effect.

In paragraph [16] of his judgment David Richards went on to express his obiter view that the position was no different if a notice under paragraph 83(3) was sent before but was not received before expiry of the administrator’s term of office. He said as follows:

“16.

It must be acknowledged that, on other facts, it might be that the notice was not sent until too late to be received by the registrar before the administrators' appointment ceased to have effect. Paragraph 83 could not be construed to produce a different result in such circumstances. Provided that the notice is registered by the registrar of companies, the critical point in my judgment is that it should have been sent by the administrator before his appointment had ceased to have effect.”

David Richards J said that it had not been necessary for him to consider whether, by necessary implication, the effect of sending such a notice is to extend the administrator’s appointment until registration of the notice.

That point was decided in the affirmative in Globespan. That again was a case in which the notice was both sent and received at Companies House before expiry of the administrator’s term of office but registration of the notice took place after that date. The relevant facts were that the administrators’ one year term of office was due to expire on 17 December 2009. They sent a conversion notice on 13 December 2009, which was received by the Registrar on 14 December 2009. The Registrar wrongly rejected it. Two further conversion notices were served. The Registrar eventually registered the third one, which was dated 6 January 2011 and stamped as received on 19 January 2011. It was registered on 4 February 2011.

Two points were decided by the Court of Appeal. First, they held that a conversion notice only takes effect on the registration of the notice by the Registrar and not before. Secondly, they held that, if the term of office of the administrator would otherwise expire after filing the conversion notice but before the conversion date, it is in general automatically extended until that date.

The only reasoned judgment was given by Arden LJ. Mr McDonnell places particular reliance on paragraph 28 of her judgment, which was as follows:

“28.

It is relevant for the purposes of the arguments on paragraph 83 considered below to note that these provisions use several similar but distinct terms: “send”, “receipt”, “file” and “registration.” There is no real difference between the time at which filing and receipt occur but otherwise these terms in my judgment denote distinct and different concepts.”

Arden LJ said (in para. [52]) that, since the Registrar was under a statutory duty to register the valid first conversion notice, the court should treat his act of registering the third conversion notice as amounting in law to effective registration of the first conversion notice. She said that the first conversion notice was executed and filed when the administrators were still in office and so the conversion trigger date was 4 February 2011.

Arden LJ said the following at paragraph [53]:

“53 An administrator may file a conversion notice even though he will cease to be an administrator before the notice takes effect. In In re E Squared Ltd [2006] 1 WLR 3414, David Richards J so held and in my judgment he came to the correct conclusion. He left open for future consideration the question now under consideration.”

That question was whether the administrator’s term of office “is in general automatically extended if a conversion notice under paragraph 83 is duly filed”. Arden LJ held in paragraph 58 that it was so extended.

Mr Pickering relies on paragraph [53] of Arden LJ’s judgment as an endorsement of the obiter statement of David Richards J in paragraph [16] of the E Squared case. I do not agree. Her observation was made in the context of the facts of both Globespan and E Squared, in which the conversion notice was both sent and received (and hence, in her language, filed) before the administrator’s term of office was due to expire but registration only took place after that date. She expressed no view about paragraph [16] of the judgment of David Richards J.

Mr McDonnell, for his part, relied on paragraphs [28], [53] and [58] of the judgment of Arden LJ as authority that registration of a conversion notice can only properly take place where the notice was filed, that is to say both sent and received by the Registrar, before the term of office of the administrator has expired. I do not agree with that submission either. Those were not the facts of Globespan and Arden LJ did not need to address and did not in fact address the situation where the notice was sent but not received before the date on which the administrator’s term of office was due to expire.

That factual situation was, however, addressed by His Honour Judge Purle QC in Re Property Professionals Ltd [2013] EWHC 1903 (Ch), [2013] BCC 606. In that case the administrators were appointed pursuant to schedule B1 at 14.13 on 3 February 2010. Form 2.34B was received by the Registrar no later than 09.30 on 3 February 2011. Judge Purle concluded that Form 2.34B had been both sent and received while the administrators were in office, and accordingly the appointment of joint liquidators was effective from the date of subsequent registration. He said (at para [17]) that the case was in that respect on all fours with Globespan, and it also followed that the administration was impliedly extended to the moment of registration so as to achieve a seamless transition from administration to liquidation.

Judge Purle went on to consider the position if he was wrong that Form 3.34B had been received while the administrators were still in office and concluded that the legal consequence would still be the same. He said as follows at paragraph [18]:

“18 There is another reason for reaching this conclusion. Even if I am wrong in my conclusion on the facts that the first Form 2.34B was received by the registrar of companies whilst the joint administrators were still in office, it was sufficient in my judgment for the form to be completed and sent before the appointment was due to expire, even if the original appointment expired before receipt by the registrar of companies. That was the ruling of David Richards J. in Re E-Squared Ltd… assuming (without deciding) that there was no implied extension by sending the notice. The Court of Appeal approved of this decision in Globespan . As, therefore, the form in this case was sent on January 31 to the registrar of companies, before the expiry of the appointment, that was sufficient by itself. The reasoning of Globespan would also indicate that, in this case also, there was an implied extension of the administration effected by the mere sending of the notice to the registrar of companies. That result was said in Globespan to follow by implication from para.83(6) of Sch.B1, which applies in my judgment just as much to a notice received after the expiry date as it does to one received before.”

As I have said, I do not agree that the Court of Appeal in Globespan expressly approved David Richards J’s obiter view in paragraph [16] of the E Squared case. They expressed no view on what he said there. Nevertheless, I ought to follow the decision of Judge Purle unless I consider that it is plainly wrong.

I agree with Judge Purle and David Richards J that paragraph 83(6) of schedule B1 is triggered where the conversion notice is sent before the date on which the administrator’s office is due to expire even if the notice is received by the Registrar after that date. That accords with the literal wording of paragraph 83(6) and has the convenience that it does not make the conversion from administration to winding up dependent on vagaries of the postal system or other matters affecting timing of receipt by the Registrar outside the control of the administrator. It better gives effect to the background relied upon by David Richards J in his analysis in the E Squared case, namely that the introduction of schedule B1 was the opportunity to produce (in paragraph 83) a new simple and seamless procedure for converting an administration into a voluntary liquidation. It also is more consistent with the requirement in paragraph 83(5) that the administrator must, as soon as reasonably practicable after sending a conversion notice, file a copy of the notice with the court and send a copy of the notice to each creditor of whose claim and address he is aware.

It also follows, by parity of reasoning with Globespan, that in the present case the Registrar ought to have registered the Form 2.34B even if the only one actually received by the Registrar was sent before 31 October 2008 but not received until 5 November 2008.

For the reasons I have given, I hold that Melodious was never placed in administration.

I also hold that transfer of the money in the stake-holder account to another account or accounts under the control or direction of Miss Chan or Mr Leung or both of them is not precluded by administration or liquidation of the company.

The timetable for the hearing of the application was very tight. A significant amount of time at the hearing was spent on cross-examination in respect of what transpired to be irrelevant allegations made by Miss Chan in her witness statement and the response to them by Mr Paterson in his fourth witness statement. The Chancery Division is now operating a fixed ended trial policy so that cases will not be allowed to overrun the time estimate save in exceptional circumstances. Judges will be firm in dealing with irrelevant material, the presence of which is also likely to carry adverse cost consequences