Hellard & Anor v Graiseley Investments Ltd & Ors

This is an application issued on 25 April 2016 brought by the liquidators of Guardian Care Homes (West) Limited ('West') against the First Respondent, Graiseley Investnents Limited ('GU) pursuant to s.238 IA 1986 in respect of an alleged transaction at an undervalue and against the Second and Third Respondents, Mr and Mrs Hartland, pursuant to s.212 IA 1986 for misfeasance as directors of West in causing or allowing the alleged fransacffon at an undervalue to take place.

For the purposes of this frial, I have read the following witness statements and their attaidant exhibits.

On the first day of the trial, I directed that the statement of Ms Amanda Wade dated 12 January 2018 should be excluded from evidence but that, save for Appendix l, all exhibited to the statement should stand as evidence. I did so for the following reasons.

This application has proceeded by way of pleadings. By his initial wimess statement in support of the application, Mr Hellard invited the court to direct that the draft points of claim exhibited to his statement should stand as points of claim and to set out a timetable of directions for pleadings thereafter. In introducing the draft points of claim, he very properly stated (at paragraph 13 of his statement) "It would not be appropriate for me to comment on these claims". That is correct. He was not a witness of fact and could not øve any factual evidence on any pleaded issue.

Following close of pleadings, direcüons for trial were given by order dated 29 September 2016. This order provided, inter alia, for parties to file and exchange signed statemalts of witnesses of fact. Thereafter, Ms Wade made and filed her statement of 12 January 2018. In reality, however, Ms Wade does not and cannot give any direct factual evidence on the issues pleaded. Those issues relate to events which occurred in 2009 and 2010. Ms Wade was not appointed as a liquidator until 2015 and does not appear to have had any real involvement in this matter until 2017 (seven or eight years after the events in issue).

Ms Wade's statement provides no evidence of any specific investigative work which she herself has carried out. The only attempt at describing her involvement is at

Paragraph 19.4 of the Chancq Guide goes on to confirm the long-standing principle that statanents must indicate 'which of the made are made from the witness's own knowledge and which are made on and belief, giving the source of the informafion or basis for the belief'. As a general rule, the witness should 'identi& by name' any such source: Consolidated Contactors Co SAL v Masri 2011 EWCA Civ 21.

Ms Wade's statement of 12 Janum•y 2018 breaches each of these guidelines. It sets out at length Ms Wade's own interpretafion of documents. Such interpretation is a matter of opinion only and is of no real probative value. It also contains factual assertions for which no source ofkiowledge is provided. This is unhelpful.

I would add that, at the prose reads as if the was a pleading. The also contains allegations which, on their face, differ from, and go significantly beyond, those set out in the Points of Claim.

Having considered Ms Wade's staternent of 12 January 2018 de esse with some care, I have concluded that clothing it with the status of evidence for the purposes of this trial would put the Respondents in an impossible position. They are entitled to the case they arg to meet. m•ley are entitled to proceed on the footing that the case they must meet is as pleaded.

Cross of Ms Wade would simply take up valuable time at trial which could be put to better use. It would be of no practical utility beyond establishing that Ms Wade's statement is of no probative value to the frial judge — and yet to decline to cross examine would put the Respondents at risk of an objection in closing that a given point was not put to the wimess. Counsel for the Applicants sought to reassure the Court that they would not take points on whether given issues had or had not been put to Ms Wade. This, however, only served to emphasize the fact that, beyond intoducing documents, the statement had no real probative value.

I would add that, even allowing for such assurances and assuming that the same would be workable in practice, there would remain the diffculty of how to approach those aspects of the wimess statement which appeared to allege a broader (or different) case than that pleaded, or which put forward factual assertions without identifying the source of infomation for the same.

The Applicants argued that there is a custom or practice of permitü.ng an offceholder to put in a statanent or report for the assistance of the court. I am aware of that custom; in cases an application proceeds by way of application notice and supporüng statements, for example, the filing of one or more statements by the is to be expected. Similarly, in the context of some applications, it may be appropriate for an to file an 'updating' statement shortly before trial. But in a case such as this, pleadings and frl.l disclostre have been directed, offceholders should refrain from filing which do little more than set out their own views on given Still less should they by their statement put forward a case at variance with that pleaded.

The Applicants were at pains to me that the Respondents applied to Deputy ICC Judge Prenfis some months before trial to have Ms Wade's statement excluded from ahead of frial and that their application was rejected. Naturally, I have the yeatest of respect for the decision reached by the learned deputy as to whether he should, prior to trial, ride out reliance on the witless in question. His decision as to to exclude the wimess statement prior to trial, however, does not bind the frial judge, who may the afresh. Having done so, for the reasons which I have given, I have decided that Ms Wade's statement should be excluded from

The Applicants did not call any wiålesses. I heard oral evidence from Mr and Mrs Hartland and Mr Plant.

West was incorporated on 30 2004. From September 2007 until 31 October 2009, West carried on a substandal care home business 30 care homes throughout England and Scotland, in a 'Propco/Opco' structure within a wider youp of companies known as the Guardian Group.

West was the 'OpCo' within this structure and owned the moveable property required to cm•ry on the nursing home business. This included furniture, kitchen equipment, linen and so forth, used (and variously located) in each of the nursing homes, collectively referred to in West's accounts (somewhat inaccurately) as 'Fixtures and Fiffngs'. In West's filed accounts for the year to 31 October 2008, fixtures and fittings are shown at a net book value ofE3,298,019. It is common ground that the net book value of the Fixtures and Fittings was markedly greater than their open market value.

The 'Propco' companies which owned the freeholds to the care homes were GIL and Graiseley Properties Limited ('GPL'). The main property portfolio (comprising freehold titles to 28 care home was vested in GIL. GPL owned the freeholds to only 6 care home properties, 2 of which were leased to third parties. Barclays Bank Plc held security over GIL's and GPL's assets but not over West's assets.

At all times, Guardian Care Homes (UK) Ltd ('UK') was the holding company of West, holding a single El share. UK held the licence for each of the care homes. Barclays did not hold security over the licences.

Mr Hartland was a director of West and of each of the Group companies and was the director of the Group. He was also the founder, having grown the Group business organically from one care home in 1988. Mrs Hartland became a director of West in 2007. The company secretary of West was Mr Hartland's brother, Andrew Hartland.

'Ihe 'Propco/Opco' stucture employed by the Group had been put in place as a of Barclays Bank Plc on refinancing the Group over the period 20072008. These refinancing arrangements alia) required GPL and GL to into rate collar ('Swaps'), which the Respondents maintain ultimately proved disastous for the Group.

Mr Hartland was in dispute with Barclays from November 2008 onwards regarding the refinancing arrangements. By 11 2009, a formal letter of complaint had served on Barclays on behalf of GL and GPL, alleging mis-selling of the Swaps. By July 2012, the Group had issued proceedings against Barclays. That claim was listed for frial on 29 April 2014 for 6 to 8 weeks but was settled by at the start of April 2014, on tams involving a substantial confidential without admission of liability. The case attracted considerable press interest, including an arHcle in the Daily Telegraph dated 7 April 2014 included in the bundles before me.

Given the dispute with Barclays, over the period 2009-2010, the Group attempted to reverse and/or to modi$.^r the 'Propco/Opco' s&ucture in place, with a view to restructuring and refinancing the GIL loan. As Mr Hartland explained by email dated 7 July 2009 to Jonathan Thompson, 'I am looking to dismantle [GIL] and break the assets down across 3 or 4 bmks'.

The first stage of the proposed process was to involve a restucturing of 'Opco'. At 'Opco' level (where Barclays did not have sectu•ity), it was proposed that West (as existing 'Opco') would be the subject of a solvent wind-down, having fransferred its business to three or four new (Fating companies set up for the purpose.

Some changes ahead at 'OpCo' level. The Opco business was ultimately transferred out to four successor companies known as Guardian Care Homes (Ma•cia) Limited ('Mercia'), Guardian Care Homes (One) Ltd COne'), Guardian Care Homes (Caledonia) Limited and Guardian Care Homes (Trinity) Limited ('Trinity'). Changes at Opco level were relatively easy, as Barclays did not hold security over West's assets. The harder part of the exercise was the second stage of the proposed resfructuring/refinancing process at 'Propco' level, outlined below.

nie second stage was to involve a restructuring of the main existing 'Propco', GIL, in order to enable a three or four-way partition of debt, Swap liabilities and the care home propaties. This plan (which was dependent upon Barclays' cooperation which was not forthcoming) envisaged a breakup of the Group's freehold property portfolio in GIL into several separate portfolios, with new property holding companies put in place to hold each of the same. Various options were considered,

As part of the proposed restructuring, Mr Hartland also explored changing the holding company of West. In the events which occurred, it is common ground that at all mata•ial times UK the holding company of West. At various stages, however, it was proposed that other companies should become West's holding company. The companies considered included a company known as Bilbrook Ltd ('Bilbrook'), which had originally been set up to manage the Group's porffolio. Bilbrook, however, was a registered company and, as part of the overall plan was to set up a new goup VAT Bilbrook was abandoned as an option. It did not pay VAT and was not a popular choice with the banks. Nonetheless, some aborted paperwork was prepared with a view to Bilbrook in place as West's holding company in place of UK; a point which I will come back to. Another option considered was putting a newly incorporated company as Monmore Properties Ltd ('Monmore') in place as West's holding company, in place of UK. Again, this generated some aborted paperwork; a point to which I shall return, but ultimately West's holding company, UK, remained unchanged.

It is common grotmd that, in the context of these proposed restructuring arrangements 2009/2010, an —oyee of the Group, by the name oflvfr Mike Spruce, created and posted onto the Group's 'Sage' system a of accounting journal entries, including two journals 2045 and 2261) to which express reference was made in the Applicants' Points of Claim.

I pause here to summarise Mr Spruce's role within the Group. Mr Spruce was a costs and management accountant who had joined the Group in 2008 and was by 2009 employed at head offce as financial controller. He was responsible for producing management accounts and would process joumal on the Sage system. He had day-to-day responsibility for overseeing the accounts of six people. Mr Hartland described Mr Spruce as a 'trusted friald'.

By 2009, Mr Spruce had significant health problems. According to Mrs Hartland, who worked on the same floor as Mr Spruce and whose I accept, Mr Spruce was at frnes visibly in pain at the offce. Perhaps unsurprisingly in the circumstances, he decided to retire on health grounds in August 2009, accepting 5 months' salary to 31 January 2010. He agreed to do whatever was required to ensure a smooth transiüon and continued to work on an ad hoc basis through to the end of January 2010 and into February 2010 in order to finish off. Mr Hartland's evidence, which in this regard I accept, was that after August 2009, Mr Spruce only worked a few days a month and Mr Hartland rarely saw him.

Mr Spruce was unable to attend trial due to health problems. Both Mr Hartland and Mr Plant, however, gave evidence as to Mr Spruce's favoured approach in accounting matters. Mr Plant's evidence, which I accept, was that Mr Spruce 'wasn't great with spreadsheets.. .. what he liked was Sage, which is why the records were kept on Sage while Mike was doing it . . . He liked to put it on to Sage and see what it looked like... So he would .. put the journal onto Sage and then see what the frial balances looked like. And that's how Mike did things, and I know it meant sometimes that they had to be reversed but that was just Mike's way of doing things'.

On 12 October 2009, Mr Spruce created and posted journal 2045 onto Sage with an effective date of 31 August 2009. This journal included the enfry 'Tfr of fixtures and fittings from West to [GIL]' in the sum of This is the first of two journals r&red to in the case as pleaded against the Respondents.

Mr Hartland maintains that he did not of this enfry at any material time and did not intend or authorise a fransfer ofthe Fixtures and Fittings to GIL. He contends that it made no sense to fransfer more assets into GIL, as he was to dismantle GIL at the time and Barclays held security GIL's assets. He also pointed out that it would have been a breach of his banking covenants to Barclays if he had caused GIL to take on a further liability ofE3.5 million.

Mr Hartland maintains that (in terms) his plan in 2009 was not to move the Fixtures and Fittings to GIL, but to move than to West's holding company, as an int±l measure the proposed restructuring at Propco level, and thereafter, once the new Propcos and their respecfr„^re property portfolios had been agreed and put in place, to move the Fixtures and Fittings relevant to each property portfolio from the holding company to the new Propcos. He also contends that journal enfries of this nature are in any provisional and of no legal effect. Mrs

journals were posted by Mr Spruce onto Sage in 2009, including jou•nals 2132 and 2249. These, together with journal 2846 enta•ed on 7 January 2010, purport to relate to declared by West in favour of Monmore. "Ihese were clearly either provisional or based on a fundamental error, as Monmore was not a shareholder of West at the time and in fact has neva• been a shareholder of West. At one stage it was proposed that UK should be replaced by Monmore as holding company of West, but ulfrnately UK the holding company.

An additional journal (journal 2252), altered by Mr Spruce on to Sage on 7 January 2010, set out what, on their face at least, purported to be a number of further inter-company including an by West to Monmore of a purported debt ofE5.2 million stated to be owed by GIL to West, as part of a process of satisfying the provisional or misconceived 'dividend' in favour of Monmore reflected in journals 2132, 2249 and 2846.

In the event, the proposed restructuring at Propco level was ultimately rejected by Barclays at a meeting on 22 January 2010. Mr Hartland maintains that he was forced to ayee far more onerous terms put forward by Barclays instead. At Mr Plant's suggestion, Mr Hartland sought insolvency advice regarding the future of West.

On 11 February 2010, Mr Hartland sought general insolvency advice regarding West from an insolvency practitioner by the name of Mr Masters. At that stage no concrete decisions appear to have been taken but initial contact was made with a view to ongoing advice thereafter.

On the moming of 22 February 2010, Mr Spruce met with N'fr Plant of Plant & Co, the Group's accountants, to discuss of accounts for the Group. As part of that process, ahead of the meeting Mr Plant had run searches at Companies House and had used the information from these searches to prepare goup sfructure charts for the

Following his me±g with Mr Plant that morning, on the afternoon of 22 February 2010, Mr Spruce posted two (2261 and 2262) onto Sage: (1) reversing joumal 2045 (which, on its face at least, had recorded a &ansfer of the Fixtures and Fittings from West to GL), (2) reversing the journals relating to a proposed or mistaken to Monmore, (3) reversing the previous journals in respect of the assignment of vm•ious inter-company balances from West to Monmore in settlement of the proposed or dividend to Monmore, (4) a dividend by West to

Mr Plant's (which I accept) was that Mr Spruce had made no mention that morning of his to create and post journals 2261 and 2262. Both Mr Plant and Hartland expressed their belief in evidence that these journals are likely to have prompted, at least in part, by sight of the goup stucture charts considered by Mr Spruce and Mr Plant at their meeting in the morning.

In the event, the proposed and of Fixtures and Fittings in favour of UK was abandoned on the advice of Mr

Mr obtained a professional valuation of the Fixtures and Fittin9 from MGR Appraisals on 23 February 2010, who valued them at El 77,600 in situ and E62,650 ex situ. Then on 18 March 2010, Mr Masters advised Mr Hartland that West should be placed into Pursuant to that advice, on 27 April 2010, West voluntary liquidation. Mr Masters was appointed as liquidator and sold the Fixtures and Fittings to Wingate Associates Limited (a Group company) for E150,OOO, less outstanding finance of realising a net sum of for West's estate. The sales invoice dated 27 April 2010 was in evidence before me.

It is common ground that the Fixtures and Fittings themselves remained in situ throughout; that is to say, they remained in integated use in the 30 care homes owned by the Group.

On 23 November 2015, Mr Masters resiY1ed as liquidator and the Applicants, Mr Hellard and Ms Wade, were appointed in his place. Prior to his Mr Masters had insfructed the Applicants' current solicitors, Howes Percival LLP, to send a letter before action dated 3 September 2015 claiming an 'Incorrect Reversal of Dividend'. This letter alleged that Mr and Mrs Hartland were in breach of duty as directors by (paragraph 33) 'causing or allowing the Company to reverse the dividend paid to Monmore'. The letter went on to allege that the reversal constituted a at an undervalue. The proposed claim was clearly misconceived. The Applicants contend that this was due to 'incomplete accounting records'. The most elementm•y of enquiries at the outset of the liquidation, however, (such as a sfraighfforward company search) would have disclosed that Monmore was not (and never had been) a shareholder of West. Moreover, in to accounting records, Mr Masters had been provided with a full back-up of the West Sage data on a memory stick in 2010 and had lost it. The liquidators subsequently worked from an incomplete and wrong Sage back-up file for West. It was Mr Plant who identified their error.

The Respondents maintain that they have been thanked for their efforts by yet further misconceived allegations, which on this occasion have brought to frial.

In cross examination, Mr Plant was knowledgeable, clear and precise in his answa•s. Save for what was ultimately a fairly philosophical debate as to the nature and status of an accounting journal, his evidence was barely challenged. I have every confidence in the veracity ofhis testimony, both written and oral.

Mr Hartland was a director of West and of each of the Group companies and was the managing director of the Group. He was also the founder, having gown the Group business organically from one care home in November 1988.

Mr Hartland qualified as a certified accountant in February 1986 and is now a fellow of that association. He recently received a commendation from the association for 25 years of unblemished service.

On behalf of the Applicants Mr Nash submitted that Mr Hartland's evidence was 'unreliable'. I disagree. It is fair to say that Mr Hartland's oral testimony was confused at points, but this was entirely understandable given the complexity of the subject matter on which he was being questioned and the fact that, on many occasions, he was being asked to explain and comment on accounting entries which, on his case, he had not created or authorised and had only seen years after the event.

Mrs Hartland is a certified accountant and described herself as a working mother. She became a director of West in 2007, as she put it, 'the year we got married.' She explained that at the time, 'there was plenty of paperwork that required to be siY1ed and Gary's brother is a consultant at a hospital and he just could not keep popping out for three, four hours to pop to Birmingham solicitors to sign paperwork and so I was appointed director so we could have two people to sign, and it would be easier for Gary and I to do that than his Andrew.'

By 2009, her main function in West on a day to day basis was to produce sales invoices on an Excel invoicing and load them onto Sage. She relied upon Mr Hartland to run the business and was not aware of what Mr Hartland's were in relation to the of assets from West to other companies within the Group in 2009/2010.

In oral testimony, it was clem• that Mrs Hartland found the comt process dis&essing and bewildüg. She was not entirely clear why she was tha•e at all and I must say that, given the way the case was pleaded and presented, her confusion was understandable. Ultimately, it was not even put to in cross examination that she had caused or allowed the alleged transaction at an undervalue said to underpin the breach of fiduciary duty claim alleged against her.

Overall, I am satisfied that Mrs Hartland answered the questions put to her in cross examination t•mhfully and to the best of her ability. Whilst I have every confidence in the veracity of her answers, however, it is clear that Mrs Hartland had very little knowledge of the matters under scrutiny for the purposes of the application.

As pleaded, the Applicants set out their case on the alleged 'transacüon' as follows:

It will be that the Applicants' pleaded case is that the 'transacffon' forming the subject matter of the s.238 was effected by journal 2261 (POC, para 15). It is said that the effect ofjoumal 2261 was (i) to &ansfer fit.le to fixtures and fittings back from GL to the Company and (ii) to release GIL from an obligation to pay West the (POC, para 16).

The Respondents dispute any that the journals of themselves could create a con&actual liability or release a contractual liability for GIL to pay West the book value of the Fixtures and Fittings. They also maintain that, even taking the journal enties at face value, the effect of journal 2261 was not to "release GIL from an to pay West the sum of On behalf of the Applicants, Mr Nash had to concede the latter point. In closing, he asserted that "paragraph 15 of the Points of Claim ought also to have referred to journal number 2262".

Mr Nash's problems did not end there however. Even if one generously reads into the Points of Claim a reference to journal 2262, and teats the pleaded references to transactions having been 'effected' by given journals as &ansactions 'evidenced' by such journals, the Applicants' case is pleaded in a way which suggests that GIL had incurred a contractual liability with effect from 31 August 2009 (joumal 2045) to pay West E3,551,756.46 in respect of fixtures and fittings (POC para 10) and had remained under an obligation to pay West E3,551,756.46 until released from that obligation (joumal 2261 and journal 2262) on or about 22 February 2010 (POC para 15-16).

Intermediate journal entries made on 7 January 2010 (journal 2252), however, show GIL's intercompany 'indebtedness' to West being assigned to Monmore, as part of a process of satisfying the provisional or misconceived 'dividend' in favour of

It is only as a result ofjournals 2261 and 2262, effected on 22 February 2010 at 15.20 and 15.47 respectively, that, (again, taking the journal entries at face value, for the sake of argument), at 15.20, the Fixtures and Fittings are first returned from GIL to West (by journal 2261, somewhat ironically creating a debt owed by West to GIL, not GIL to West) - and then, at 15.47, some 27 minutes by journal 2262, intercompany indebtedness of GIL to West is both restored and negated (by a reversal of journal entries in journal 2252).

This only serves to emphasise the crucial importance of defining one's transaction for the purposes of s.238. In this case, there were clearly a journals referring (on their face at least) to a number of included journals numbered 2044, 2045, 2083, 2132, 2249, 2251, 2252, 2261 and 2262. The Applicants' pleaded case only one or two items in journals 2045 and 2261. It ignores the items in journals 2045 and 2261 - and ignores completely the other journals above. allowing for the Applicants' belated at—t, in closing submissions, to include journal 2262, is no mention in the Applicants' case of journal 2252; and to understand journal 2252, one has to journals 2132, 2249 and 2251.

It seems to me that the could be dismissed on this ground alone. The Applicants have failed propa•ly to plead or define their '&ansaction' for the purposes of s.238 IA 1986 and have failed adequately or at all to address in their evidence the value alleged to flow from West and to be received by West in relation to the as properly defined. Their &ansaction at an undervalue claim simply does not get off the yound. The other limb of their case, misfeasance, is based upon the alleged at an undervalue. A fortiori, that too must fail.

I do not base my dismissal of the application on this ground alone, however. Having considQd the evidence, both written and oral, over the course of a five day trial, and having heard detailed submissions from leading counsel on both sides, I also base my dismissal on the findings and conclusions set out below.

On the evidence which I have heard md read, I am safisfied that Mr Hartland did not insfruct Mr Spruce to effect, and did not in any way authorise, whether by Mr Spruce or otherwise, a tansfer of the Fixtures and Fittings from West to GIL, whether in consideration of the sum of or any other sum, and whether qua director of West or qua director of GIL. I am also satisfied that Mrs Hartland did not know of or authorise the journal enfries or a transfer of fixtures and ffngs from West to GIL either. She left the management of West to Mr Hartland and her knowledge of its affairs was limited.

From the evidence which I have heard and read, I find that Mr Hartland's intention at all material times from July 2009 onwards was

I further find (1) that in or about August 2009, Mr Hartland insfructed Mr Spruce to move the Fixtures and Fitüngs from West to its holding company and explained to Mr Spruce that his ultimate plan was to move the Fixtures and Fittings from the holding company to the new Propcos as per Paragraph 67(2) above; and (2) that Mr Spruce acted in and withotd Mr and Mrs Hartland's knowledge or authority when puportedly a &ansfer of the Fixtures and Fittings by West to GIL in the journals that he

On a balance of probabilities, the most likely reason for this a•ror is that Mr Spruce mistook the instucfion by Mr Hartland to tansfer the Fixtures and Fittings to the holding company palding their transfer out to the new Propcos as an instuction to move the Fixtures and Fitüngs to the exisüng 'Propco', GIL, As Mr Hartland put it in oral 'what I think Mr Spruce did is he misinterpreted PropCos for PropCo, because the s&ucture as it was [GIL] was the PropCo. 'Ihe PropCo. [GL] was a PropCo. He took out a step.' Ultimately, however, it matters not why the error occurred, simply that it did occur.

From the evidalce, it is clear that these not Mr Spruce's only of this kind. There wa•e numerous unchallenged examples set out in the written evidalce of Mr Hartland and Mr Plant: see by way of example those summarised at paragaph 74 of Mr Hartland's first witness statemalt. Mr Hartland's evidence, which I accept, was that Mr Spruce did not raise any of these journal errors with him at the time. Mr Spruce simply set about correcting or reversing the same as and when appropriate.

I further find that Mr Spruce corrected his error (in recording a transfer of the Fixtures and Fittings by West to GIL) by his journal entries of 22 February 2010, without informing Mr and Mrs Hartland or Mr Plant of the error or of its correction.

Notwithstanding their reliance on s.386(2) and (3) CA 2006, the Applicants rightly accept that data entry mistakes and casting errors in a company's books and records may be corrected (Applicants' skeleton argument, para 43).

The Applicants' case, as developed during the course of the trial (which was not entirely in accordance with its pleadings), that the alleged sale by West to GIL of the Fixtures and Fittings was a reality which Mr Hartland later sought to unravel once he realised that West was likely to end up in insolvent liquidation, was simply not made out on the evidence.

On the evidence before me, it was clearly never the intention of Mr Hartland to transfer the Fixtures and Fitting from West to GIL. As made clear by his email of 7 July 2009 to Jonathan Thomson, Mr Hartland was planning to 'dismantle' GIL. It

The Applicants had no persuasive answer to the perversity of thü position on this issue. Their theory (as set out at paragaph 3(b) of their skeleton argument) that the alleged sale by West to GIL was intended to give rise to a debt due from GL to West, which West could then assign to Monmore by way of a paid in specie (by an assigment of the debt due from GIL to West in respect of the Fixtures and Fittings) simply did not hold Mr Hartland's evidence, which I accept and which was supported by GL's filed accounts, was that GIL had no cash at the time. Moreover its assets (in real terms) were all charged to Barclays. Even leaving to one side the fact that Monmore was not the holding company of West at the material time, there was therefore no advantage to be gained by the 'dividend' to Monmore by way of an assignment by West to Monmore of a debt owed by GIL, rather than by satisfying it by way of a direct fransfer from West to Monmore of the Fixtures and Fittings themselves.

During the course of submissions, Mr Nash r&red me to a decision of Bryan J in the case ofJSC BM Bank v Kekhman and [2018] EWHC 791 at paragaphs 67-69:

Where there is a lack of contemporaneous documentafion it is necessary to have regard to the plausibility or implausibility of witnesses' accounts. As Moore-Bick LJ stated in Jafari-Fini v Skillglass Ltd [2007] EWCA Civ 261 at [76] and [80]:

In the present case, Mr Nash accepted at frial that journals 2045, 2261 and 2262 were not 'in the nature of fransacüonal or conveyancing documents', but urged me nonetheless to teat these journals, along with certain other documents referred to below, as the 'best possible evidence' of the transactions taking place at the material time, stessing that 'the Sage records were maintained in accordance with the to keep accounting records under CA 2006, section 386.' (Applicants' skeleton argument, para 45). He maintained that all of these contemporary documents pointed one way.

Dealing first with journals 2045, 2261 and 2262: for the reasons given in paragraphs

I would add that there were numerous other unchallenged examples of significant errors in Mr Spruce's journal enties and related work set out in the evidence of Mr Hartland and Mr Plant; the journals listed at paragraph 63 of this judgrnent did not stand alone in this regard. I also myself of Mr Plant's evidence, which I accept, of Mr Spruce's style of working; in particular Mr Spruce's habit of putting enties onto Sage to see what they looked like: and of Mr Spruce's failing health over this period, which had prompted his retirement in August 2009.

Overall, notwithstanding their undoubted status as contemporaneous documentation, journals 2045, 2261 and 2262 are a rather shaky starting point from which to mount a case.

Mr Nash further relied upon accounts for West for September, October and November 2009, by Mr Hartland and shown to Barclays, all of which show the Fixtures and Fitüngs as having left West. As Mr Davies rightly submitted however, these accounts a product of what was entered by Mr Spruce onto the Sage systern, including the journals.

accounts in question only show the Fixtures and Fittings as having left West, not their destination. Mr Hartland was expecdng the Fixtures and Fittings to leave West as he had by this stage given insfructions to Mr Spruce to move the Fixtures and Fittings to West's holding company. Sight of these accounts would not of itself have alated Mr Hartland to the fact that Mr Spruce had entQd onto the Sage system a tansfer ofthe Fixtures and Fittings by West to GIL.

Mr Nash also relied upon a spreadsheet attached to an email dated 9 January 2010 from Mr Plant to Mr Hartland, copied to Mr Spruce. The spreadsheet was said to set out the net position of each Group company and a series of proposed dividends. Mr Plant's evidence, which I accept, was that in putting together the spreadsheet with Mr Spruce at this time, Mr Plant had only been supplied by Mr Spruce with trial balances for each company, rather than the underlying detail. By his email of 9 January, Mr Plant informed Mr Hartland that a dividend from West to Monmore had been processed on to Sage but that other dividends listed on the spreadsheet had not yet processed. The email asked Mr Hartland to confirm that he wanted the additional dividends processed and stated that the point of the spreadsheet was to enable Mr Hartland to see the overall net position, explaining that the plan was to assign various intercompany debts in order to effect the payment of a dividend from West to Monmore.

In the event, Monmore never became a shareholder of West and accordingly was not entitled to a dividend. Nonetheless, Mr Nash submits that the spreadsheet attached to the email of 9 January 2010 (and Mr Hartland's reaction to it) is of significance. The importance of the spreadsheet, Mr Nash QC maintained, was that it revealed under the fixed asset column that the Fixtures and Fittings were no longer in West and that there were no fixed assets at all in UK (which was then, and at all times remained, West's holding company).

In cross examination, Mr Nash put to Mr Hartland that he must have known from the spreadsheet that Mr Spruce had not done what he claimed to have instructed him to do, because the Fixtures and Fittings were not in UK. Initially, Mr Hartland thought the to be that the value of the Fixtures and Fittings would appear somewhere in intercompany indebtedness, but ultimately he accepted that was incorrect. Mr Nash invited me to take this as 'a good of the unreliability of Mr Hartland's .. oral I reject that Mr Hartland was being questioned about a complex spreadsheet setting out draft figures based on frial balances dating back eight years. In the context of his oral and written testimony overall, I am satisfied that his incorrect asserü)n as to where the value of the Fixtures and Fitüngs would be in accounting terms at the material time was not a deliberate attempt on his part to mislead the Court and was not such as to lead to the conclusion that his oral tesfrnony overall was unreliable.

it was no part of the purpose of Mr Hartland's consideration of the spreadsheet at the material frne to check the Fixtures and Fitüngs were; as confirmed by Mr Plant's email of 9 January 2010, the point of the spreadsheet was to enable Mr Hartland to see the overall net position.

I would add that the figures set out in the spreadsheet did not of themselves point firmly one way or the on the issue of where the Fixtures and Fittings were at the üme. At best, had he been sm•ufrlising the spreadsheet for this purpose, Mr Hartland would or could have deduced that the Fixtures and Fittings not in UK at that üme. As were moves afoot to replace UK as West's holding company over this period, however, that of itself may not have sounded alann bells. Working from the global fixed asset figures set out in the spreadsheet for the companies within the Group, it is clear that a number of companies showing fixed asset values large enough to accommodate the net book value of the Fixtures and Fittings. These included GL, but also included GPL and Wingate. I also note that Monmore (which had been set up to be the proposed successor holding company for West) showed a credit in the 'net assets' column on the spreadsheet of E3.15 million. "I'ffs was not dissimilar to the figure for Fixtu•es and Fittings.

Overall, I am not persuaded that the spreadsheet attached to the email of 9 January 2010 is of any significant assistance to Mr Nash. If anything, it serves to undermine his reliance on the journals as evidence of actual tansactions. The figures set out in the spreadsheet sent under cover ofthe email of 9 January 2010 were presented by Mr Plant as largely provisional and subject to approval — and yet some two days prior, on 7 January 2010, Mr Spruce had already created journals (including joumal 2252) which purported to record a number of the intercompany movements said to be awaiting approval as at 9 January 2010.

Mr Nash also relied upon signed off dividend vouchers and back dated board minutes for West ostensibly daffig from 25 October 2009 (before year end, 31 October 2009), but signed by Mr Hartland and his brother (as Company Secretary) in early 2010, resolving to declare an interim dividend of E3.5m in favour of Monmore for the year ended 31 October 2009, and resolving that the dividend was to be settled as fully paid to Monmore by to it the same amount in debt owed by GIL, Sitepride, Care Confrol, Wingate, GPL, UK, Whim Hall and Branksome up to Monmore.

The backdating of documentation forms no part of the case as pleaded against the Respondents and at best goes only to credibility. Moreover, Monmore was not a shareholder of West at the material time and it was not suggested at frial that this purported declarafion of a dividend in favour of a non-shareholder had any legal effect. Mr Davies submits that these documents only serve to support his clients' case further, as they are yet further examples of what was, at best, a range of provisional or 'in escrow' documentation prepared in readiness for a variety of eventualities in the context of a proposed restructuring which ultimately did not take place. I accept that submission and would add that the Bilbrook share certificate and attendant documentation, which again was ultimately of no effect, falls into a similar category.

The Applicants also relied upon some draft accounts for GIL which were presented by Mr Plant to Mr Hartland on 3 March 2010. Mr Plant's evidence, which I accept, was that these draft accounts were drawn up by an employee of Mr Plant's firm known as Mr Tim from trial balance figures and nominal obtained from Mr Spruce, which Mr Hawker had tapped into a progamme known as Sage Accounts

Mr Nash sought to suggest that by insisfing that GIL's draft accounts be corrected in this way, Mr Hartland was seeking to 'cover up' an actual fransfer of the Fixtures and Fittings to GIL which by March 2010 he was having second thoughts about. On the evidence as a whole, I reject that The initial draft accounts prepared for GIL simply reflect Mr Spruce's error summarised at paragraphs 68 and 69 of this judgment and the steps by Mr Spruce on the afta•noon of 22 February 2010, without notice to Mr and Mrs Hartland or to Mr Plant, to correct that and other errors.

Mr Hartland's own evidence on his reaction when presented with the first draft of GL's accounts was entirely clear. In oral testimony, he confirmed that when he saw the relevant entries in GIL's draft accounts he told Mr Plant: 'that is not right. We would never do that. '

Plant confirmed in evidence that he was not troubled by the request to correct GIL's draft accounts in this way, as he knew that they were still subject to audit. As he put it, 'If Mr Hartland calls, as with any of my clients, and says: I think the accounts are wrong, can you put this enfry through or can you correct it, this is all subject to audit, so I'm — personally I don't mind what the accounts say, because I know I am going to audit them eventually. So Mr Hartland can do what he likes with the accounts because I know at some stage what he thinks is the final set of accounts I am going to audit. So if Mr Hartland says, can he do this journal, yes, I don't care because when I come to the audit then I'll make the issues that I want to make and I'll find out whether I'm happy with them or not, and if Mr Hartland doesn't want to make any adjustments then I'll qualify the report. That's the way it works.' The final accounts for GIL as filed at Companies House for the year ending 31 October 2009 do not show a fransfer in and out of the Fixtures and Fittings.

Mr Plant's evidence, which I accept, was that for the purposes of an audit, he would not take at face value a simple journal enfry showing a &ansfer of fixtures and fittings. As he put it 'I would like to see the paperwork supporting that transfer of fixtures and fittings... the whole paper trail...because unless there's other paperwork supporting it, it's going to be reversed.' In re-examination, he confirmed that, in relation to a sale of the Fixtues and Fittings by West to GIL, he would expect to see 'a set of board minutes of the two companies referring to the transfer and both companies agreeing to the transfer and, moreover, probably ageeing the value of that transfer or the method of valuation of that fransfer, as a minimum.' He added that if there was VAT involved he would also expect to see a VAT invoice raised.

In the context of this case, reliance upon contemporary documentation is therefore something of a double-edged sword for the Applicants. Consideration of contemporaneous documentation in this context includes consideration of what is not there as well as what is. As confirmed by Mr Hartland's first (which was unchallenged in this respect), there are no board minutes, invoices, acquisition agreements, or written communications recording, or even suggesting, any agreement between West and GIL for the sale by West to GIL, or the purchase by GIL from West, of the Fixtures and Fittings, whether at net book value or at any other price.

as rightly noted by Mr Davies, such contemporaneous documentation as there is in evidence includes the of 7 July 2009 from Mr Hartland to Mr Thompson, confirming that Mr Hartland was 'looking to dismantle [GIL], and break the assets down across three or four banks.' This clear contemporaneous evidence of Mr Hartland's at the time is not consistent with the allegation that he ins&ucted Mr Spruce to transfer the Fixtures and Fittings into GL in or about July/August 2009.

The contemporaneous documaltation in which falls to be considered in this context also includes (1) numerous unchallenged examples of other significant errors on the part of Mr Spruce at or around the üme of the journal enfries relied upon by the Applicants (see parayaph 74 of Mr Hartland's first witness statement and the documents referred to and (2) documentation relating to aborted transactions such as the transfer by UK to Bilbrook of its one share in West. That too must be taken into account. Both are consistent with the case that (l) Spruce acted in error and without in recording a &ansfer of the Fixtures and Fittings from West to GIL and (2) that numerous documents were prepared on what was at best a provisional, in escrow, basis over the material period pending agreement over the restructuring and refinancing proposals under consideration at the time.

Mr Nash also relied upon alleged inconsistencies in the manner in which Mr Hartland had put his case, alleging that Mr Hartland's story had changed over time. By way of example, he relied upon the response dated 30 March 2016 to the letter before action dated 3 September 2015. Paragraphs 31 to 35 of that letter refer to a conversation between Mr Hartland and Mr Spruce about a possible restructuring in which it was proposed that GIL would hold all of the fixed assets. ms, he argued, was very different from the case run at trial. A similar reference to moving assets to GIL in a proposed restructuring is made in a later letter from Mr Hartland's solicitors dated 20

The response dated 30 March 2016 and its follow-up of 20 April 2016 were, however, written in response to the first letter before acffon, which related to the alleged of a dividend to Monmore. The focus of the allegations (and therefore of the response) was elsewhere. On the as a whole, I am saüsfied that Mr Hartland's solicitors acted in a•ror in refa•ring in their letters of 30 March and 20

Referalce was also made to an affdavit sworn in disqualification proceedings brought against Mr Hartlmd. This affdavit, however, was in answer to disqualification proceedings in which the subject of inquiry was not West, but rather, and One. Again, the focus of attention was elsewhere. Moreover, when judged against objectively provable facts, the account of events set out in that affdavit is clearly muddled, cuffng across two purported dividends in the time line, the puported dividald to Monmore and the proposed dividend to UK which, on the advice of Mr was abandoned. Little can be drawn from this affidavit for the puposes of these proceedings.

Mr Nash also relied on a pleading point, arguing that paragraph 37 of the Points of amounted to an admission that Hartland of and authorised journal 2261. I accept Mr Hartland's evidence that, whilst he of and authorised a declaration of dividends in favour of UK, to be satisfied by a &ansfer by West to UK of the Fixtures and Fittings, he did not of or authorise journal 2045 or the steps taken to correct journal 2045 in journals 2261 and 2262 and did not know ofjournals 2261 and 2262 themselves, at the d.me that they were made. To the exta•lt that paragraph 37 of the Points of Defence suggests otherwise in to journal 2261, I am saüsfied that it was either an error on the part of the draftsman or an attempt to deal with a countafactual scenario, that is to say, the position if Mr Hartland had known ofjoumal 2261.

A further pleading point taken was that there was no reference in the Points of to an inst•uction to tansfer the assets to the holding company, UK. In my judgnent, little tums on this. The Respondents were responding to the matters alleged against than by Points of Claim. Whilst some draftsmen may have included in the Points of Defence specific reference to the insfruction to get the assets up to the holding company rather than GIL, the omission to do so is hardly fatal to the Respondents' case. It may be a factor to when weighing up credibility overall, but it is merely one factor of many. Moreover, Mr Hartland did flag the point in his fourth statement at paragraph 18, where he said 'I believe I told Mike that we wa•e to pay a dividend to (UK) and fliat subsequently the fixtures and fittings would be tansferred to the Propcos'. Whilst he developed this point more fully in his oral evidence, the seeds of it were there in his fourth wimess statement.

Mr Nash also highlighted an inaccuracy in Mr Hartland's first witness statement as to what the VAT consequences of a transfer of the Fixtures and by West to GIL would have been. Mr Hartland corrected this in his fou.rth wimess statanent, however, and, when giving evidence in chief, took care to draw that correcfion to the Court's Moreover, a comparison of the fiscal impact, perceived or actual, of a transfer of the Fixtures and Fittings (a) by West to GL and (b) by West to UK, is only one of many factors to be whal determining, on the evidence as a whole, whether was a fransaction on or about 12 October 2009 by which West sold the Fixtures and Fittings to GIL and whether was a fransacüon on or about 22 February 2010 by which that 'sale' was reversed and GIL was released from its obligation to pay the purchase price.

Mr Nash also submitted that were in Mr Hartland's testimony as to he intended (a) to declare a dividend by West in favotr of UK and to sadsfy that dividend by a transfer of the Fixtures and Fittings or (b) to transfer the Fixtures md Fitüngs by West to UK at net book value, giving rise, in accounting tams at least, to an intercompany debt, and then declare a dividend in favour of UK to clear that debt. It is åue that, in the cut and thrust of cross examination, Mr Hartland's responses on this issue at Viewing his oral testimony overall, such inconsistencies as there went to the issue of mechanics and not the identity (in gena•ic terms) of the at all frnes in oral testimony, Mr Hartlmd was consistanly clear that he wanted to get the Fixtures and Fittings up to West's holding company. I accept Mr Hartland's evidence on this issue,

Mr Nash also sought to challenge Hartland's stated belief that a vertical tansfer by West to UK of the Fixtures and Fittings as an inta•im measm•e pending resåucturing would be the safest option from a fiscal perspective. He maintained that opdon (b) in paragraph 105 above would a VAT charge. Ultimately however,

I was also invited to draw 'adverse inferences' from the Respondalts' failure to call Cooke, an employee of West at the material time, or Andrew Hartland, the company secretary of West. Mr Hartland's oral testimony, which I accept in this regard, was that Mr Cooke had been 'more than willing' to give evidence but that his legal team at the time these decisions made had said that they did not need him to. Similarly, Andrew Hartland had beal available to give evidence but given his limited role in the Group it was felt that he was not needed.

Mr Nash argued that both could have given important evidence as to what was happening August 2009 and the date of liquidation. This ratha• begs the question why the liquidators of West did not make fuller inquiries of both individuals at an earlier stage of investigations, or call them as wimesses. It is, after all, the Applicants' burden ofproof.

The Applicants were in something of a glass house on this issue thanselves. They failed to call Mr Masta•s as a witness, notwithstanding his involvement with West from early February 2010, prior to the creaüon of journals 2261 and 2262 on 22 February 2010.

I was not greatly assisted by this line of argument.

In my judgment, this application fails for a number of reasons.

Firstly, for the reasons explored in paragraphs 57 to 64 of this judgment, the Applicants have failed properly to plead or to define their 'transaction' for the purposes of s.238 IA 1986 and have failed adequately or at all to address in their the value alleged to flow from West and to be received by West in relation to the 'fransaction' as properly defined. Their transaction at an undervalue claim simply does not get off the ground. As the other limb of their case, misfeasance, is based upon the alleged transaction at an undervalue, a forfiri that too must fail.

Secondly, even leaving to one side the technical objections to the Applicants' case explored in paragraphs 57 to 64 of this judgment, on the evidence which I have heard and read, the Applicants have failed to satisfy me on a balance of probabilities (1) that there was a transaction by which West sold the Fixtures and Fittings to GIL, whether on or about 12 October 2009 or on any other date and (2) that there was a transaction on or about 22 February 2010 by which the alleged sale in (1) was reversed and GIL was released from an to pay the price for the Fixtures and Fittings. Ultimately, I am satisfied that this was a book-keeping error; Mr Spruce clearly acted in error in documenting a transfer of the Fixtures and Fittings by West to GIL in the journals that he created. Tffs error filtered through to other documents produced using information drawn from the Sage system. Journals 2261 and 2262 were part of his attempt to put that error right.

Thirdly, on the evidence which I have heard and read, I am sadsfied that Mr Hartland did not instruct Mr Spruce to effect, and did not in any way authorise, whether by Mr Spruce or otherwise, whether prospectively or retrospectively, a transfer of the

For all of these reasons, the s,238 application fails. As the s.212 application is based on the s.238 application, that too fails. In the light of my conclusions, it is not necessary for me to rule on the points raised.

In conclusion, I must express my concerns as to the manner in which the Applicants have prepared and pursued this case. A liquidator conducting an investigation into a contaifious issue arising in a compmy's affairs should stive to gather and review all readily available evidence on that issue on an impartial basis. He should be alive to the possibility of conjecture and unsubstantiated opinion. He should re-evaluate as the investigation progresses.

In the case, there appears to have been a wholesale failure on the part of the Applicants properly to analyse, interrogate and vouch the journal enfries which formed the bedrock of their case. As Mr Davies put it in closing: 'Plainly the liquidators didn't understand the journals or they could not have pleaded [their application] in the way that they did.'

By way of example, it was only partway through trial that the Applicants appear fully to have appreciated the impact of the fact that, even on their own case, taking the journal at face value:

Such deficiencies in the process of investigation in this case have been compounded by a failure properly to analyse or accurately to plead the causes of action upon which they rely. By way of example, whilst scantily pleaded, the Applicants' case in misfeasance against Mrs Hartland was confirmed in submissions to be based upon a breach offiduciary duty in allowing the alleged transaction at an undervalue. Yet no knowledge of the alleged transaction on her part, be it actual or constructive, was alleged. Quite the con&ary: the thrust of the cross examination was that she had no knowledge or involvement at all. As Mr Davies so colourfully put it: 'I had to pinch myself at You cannot allege a breach of fiduciary duty against someone who has no relevant knowledge': see Cohen v Selby 2001 1 BCLC 176. Ultimately, it was not even put to Mrs Hartland in cross examination that she caused or allowed the alleged transaction to take place. Quite why it was considered appropriate to put Mrs Hartland through the stess of a five day trial in such circumstances was enfrely unclear.

The reliance at trial on allegations and insinuations going materially beyond the case as pleaded was also unfortunate. In cross examining Mr Hartland, for example, Mr Nash effectively put a section 423 case to him, when none was pleaded. He also accused Mr Hartland of seeking to 'cover up' a transfer of the Fixtures and Fittings to GL by insisting on corrections to GIL's draft accounts before they were finalised and filed at Companies House. This was tantamount to alleging a criminal offence.

Overall, whilst I acknowledge the hard work and commitnent of the Applicants as offce-holdars, I would encourage them to take greater care as to the manner in which investigations are conducted, and cases presented, in their names in the future.

I will hear submissions on costs on the handing down of this judgment.