Grupo Mexico SAB DE CV & Ors v The Registrar Of Companies For England And Wales & Ors

In his clear and careful submissions, Mr Machell QC argued that this question should be answered in the negative. The starting point of his argument was that it is essential to define what material is sought to be removed from the Register, as this must be specified in any court order, pursuant to section 1096(2). The Defendants’ case was that such material was limited to substitution of the word “dissolved” for the word “active” on the Register, thereby rectifying the Register to remove the result of the administrative restoration.

Section 1096(1) requires the Registrar to remove from the Register (amongst other things) any material that the Court declares to be factually inaccurate, or to be derived from something that is factually inaccurate or forged. However the power of the Court to make an order pursuant to section 1096 is subject to an express limitation: section 1096(3) prohibits the Court from ordering the removal of “anything the registration of which had legal consequences” as set out in section 1094(3), unless it is satisfied (a) that the presence of the material on the Register has caused or may cause damage to the LLP and (b) that the LLP’s interest in removing the material outweighs any interest of persons in the material continuing to appear on the Register.

The Defendants submitted that the Court must therefore apply a two-stage test under section 1096 before ordering removal of material that is contained on the Register:

In the present case, the Defendants accept that some of the information contained in the application for administrative restoration of Infund was incorrect. Therefore, the section 1096(1) test is satisfied. However, section 1094(3) includes “anything whose registration has had legal consequences in relation to the LLP as regards - … its dissolution.” The information on the Register recording Infund’s restoration has had legal consequences in relation to the LLP as regards its dissolution: the effect of restoration is that “the LLP is deemed to have continued in existence as if it had not been dissolved”; Companies Act 2006 section 1028(1) and LLP (CA) Regulations rule 56. As a result of the restoration, it is no longer dissolved and it exists as a legal entity.

The court can only order rectification of the Register if it is satisfied as to the criteria set out in section 1096(3). The Defendants submitted that these criteria are not, and could never be, satisfied, since:

I agree that the court must apply a two-stage test under section 1096 before ordering removal of material that is contained on the Register. There was a dispute as to whether section 1096(3) applies to the suite of documents submitted to the Registrar that appears on the Register, which produced the outcome of restoration, or only to the material on the Register which records the outcome.

The Defendants argued that the only material on the Register that had legal consequences in relation to its dissolution are the word “active” and the stamp on the form LL RT01 stating “restored to the Register on 14/11/11”. It was suggested that neither the registration of the form appointing Mr Garcia as a member, nor the accounts, had any consequence in relation to the dissolution of Infund.

If this interpretation were correct, it would not assist the Defendants’ case. The result, for which Mr Wardell QC initially argued, would be that certain factually inaccurate material could be removed from the Register without considering the balancing exercise required by section 1096(3). However, I do not accept the Defendants’ interpretation. The balancing exercise applies to “anything the registration of which had legal consequences as mentioned in section 1094(3)”. In the present case, this applies to any material on the Register which had the consequence of overturning the dissolution of Infund. It applies not just to the change of status of the company from dissolved to active but also to all documents recorded on the Register which were required to be submitted to achieve this result.

On a related issue, the Defendants argued that the Claimants were only seeking in the Rectification Claim to substitute the word “dissolved” for the word “active”. I do not accept this. The record of the status of Infund as active is the result of the application for its administrative restoration. However, the enquiry by the Court under section 1096(1) is not limited to this result. It also includes material on the Register that is derived from something that is factually inaccurate or forged.

Sections 1024 - 1028, as modified to apply to LLPs by rule 56, contain a number of limitations on the power of the Registrar to restore an LLP to the Register. In particular, the application may only be made by a former member of the LLP; section 1024(3); the LLP must have been carrying on business or in operation at the time of its striking off; section 1025(2); the applicant must have delivered to the Registrar such documents relating to the LLP as are necessary to bring up to date the records kept by the Registrar; section 1025(5)(a); and the application must be accompanied by a statement of compliance that the person making the application has standing to apply; section 1026(1) – (2).

The result of the application for administrative restoration is derived from all of this material, records of which appear on the Register, and which are said to be factually inaccurate, and indeed fraudulent. The particulars of claim in the present case are not confined merely to rectification of the result of the application for restoration, but allege that documents for the administrative restoration application, records of which appear on the Register, were derived from untrue information provided by Mr Garcia. See paragraphs [5] - [7] of the Particulars of Claim and paragraphs [1] to [3] of the prayer for relief.

In particular, Mr Wardell QC identified that the Claimants seek the following by way of rectification of the Register, which includes, but is not limited to, a change of status of Infund:

On the Defendants’ argument, where a dissolved LLP has been restored and rectification is sought, the balancing exercise between the interests of the LLP in removing the material and the interests of other persons in the material continuing to appear on the Register will not be required to be performed. As the LLP can never be damaged by the record of its existence, and as it will never be in the interests of the LLP to remove the record of its existence, the answer will always be that the material must remain on the Register.

I do not accept that this is a correct interpretation of the section. Where material on the Register is not merely factually inaccurate, but is fraudulent, it will be presumed by the court that its presence has caused, or may cause, damage to the LLP, and that the LLP has an interest in removing that material. Where a person who has never been a member of the LLP makes a false claim of former membership or causes fraudulent accounts to be submitted to the Registrar, this is inherently damaging to the LLP. If, for example, a fraudster restores a dissolved LLP in order to trade off its reputation and goodwill, damage to the LLP will be presumed by the court, as the fraudster will control its continuing activities.

Mr Machell QC submitted that the Defendants’ interpretation was supported by the need for certainty in relation to the legal existence of a body corporate. Those engaging in commerce need to know whether an entity with which they are dealing or concerned exists. The balance struck by the section between the ability to correct errors and the need for certainty excludes the correction of errors in the cases of dissolution and formation, which are fundamental to its existence.

I accept that section 1096(3) strikes a balance between error correction and certainty. I do not accept that this leads to a conclusion that the court has no power under section 1096(1) in cases where a dissolved company has been restored as a result of inaccurate information, including fraudulent misrepresentation or forgery. The purpose of the section is to enable appropriate orders to be made in such cases, and the court will normally require rectification where restoration has been procured by dishonesty. Pursuant to section 1096(3), the court may nonetheless consider, in exceptional cases, that the interests of other persons in such material continuing to appear on the Register may outweigh the interest of the LLP in removing that material.

That conclusion is supported by Birds’ Annotated Companies Legislation (3rd ed.), which explains at [35.1096.04] – [35.1096.05] that:

“[35.1096.04] Subsection (3) is important in that it limits the circumstances in which the court can direct the removal of material which has had legal consequences in relation to those matters detailed at section 1094(3). A direction for the removal of such material may not be given unless it is established that the company has sustained or may sustain damage caused by the materials appearance on the register. Secondly, removal of the material may not be directed unless, after conducting a balancing exercise, the court concludes that the company’s interest in removal outweighs the interest of other persons in the material’s continued appearance on the register. Thus, where the interest of the company and third parties are equal, the material will remain on the register.

[35.1096.05] These requirements survived a proposed amendment which would have removed them in respect of fraudulent filings. It was acknowledged that the court would often take the view that it was unlikely to be in the public interest that such filings should continue to appear on the register. However, since the registration of the material under consideration would necessarily have had a legal effect and may have been relied upon by third parties, the balancing exercise should still take place.”

I should make it clear that I have not relied upon what was said during the House of Lords debate concerning a proposed amendment to section 1096 (referred to at [35.1096.05] supra), as I do not consider that the legislation is sufficiently ambiguous or obscure to require this; c.f. Pepper v Hart [1993] AC 493 per Lord BrowneWilkinson at 634-635; Christianuyi Ltd v The Commissioners for Her Majesty’s Revenue and Customs [2018] UKUT 10 (TCC) per Marcus Smith J at [25]-[29].

For these reasons, I conclude that the Court has the power under section 1096 to order rectification of the Register as sought by the claimants in the Rectification Claim.

In November 2011 Mr Garcia applied for the administrative restoration of Infund to the Register. It is accepted that, in so doing, he provided factually inaccurate material. In particular, it is admitted in the Amended Defence that Mr Garcia back-dated restoration documents; provided inaccurate information that he was a former member of Infund when he was not; provided inaccurate information that he was a designated member of Infund when he was not; and signed an inaccurate Statement of Compliance in form LL RT01.

The Claimants allege that Mr Garcia made the following misrepresentations in forms submitted to the Registrar to achieve the administrative restoration of Infund, and that such misrepresentations were fraudulent. In short, it is said that Mr Garcia repeatedly lied to the Registrar about matters which were fundamental to the restoration application; see Particulars of Claim paragraphs [6.1] – [6.3]:

Mr Garcia signed form LL RT01 entitled “Application for administrative restoration of a Limited Liability Partnership (LLP) to the Register”. The opening paragraphs of form LL RT01 said:

“What this form is for

You may use this form if you are a former member of an LLP to apply for restoration of the LLP to the Register.

What this form is NOT for

You cannot use this form for any other application for restoration to the Register”

Mr Garcia was not a former member of Infund. Despite this, and despite the warnings at the top of form LL RT01, Mr Garcia made the following declarations:

Mr Garcia signed two copies of LLP288a entitled “Appointment of a Member to a Limited Liability Partnership” one for the appointment of Mr Garcia and one for the appointment of Corplaw. Both forms were falsely dated, with the date of appointment given as 4 April 2007 and not August 2011 when the forms were in fact completed.

Mr Garcia signed form LLP288a appointing Corplaw as a “Designated Member” He also signed form LLP288a consenting to his appointment as a member of Infund as a “Designated Member”. Mr Garcia was not, and had never been, a Designated member of Infund.

Mr Garcia signed form LLP363: Annual Return of a Limited Liability Partnership for the years 2007 to 2009, and form LL AR01: Annual Return of a Limited Liability Partnership (LLP) for the years 2010 and 2011. In doing so, Mr Garcia declared that he was a Designated Member of Infund from 2007 to 2010; and back-dated his signature, knowing that this would give the appearance that he had signed each annual return as a member for the year to which the return corresponded, when he had not.

Mr Machell QC submitted that there was no intention to mislead the Registrar and that the factually inaccurate statements referred to above were made on the basis of legal advice received from Mr Garcia’s UK solicitors, Harris Cartier LLP (“Harris Cartier”). In particular:

The law in relation to dishonesty in the context of civil proceedings was reviewed by the Supreme Court in Ivey v Genting Casinos (UK) Ltd (trading as Crockfords Club) [2017] UKSC 67: [2017] 3 W.L.R. 1212. Lord Hughes JSC (with whom the other members of the Court agreed) said at [62] that:

“62 Dishonesty is by no means confined to the criminal law. Civil actions may also frequently raise the question whether an action was honest or dishonest. The liability of an accessory to a breach of trust is, for example, not strict, as the liability of the trustee is, but (absent an exoneration clause) is fault-based. Negligence is not sufficient. Nothing less than dishonest assistance will suffice. Successive cases at the highest level have decided that the test of dishonesty is objective. After some hesitation in Twinsectra Ltd v Yardley [2002] 2 AC 164 , the law is settled on the objective test set out by Lord Nicholls of Birkenhead in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 : see Barlow Clowes International Ltd v Eurotrust International Ltd [2006] 1 WLR 1476 , Abou-Rahmah v Abacha [2007] Bus LR 220 and Starglade Properties Ltd v Nash [2011] Lloyd's Rep FC 102 . The test now clearly established was explained thus in the Barlow Clowes case, para 10 by Lord Hoffmann, who had been a party also to the Twinsectra case:

“Although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant's mental state would be characterised as dishonest, it is irrelevant that the defendant judges by different standards. The Court of Appeal held this to be a correct state of the law and their Lordships agree.” 88. Lord Hughes said at [74]:

“The test of dishonesty is as set out by Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 and by Lord Hoffmann in Barlow Clowes International Ltd v Eurotrust International Ltd [2006] 1 WLR 1476 , para 10: see para 62 above. When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual's knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.”

In accordance with Ivey v Genting Casinos, the Court must first ascertain (subjectively) the actual state of Mr Garcia’s knowledge or belief as to the facts.

There is also no doubt that Mr Garcia knew that forms LLP288a were falsely dated. He does not deny this in his witness statements and the documents show that he did not believe that the date was correct: the reason for back-dating the forms was to claim that Mr Garcia had been appointed as a member of Infund prior to the date on

On 25 August 2011 Mr Rafferty told Mr Peralta and Mr Garcia that:

“It has been clarified that for restoration purposes, the relevant appointments must be back-dated hence the 2007 appointment date. Our nominee Company is also being appointed alongside Hector at that date and will countersign the form in the section marked, “Consent Signature”. I have also attached a separate form for the appointment of our corporate nominee, Corplaw Limited - Hector is required to sign this form in the section marked “Consent Signature” only. There is in fact, under this slightly modified approach, no requirement to insert the wording “prospective member” anywhere in the forms and to do so would invalidate same.”

In following this approach Mr Garcia signed forms LLP288a knowing that they contained false dates and executed form LL RT01 without reference to his status as a “prospective member”.

Similarly, there is no evidence that Mr Garcia ever believed that he was a designated member of Infund, and he could not have done so. The only former members of Infund were the Corplaw Entities, who had both been designated members, and who had resigned on 23 October 2006. Mr Garcia signed forms LLP288a knowing that his stated capacity was false. In addition, he signed form LLP363 and form LL AR01, falsely declaring that he was a designated member of Infund from 2007 - 2010 when he knew that this was not the case; and he backdated his signature knowing that this would give the appearance that he had signed each annual return as a member for the year to which the return corresponded, when he had not done so.

Next, the Court must consider whether Mr Garcia’s conduct was honest or dishonest by applying the (objective) standards of ordinary decent people. Mr Garcia was advised by Harris Cartier to fill in the forms in the way that he did. The question is whether an ordinary decent person would have signed forms falsely representing that he or she was a former member and designated member, and falsely back-dating such forms, knowing that none of this was true, in reliance upon this advice.

The issue may be tested by the following example. Would an ordinary decent person accept legal advice that a document should be forged? In my view, the answer is plainly no. In the present case, Mr Garcia was advised to tell lies on forms submitted to the Registrar to achieve administrative restoration. An honest person would not have done this, and applying an objective standard, Mr Garcia’s conduct was dishonest.

Whilst not at the forefront of Mr Machell QC’s arguments, it was the Defendants’ submission that, as a matter of law, the purported resignations of the Corplaw Entities on 23 October 2006 were ineffective. On that basis, it was suggested that Infund had members upon being restored to the Register, even if Mr Garcia was not among them. This contention was also said to be relevant to that part of the Rectification Claim which seeks to remove the material on the Register which records Mr Garcia as a member. It was argued that by operation of section 1028(1) of the Companies Act 2006 (rule 56 of the LLP (CA) Regulations) the appointment of Mr Garcia as a member of Infund was deemed valid and effect upon its restoration, and so there was no material misrepresentation to the Registrar. The Defendants relied upon the following arguments:

The Defendants pointed out that Infund was governed by an LLP Members Agreement dated 13 June 2003 (the “Members Agreement”) and signed on behalf of the Corplaw Entities, which, it was alleged, did not include a provision permitting a member to resign. Therefore, the Corplaw Entities, who purported to resign, did not have the power to do so. The Members Agreement provides at Clause 7.4 that:

“No Member shall be entitled to resign from the LLP and withdraw any part of its capital contribution or to receive any distribution from the LLP, except as specifically provided in this Agreement.”

I do not accept this submission. Clause 7.4 only restricts the ability of a member to resign in circumstances where that member wishes either to withdraw part of its capital contribution or to receive distribution from the LLP. On the Defendants’ argument, members might become liable for a criminal offence, where they could not obtain the information required by the Registrar, and yet be unable to resign. This would not be a commercially sensible interpretation of the Members Agreement. The Corplaw Entities sought the information needed to comply with Infund’s obligations on several occasions, but, eventually, were given no choice but to resign when this information was not forthcoming. The Members Agreement did not prevent them from doing so.

S.4(3) of the Limited Liability Partnerships Act 2000 (the “LLP Act”) provides that:

“A person may cease to be a member of a limited liability partnership (as well as by death or dissolution) in accordance with an agreement with the other members or, in the absence of agreement with the other members as to cessation of membership, by giving reasonable notice to the other members.”

Mr Machell QC contended that section 4.3 does not prohibit a contractual exclusion of the right to retire, an interpretation which is consistent with the views expressed in Blackett-Ord and Haren in Partnership Law (5^th ed, 2015) at [25.77] and in Whittaker and Machell, The Law of Limited Liability Partnerships (4^th ed, 2016) at [19.5]. I accept that section 4.3 does not prohibit a contractual exclusion of the right to retire. However, in the light of my interpretation of clause 7.4, there is no contractual exclusion which operated to prevent the Corplaw Entities from resigning as members of Infund.

It was submitted by the Defendants that, on a proper interpretation of LLP Act s.4(3), members cannot agree to cease to be members of an LLP and cannot cease to be members by giving notices to that effect to each other, if, in either case, the LLP would be left with no members as a result. I disagree. Section 4(3) is unqualified, as there is nothing to prevent the resignation of a sole member, nor is there any practical difficulty with an LLP being left with no members. The Registrar has the power to strike off a defunct LLP pursuant to section 1000 of the Act.

In the present case, the Corplaw Entities were both managed by Pearse and resigned on the same day, with the relevant forms being signed by the same person. The Corplaw Entities therefore gave “reasonable notice” to each other.

The Defendants submitted that the Corplaw Entities held their rights as members on bare trust/as nominees for Global Trustees. They therefore had no power to resign as members of Infund without Global Trustees’ consent, which was neither sought nor given.

I do not accept that the Corplaw Entities had no power to resign as members of Infund without Global Trustees’ consent. The document entitled “declaration of trust” signed by the Corplaw Entities in favour of Global Trustees purports to hold “all profits, losses or distributions allocated to us by virtue of our membership” on behalf of Global Trustees, which does not extend to membership of Infund. The “declaration of trust” is silent on the question of whether the Corplaw Entities could resign as members of Infund without consent.

Therefore, it was not a breach of fiduciary duty for the Corplaw Entities to resign without Global Trustees’ consent. In my view, the trust was not over Infund, but rather over its profits or proceeds.

The Defendants contended that, even if the Members Agreement and LLP Act s.4(3) did permit the Corplaw Entities to resign by giving reasonable notice to each other, neither entity gave any, let alone reasonable, notice with the result that neither purported resignation was effective. I reject this contention. Since resignation was done by agreement between the members, reasonable notice was not required. In any event, for the reasons set out above, reasonable notice was given between the Corplaw Entities of their intended resignation.

Under section 1025(2) of the Companies Act 2006, applied to LLPs by rule 56 of the LLP (CA) Regulations, in order for an LLP to be restored to the Register by the court, it must be “carrying on business or in operation” at the time of its striking off. Mr Garcia declared at paragraph 2 of form LL RT01 that:

The Defendants submitted that this information was accurate, since Infund was “in operation” at the time of its dissolution.

The interpretation of this phrase was considered by the parties in relation to the Restoration Claim and with reference to sections 1029 to 1031 of the Companies Act, as applied to LLPs by regulation 57 of the LLP (CA) Regulations. Section 1031 provides three gateways, of which one must be satisfied before an LLP can be restored to the Register. One of the gateways is that the LLP was “carrying on business or in operation” at the time of striking off (section 1031(1)). It was not suggested that the phrase has a different meaning in section 1025(2) and I shall proceed on this basis that the same phrase has the same meaning throughout the LLP (CA) Regulations.

The meaning of this phrase in relation to section 1031(1) (s.653(2) of the Companies Act 1985) was discussed by Laddie J in Re Priceland Ltd [1997] BCC 207 at 211:

“It seems to me that the purpose of this section is to give the court the widest possible powers to restore. The words ‘carrying on business or in operation’ in s.653(2) should be read together and in the light of that purpose. What the section is directing the court to do is to look back at the time of dissolution. If at that time, the company was completely dormant, this particular avenue for giving jurisdiction to the court is not made out. On the other hand if the company was carrying on any activity at all, then the court’s power to restore is brought into play”.

Laddie J considered that an attempt by a company to assign a lease would have qualified as being in operation (at p.211). In the light of this authority, I accept the Defendants’ submission that “carrying on business or in operation” should be construed widely, and that it presents a low threshold to satisfy. However, as Re Priceland illustrates, the question is dependent on an analysis of the facts. In Re Priceland, Laddie J was not satisfied that the company was anything other than dormant when it was struck off.

The Defendants relied on the fact that, as at 8 January 2008, Infund held an account with Lehman Brothers which was in credit and had accrued causes of action in respect of claims which it subsequently pursued in the Mexican Proceedings. It was not suggested that Infund was carrying on business at the relevant date, but it was argued that these activities showed that Infund was “in operation” at the relevant date.

As against this, Mr Wardell QC pointed to the following, which, he submitted, showed that Infund was not “carrying on business or in operation” at the time of its dissolution:

I accept the Claimants’ case on this issue. In my judgment Infund was dormant at the date when it was dissolved and had been dormant for some years before then. This was the clear understanding of all relevant parties and is confirmed by the documents referred to above. Infund was not carrying on business nor was it in operation. Simply holding a bank account does not, in the circumstances of this case, amount to being in operation. Furthermore, the account relied on by the Defendants was used by Mr Garcia for his own purposes and was treated by him as his own. This does not evidence any operation by Infund. Misconceived claims which have subsequently been pursued in Mexico do not mean that Infund was in operation at the date of its dissolution.

The information provided by Mr Garcia for the purposes of the administrative restoration that Infund was carrying on business or in operation at the time of its dissolution was factually inaccurate.

The Claimants allege that Mr Garcia was lying in his declaration on form LL RT01 that this condition for restoration had been met. They rely on the documents to which I have referred, including those provided by Mr Garcia to Pearse on 22 June 2007, to show that Mr Garcia knew that his declaration was false.

As against this, in an email dated 24 May 2011, Mr Rafferty raised a query with Ms Olivelle of Harris Cartier regarding Infund’s status:

“Whilst I am conscious that the administrative restoration procedure is likely to be the most cost efficient route, one of the criteria listed in the stat form LL RT01 is that “the LLP was carrying on business or was in operation at the time of strike off”. I’m not sure what the threshold is for satisfying this requirement but have the concern that as the there were no members at the time of dissolution, it may be difficult to make such a declaration.”

In her response, Ms Olivelle reassured Mr Rafferty that, having confirmed with Companies House, the mere fact of not being in liquidation or administration meant that Infund satisfied the criterion of “carrying on business or being in operation”.

If there were reliable evidence that Mr Garcia had received and relied on this advice, I would have concluded that his declaration in this regard was inaccurate, but not dishonest. The issue of whether the statutory criterion is satisfied is partly a question of law; c.f. falsely dating a document, which is not. However, there is no evidence that this response from Harris Cartier, or indeed the question from Mr Rafferty, was ever communicated to Mr Garcia, and he was not copied in on the emails. Neither Mr Rafferty nor Mr Garcia suggests that he was told about this exchange in their witness statements, and Mr Rafferty did not suggest this during his oral evidence.

The position, therefore, is that Mr Garcia provided documents to Pearse in 2007, including an income statement for the years ended 30 June 2004, 2005 and 2006, where no continuing operations or revenue were recorded in the accounts for the financial year 2006, and a cash flow statement for the years ended 30 June 2004, 2005 and 2006, where no cash flow from operating activities was recorded for the financial year 2006. In my judgment, he knew that Infund was not carrying on business or in operation at the time of its dissolution in 2008. His declaration to the contrary which was submitted to the Registrar in 2011 was dishonest.

In October 2010, Mr Garcia instructed the accountancy group BDO International Ltd to prepare audited accounts for Infund for the years ended 30 June 2004 to 30 June 2010. These were prepared by BDO (UK) and BDO (Mexico) (together “BDO”). The Claimants’ case is that Mr Garcia dishonestly procured BDO to prepare these accounts, which were required for the administrative restoration, by making a series of fraudulent representations to BDO. It is further alleged Mr Garcia falsely confirmed that the accounts were accurate and that the auditors had been provided with all the relevant audit information. I shall make findings as to the relevant facts and then consider the Defendants’ answers to these allegations.

The Report of the members for the year ended 30 June 2004 prepared by BDO listed Mr Garcia as a member who was appointed on 4 April 2007. It also stated that Corplaw Ltd was reappointed as a member on 4 April 2007. Both of these statements were false. Mr Garcia had never been a member of Infund and Corplaw Ltd was not reappointed in April 2007. The second page records, amongst other things, that “the members are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the partnership…”. Mr Garcia purported to approve the members’ Report as a designated member (which he was not) and signed this document on 25 October 2011. This information was dishonestly provided by Mr Garcia to BDO.

The independent auditors’ report prepared by BDO recorded fixed assets by way of investments valued at US$74,602,122, reflecting the value of the Disputed Shares at the time. Note 6 to the accounts recorded:

“The fixed assets investments consist of a strategic holding in Grupo Mexico SA de CV of 64,903,864 shares (series B coupon 5) which are listed in Mexico. There is currently a legal dispute surrounding these shares and they have not been transferred and delivered to the LLP. The LLP will take all steps necessary to secure this transfer.”

Mr Chidgey of BDO (UK) signed the independent auditors’ report confirming that there were no matters on which BDO were required to report by way of exception, which meant that, in his opinion, adequate accounting records had been kept, that returns adequate for the audit had been received, that the financial statements were in agreement with the accounting records and returns and that BDO had received all the information and explanations that they required for their audit.

The accounts also recorded creditors amounts falling due within one year of over $39.9 million, and loans and other debts to members of over $42.9 million, which is a sum recorded at note 11 as having been “introduced by Members”. These statements were carried through to the audited accounts for the years ended 30 June 2005 to 30 June 2010 and subsequent years’ accounts also recorded that there was a receivable for Infund of GM dividends of more than US $200 million.

The Claimants’ case was that these statements were based on a series of lies told by Mr Garcia to BDO. Mr Wardell QC began by comparing the annual report for Infund for the years 2003-2006 sent on 22 June 2007 by Mr Garcia (which he did not show to BDO) with the accounts prepared by BDO on Mr Garcia’s instructions in 2011.

In particular, in 2007 Taylor Boone of Pearse was pressing Mr Peralta for the information necessary to file financial statements for Infund at Companies House. Mr Peralta forwarded to Mr Boone an annual report for Infund which he had received directly from Mr Garcia. In his email enclosing the annual report, Mr Garcia said the following (sic):

“After review by a Certify Public Accountant enclose herewith the Annual Report for Infund LLP. by which explain in a very detail way all the transactions made during the first three years. This is the best way to provide the information for the House of companies and comply with the information requested.”

The financial statement for 2004 which was enclosed with Mr Garcia’s email indicated that Infund’s investments comprised “Cash, Banks and Investments $28,743” and “Permanent Investments” totalling US $1,874,269. Furthermore, the document showed that Infund’s total assets of US$12,821,767 were matched almost exactly by its debts of US$12,821,764. The financial statements for 2005 and 2006 are consistent with the 2004 Statement.

These financial statements, which were asserted by Mr Garcia in 2007 to provide a very detailed explanation of Infund’s financial position, following review by a certified accountant, are quite different from, and irreconcilable with, the financial information about those same years which was provided to BDO by Mr Garcia in 2011. In 2007, there is no record of any claim of $74.6 million to the Disputed Shares.

The Income Statement for the year ended 30 June 2004 refers to “Sale of Note Bonuserv $42,900,000” and “Cost of Note Bonuserv $75,000,000”. These entries are explained in the Notes to the Financial Statement which state that: “Proper books of account are kept by Hector Garcia in Mexico City, giving it a true and fair view of the business, and was conducted in accordance with Generally Accepted Accounting Standards.” The Notes state that:

The financial statements sent by Mr Garcia in 2007 were designed to support his claim in the First Mexican Proceedings that he was owed a success fee of $5 million for his work on the restructuring of GM. That claim was rejected by the Mexican Courts. Otherwise, they are consistent with the findings that I have made in respect of the GM restructuring. They are wholly inconsistent with the information provided by Mr Garcia to BDO in 2011. There was no suggestion in that Annual Report or the financial statements sent by Mr Garcia in 2007 that Infund enjoyed a beneficial entitlement to the Disputed Shares. On the contrary, those documents confirm that, on 17 October 2003, Infund provided Mr Larrea with a loan so that Mr Larrea himself could purchase the Disputed Shares; that Mr Larrea had executed a loan note in favour of Infund in the sum of US$75,000,000 (the Larrea Promissory Note); and that on 24 December 2003 Bonuserv LLP had purchased the Larrea Promissory Note from Infund for US$42,900,000.

In my judgment, the information given to BDO by Mr Garcia in 2011 was designed to support a false claim that Infund was entitled to the Disputed Shares. The statement in the accounts prepared in 2011 that loans and other debts were owed by Infund to members of over $42.9 million, which is a sum recorded at note 11 as having been “introduced by Members” (i.e. Mr Garcia) is plainly untrue and is refuted by the financial statements sent in 2007. The information that he provided, which was relied upon by BDO in preparing accounts required for the restoration, was based on false representations, dishonestly made by Mr Garcia.

I also find that BDO’s confirmation of the accuracy of Infund’s financial statements was dependent on a certification by Mr Garcia that Infund was entitled to receive money either from Mr Garcia or from entities that he controls. By an email dated 21 September 2011, Mr Chidgey of BDO said that he needed “certification in respect of certain receivables due to Infund from [HG] or entities he controls”. Further, on 11 October 2011, Mr Garcia sent BDO a “confirmation letter” making representations as to the accuracy of the financial statements.

The Defendants deny that the restoration of Infund was procured by fraudulent and dishonest representations. Mr Machell QC submitted that:

Whether Infund is entitled to the Disputed Shares is in issue in the Fourth Mexican Proceedings. However, whether Mr Garcia provided false information to BDO to enable preparation of accounts required for the administrative restoration of Infund is in issue on this application for rectification. The allegedly false information includes the claimed entitlement to the Disputed Shares, which, in that context, is a matter for the English Court to decide.

On an application for administrative restoration, the Registrar is not concerned with, and does not evaluate, the content of the accounts. He does not conduct an evaluative process, and therefore the question of whether he was misled by inaccurate material does not arise. However, the filing of accounts was a prerequisite for the administrative restoration of Infund, pursuant to section 1025(5) and they are referred to on the Register. On the rectification application, the court is concerned with whether material on the Register is factually inaccurate, or is derived from something

Section 1096 does not apply where:

“(6)

… the court has other, specific, powers to deal with the matter, for example under—

(a)

the provisions of Part 15 relating to the revision of defective accounts …”

Mr Machell QC submitted that defects in accounts were outside the scope of a section 1096 enquiry and were subject to different statutory provisions. In particular, he relied upon the specific powers of the court under part 15 in relation to the revision of defective accounts contained in sections 455 and 456 of the Companies Act 2006, applied to LLPs by regulation 23 of the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008.

The relevant parts of sections 455 and 456 are as follows:

I do not accept the Defendant’s submission, for the following reasons: first, in my judgment, “defective accounts” in section 1096(6) refers to accounts which in some respect do not comply with the Act, rather than a case where the accounts are fraudulent or are derived from fraudulent misrepresentations. Similarly, the powers of the Secretary of State in sections 455 - 456 are concerned with cases where there is, or may be, a question whether accounts comply with the requirements of the Act, rather than cases where the accounts are fraudulent in nature. The latter cases fall within the scope of section 1096, and are not excluded by sub-section (6).

Secondly, section 456 is directed at the members of an LLP, as the members are required to file revised accounts and any remedy is only enforceable against them. The section does not contemplate a situation where there are no ongoing members of the LLP and false accounts have been filed by an individual who has falsely claimed to be a member.

Thirdly, section 456 only provides a remedy for defective accounts in respect of an active LLP and I have concluded that Infund was not active when the accounts were filed.

Fourthly, the remedy in section 456 is only available upon application by the Secretary of State, and there is no reason why the Secretary of State would be aware of the filing of fraudulent accounts in individual cases.

I do not accept this. The Claimants rely upon false information dishonestly provided to BDO by Mr Garcia which appears in the accounts and from which they are derived, in support for their application under section 1096 for rectification of the Register.

I do not accept this. The allegations concerning the accounts which I have so far considered are pleaded at [6.4] (the particulars of which incorporate [4.6]); and [6.5] of the particulars of claim.

I reject this submission for two reasons. First, Mr Garcia needed accounts which supported Infund’s claim in the Fourth Mexican Proceedings, which was the purpose of restoring Infund. This is why it was necessary to lie to BDO about Infund’s assets. Secondly, even if different accounts could have been filed, this is no answer to a claim for rectification under section 1096, where inaccurate accounts were in fact filed for the purposes of restoration.

I now turn to a very serious matter, which I have not yet considered. On 28 February 2011 Mr Chidgey emailed Mr Cámara Puerto and Mr Martinez Solano noting:

“4.

You are showing $84m due to HGQ [Mr Garcia] which includes the original $39.2m used to purchase the bond. However your notes say that this was borrowed from Seguros and that the $42m (the other part of the amount outstanding) was introduced to repay this initial borrowing? This seems to be double counting. Can you explain?”

On 3 March 2011 Mr Chidgey sought further clarification in the following terms:

“…I am still not sure why the profit for the bond transaction belongs to HGC as the documentation refers to Infund acquiring the bonds. Can you tell me how this happens?”

Mr Martinez Solano then forwarded Mr Chidgey’s query to Mr Garcia, as on 4 March 2011 Mr Peralta emailed Mr Garcia with a copy of a Mandate signed by both Mr Peralta and Mr Garcia and dated 15 June 2003 (“the June 2003 Mandate”). Mr Garcia forwarded the June 2003 Mandate to Mr Martinez Solano, who in turn provided it to Mr Chidgey, with the following explanation:

“In answer at your question, attached the document where the company is supporting that the record of this document”.

It is the Claimants’ case that Mr Garcia forged the June 2003 Mandate with the help of Mr Peralta in about March 2011. The purpose of this forgery was to persuade BDO that, following the sale of the Asarco Bonds by Infund to AMC, Mr Garcia was beneficially entitled to tens of millions of dollars in fictitious “profits” from that sale. The forgery was required to induce Mr Chidgey to produce the Infund accounts necessary for its restoration, which would support the claim that Mr Garcia, through Infund, wished to pursue in Mexico.

On 23 February 2018 the Claimants served a notice to prove the June 2003 Mandate under CPR rule 32.19. On 5 April 2018, the Defendants’ solicitors wrote a letter which did not attempt to assert that the June 2003 Mandate was genuine. They said:

“Our clients do not rely on the mandate letter dated 15 June

2003 (which we are instructed was prepared and signed at some

point in the period 2004 – 2006) and so do not intend to prove its at authenticity at trial”.

The decision by Mr Garcia not to rely upon the June 2003 Mandate in these proceedings is understandable, although not excusable. In my judgment, the June 2003 Mandate is a forgery. In particular:

Mr Machell QC pointed out, correctly, that the allegation that the June 2003 Mandate is a forgery is not pleaded by the Claimants. He drew attention to the well-known dictum of Lord Millet in Three Rivers District Council v Governor and Company of the Bank of England [2001] UKHL 16, to the effect that allegations of fraud or dishonesty must be distinctly pleaded and particularised. It is of fundamental importance that a party against whom such allegations are made has sufficient notice

It should also be noted that in British Airways Pension Trustees Ltd v Sir Robert McAlpine & Sons Ltd [1994] 72 BLR 26 at 33-34, Saville LJ said, in a passage endorsed by Lord Hope in Three Rivers District Council at [49]:

“The basic purpose of pleadings is to enable the opposing party to know what case is being made in sufficient detail to enable that party properly to prepare to answer it. To my mind it seems that in recent years there has been a tendency to forget this basic purpose and to seek particularization even when it is not really required. This is not only costly in itself, but is calculated to lead to delay and to interlocutory battles in which the parties and the court pore over endless pages of pleadings to see whether or not some particular point has or has not been raised or answered, when in truth each party knows perfectly well what case is made by the other and is able properly to prepare and deal with it…”

If the Claimants had attempted to introduce an unpleaded and unparticularised allegation of forgery without notice, I would not have allowed them to rely upon it. However, in my judgment, sufficient notice was provided by the notice to prove the June 2003 Mandate under CPR rule 32.19, which was served months in advance of this hearing. From February 2018, Mr Garcia could have been in no doubt that the Claimants were challenging the authenticity of June 2003 Mandate. Furthermore, in the unusual circumstances of this case, further particularisation was unnecessary. Mr Garcia knew that the June 2003 Mandate was forged, which is why he did not attempt to defend its authenticity. Rather, he gave false instructions to solicitors that it had been signed between 2004 - 2006, when in fact it had been created by Mr Garcia and Mr Peralta in 2011.

In these circumstances, I have concluded that the Claimants are entitled to rely upon the forgery of the June 2003 Mandate in support of their rectification case. However, I

I am satisfied that the presence of inaccurate material on the Register has caused, or may cause, damage to Infund and that it is in Infund’s interest to remove the material. The false claims by Mr Garcia to have been a member and a designated member of Infund were a pre-requisite for the exercise of the Registrar’s power to order administrative restoration. Those false claims were damaging to the LLP as it was restored on the basis of fraudulent misrepresentations by a stranger to the LLP. However, Mr Garcia’s dishonesty in procuring the restoration of Infund goes much further and is of a most serious nature. Material appearing on the Register is derived from fraudulent misrepresentations to BDO and a forgery sent to BDO to procure preparation of the accounts required for restoration. The presence of this material on the Register is, or may be, damaging to the LLP.

Furthermore, I am satisfied that the LLP’s interest in removing the material outweighs the interest of other persons in the material continuing to appear on the Register. Mr Garcia has no legitimate interest in the material continuing to appear on the Register. It was contended that an unidentified third party, who has invested in the litigation in Mexico, has such an interest. There is no evidence as to the circumstances of this investment, nor whether the third party was aware of Mr Garcia’s dishonesty. I take this into account but consider that Infund’s interest in removing the material outweighs this.

It is necessary to consider whether the discretion to grant a declaration in the circumstances of this case should be exercised. The court must consider whether it is appropriate to grant declaratory relief and must consider: justice to the claimant; justice to the defendant; whether the declaration would serve a useful purpose; and whether there are any special reasons pointing towards or against a declaration; Financial Services Authority v Rourke [2002] CP Rep. 14 per Neuberger J.

The Defendants claim that a declaration should not be granted, for the following reasons: First, it is said that Infund is entitled to a cause of action that is being pursued for its benefit in the Fourth Mexican Proceeding. It is alleged to be just and appropriate for the English court to permit the underlying claim to be continued and determined on its merits by the Mexican courts. The Defendants argue that the Claimants are bringing the rectification claim for a collateral purpose: namely to stifle the Fourth Mexican Proceedings. That collateral purpose should not be sanctioned by granting the Claimants any relief.

I reject this submission. The declaration is sought pursuant to the jurisdiction given to the English court under section 1096 to declare that the Registrar should remove material on the Register which is inaccurate, or is derived from material which is inaccurate, or forged. In my judgment this is a particularly serious case, where the restoration of Infund was procured by fraudulent misrepresentations and forgery. It is just to make a declaration in these circumstances.

Secondly, it is said that is now too late to be appropriate to make a declaration because the Claimants have been guilty of inordinate, inexcusable and unexplained delay. In particular, Infund was restored on 14 November 2011; the Fourth Mexican Proceedings were issued on 21 May 2013; the Claimants did not issue the Rectification Claim until 16 February 2015; during the intervening period Infund has pursued the Fourth Mexican Proceedings and, for that purpose, has entered into dealings with advisers; and in the circumstances it would be inequitable or inappropriate for the court to grant the rectification order.

I accept that there has been some delay on the part of the Claimants in commencing the Rectification Claim. I do not accept that this delay is as long as suggested by the Defendants. Many of the documents referred to in this judgment, which were of great importance to the claim, were obtained as a result of a Norwich Pharmacal order made against Pearse and the Corplaw entities on 4 September 2014. Until that disclosure was provided, and the documents fully considered, it was reasonable not to commence proceedings. Furthermore, such delay as has occurred does not mean that it is inequitable or inappropriate to grant relief. Mr Garcia has dishonestly procured the restoration of Infund, for the purpose of pursuing a dishonest claim in Mexico. He is not entitled to complain of prejudice arising from any delay.

Thirdly, it is said that if the court intends to grant the relief sought in the Restoration Claim, no useful purpose will be served by making an order in the Rectification Claim. However, I do not intend to grant the relief sought in the Restoration Claim and this point does not arise.

In all the circumstances, I will grant declaratory relief in the Rectification Claim. Notice must be given to the Registrar of the hearing consequent on this judgment, to enable submissions to be made on his behalf as to the appropriate form of Order. Subject to Counsel’s submissions, I intend to declare that:

The Defendants seek to have Infund restored pursuant to s.1029 of the Companies Act (modified and applied by regulation 57 of the LLP (CA) Regulations).

Section 1029(1)(c)(i) provides that an application can be made to the court to restore to the Register an LLP that has been struck off the Register under section 1000 or 1001 (power of Registrar to strike off a defunct LLP). Schedule 1 paragraph 24 of the LLP (CA) Regulations confirms that s.1029 applies whether the LLP was dissolved or

As set out in s.1029(2), an application to restore an LLP may be made by, among others, (1) any former member of the LLP, (2) any person having an interest in the land or property that was subject to the rights vested in the LLP or (3) any other person appearing to the court to have an interest in the matter. Mr Machell QC argued, and it was not disputed, that these criteria were fulfilled, as the application is made by (1) Mr Garcia, a beneficiary of the trust that holds the membership rights and obligations of Infund and therefore is interested in its restoration (2) Global Trustees, a trustee of Infund who is interested in its restoration and (3) The Corplaw Entities, who are both former members of Infund.

Though the time limit for bringing a claim for restoration is six years from the date of dissolution (s.1030(4) Companies Act applied by r. 57 of LLP (CA) Regulations), Schedule 1, paragraph 24(5) of LLP (CA) Regulations does not prevent an application being made any time before 1 October 2015 for any LLP struck off under s.652 of the Companies Act 1985, as is the case for Infund. The application in the present case was made on 20 July 2015, so is within the time limit.

In order to bring a claim for restoration, one of the jurisdictional gateways under s.1031 must be satisfied. These are set out in s.1031(1) and in the present case, gateways (a) and (c) were relied upon:

I have already rejected the Defendants’ submissions that Infund was “carrying on business or in operation” at the time that it was struck off, and therefore this gateway cannot be relied upon

The principles governing the exercise of this discretion on an application to restore a company that has been voluntarily struck off were considered by Neuberger J in Re Blenheim Leisure (Restaurants) Ltd (No 1) [2000] BCC 554 (CA) and in Re Blenheim Leisure (Restaurants) Ltd (No.2) [2000] BCC 821. The Defendants submitted, and I agree, that the same principles apply to cases where the company has been struck off through the Registrar’s own motion. In summary:

The Claimants relied upon Witherdale v Registrar of Companies [2005] EWHC 2964 (Ch) where Evans-Lombe J dismissed an application to restore based on (1) the lack of purpose in restoring the company’s name to the Register (2) the fact that the applicant had relied on the evidence of a misleading witness and (3) the fact that there was a history of forgery by the applicant on separate proceedings. Neuberger J also considered the inaccuracies and inconsistencies in the evidence put forward by the applicant in Re Blenheim but decided on the facts that there had been no bad faith. These cases illustrate the obvious – that each case depends on its own facts.

In my view, this is an exceptional case. The administrative restoration of Infund was procured by fraudulent misrepresentations and forgery. I consider it just to declare that the Registrar should rectify the Register, amongst other things, to reverse the restoration of Infund to the Register. I do not consider that it would be just, in all of the circumstances, to allow Infund to be restored to the Register.

Furthermore, the only purpose of the Restoration is to enable Infund to pursue the Fourth Mexican Proceedings, and I am satisfied that the claim is shadowy, and does

However, this is a case where it is clear on the documents which I have been shown that the Fourth Mexican Proceedings are based upon dishonest assertions of fact, rather than disputed issues of law. I find that the claim in the Fourth Mexican Proceedings is shadowy for the following reasons.

First, when this claim was considered on the merits by the Mexican Court in the Fourth Mexican Proceedings, it was comprehensively rejected.

Secondly, the claims in the Fourth Mexican Proceedings are inconsistent with the claims made by Mr Garcia in the First and Second Mexican Proceedings:

Thirdly, Infund’s claim in the Fourth Mexican Proceedings to the Disputed Shares is inconsistent with the contemporaneous documents concerning the GM restructure, which I have considered earlier in this judgment. From these documents, it is apparent that Mr Larrea purchased the Disputed Shares; that the Larrea Promissory Note was sold by Infund to Bonuserv LLP in December 2003; that Mr Garcia did not make any contribution of $42,900,000 to Infund; and that Infund is not entitled to the Disputed Shares.

Fourthly, the Fourth Mexican Proceedings are based on the proposition that the Larrea Promissory Note is a forgery, which is also pleaded in the Defence to the

Finally, the order of bank transfers on 17 October 2003, which I have set out above, has been deliberately reversed in the Fourth Mexican Proceedings, to give the false impression that the AMC Promissory Note was paid before the Disputed Shares were purchased [E6/16/746-750]. Otherwise, there is no explanation as to how Infund had the funds to purchase the Disputed Shares. In fact, the AMC Promissory Note was paid after the Disputed Shares had been purchased.

In all the circumstances I do not consider that it would be just to restore Infund to the Register. Therefore, gateway (c) is not satisfied and I reject the Restoration Claim.

I conclude as follows:

For the reasons set out above the Rectification Claim succeeds and the Restoration Claim is dismissed.