Secretary of State v James - Director Disqualification Under CDDA 1986

| | [Home ]
[Databases ]
[World Law ]
[Multidatabase Search ]
[Help ]
[Feedback ]
[DONATE ] | |
| # England and Wales High Court (Chancery Division) Decisions | | |
| You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >>

  Secretary of State for Business and Trade   v James & Ors [2026] EWHC 721 (Ch) (01 April 2026)

URL: https://www.bailii.org/ew/cases/EWHC/Ch/2026/721.html
Cite as:
[2026] EWHC 721 (Ch) | | |
[New search ]

[Printable PDF version ]

[Help ]

| | | Neutral Citation Number: [2026] EWHC 721 (Ch) |
| | | Case No: CR-2024-000806 |
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
RE: ES MANUFACTURING LTD (CRN.02741136)
AND RE: THE COMPANY DIRECTORS DISQUALIFICATION ACT 1986

| | | Royal Courts of Justice
Rolls Building
Fetter Lane
London EC4A 1NL |
| | | 1 April 2026 |
B e f o r e :

ICC JUDGE PRENTIS

Between:
| | THE SECRETARY OF STATE FOR BUSINESS AND TRADE | Claimant |
| | - and - | |
| | (1) HELEN ROSALYN JAMES
(2) CHRISTOPHER NIGEL JAMES
(3) NIGEL PETER JAMES | Defendants |

**Giselle McGowan (instructed by the Insolvency Service) for the Claimant
Daniel Warents (instructed by Longmores Solicitors LLP) for the Defendants

Hearing dates: 10, 11, 16 February 2026**

HTML VERSION OF JUDGMENT ____________________

Crown Copyright ©

1. ICC JUDGE PRENTIS:
2. Introduction
4. On 26 February 2021 Bank of London and the Middle East plc ("BLME") appointed Gregory Palfrey and Stephen Adshead administrators of ES Manufacturing Ltd (the "Company") pursuant to its qualifying floating charge dated 16 January 2015. The administration was conducted with a paragraph 3(1)(c) Schedule B1 Insolvency Act 1986 purpose. On 21 November 2024 it terminated and a winding-up order was made, Mr Palfrey and Christopher Marsden being appointed liquidators. On 19 September 2025 Mr Palfrey was replaced by Kevin Parish.
6. This is the trial of the Secretary of State for Business and Trade's claim against the Company's directors, Helen James, her son Christopher James, and her former husband, Nigel James, under section 6 Company Directors Disqualification Act 1986, issued on 8 February 2024 (the "Claim"). As they have been at trial, the Defendants will be called Helen, Christopher, and Nigel.
8. The law
9. Miss McGowan and Mr Warents are agreed as to the law.
11. By section 6(1):
13. "The court shall make a disqualification order against a person in any case where, on an application under this section?
14. (a) the court is satisfied?
15. (i) that the person is or has been a director of a company which has at any time become insolvent (whether while the person was a director or subsequently)?and
16. (b) the court is satisfied that the person's conduct as a director of that company? makes the person unfit to be concerned in the management of a company."
18. By s.12C(4) in determining unfitness the court must in respect of a director have "regard in particular" to those matters in paragraphs 1 to 7 of Schedule 1; so, they are not exhaustive.
20. As Dillon LJ stated in Re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164 at 176B, the words of s.6(1)(b) "are ordinary words of the English language and they should be simple to apply in most cases. It is important to hold to those words in each case". With the reminder that it should not therefore obscure from the statutory words, he then quoted from Sir Nicolas Browne-Wilkinson V-C in In re Lo-Line Electric Motors Ltd [1988] Ch 477, 486 in an example of "particular circumstances in which a person would clearly be unfit": "Ordinary commercial misjudgment is in itself not sufficient to justify disqualification. In the normal case, the conduct complained of must display a lack of commercial probity, although I have no doubt in an extreme case of gross negligence or total incompetence disqualification could be appropriate". In a tacit reiteration of the predominance of the statutory words, at 184 Dillon LJ said: "I do not think it necessary for incompetence to be 'total'? to render a director unfit". There, the defendant's unfitness was "amply proved": "His trouble is not dishonesty, but incompetence or negligence in a very marked degree".
22. The burden of proof is on the Secretary of State. Miss McGowan accepts that the burden of establishing incompetence is on the authorities, including those passages from Lo-Line and Sevenoaks, "a heavy one", as it was so put by Jonathan Parker J in Re Barings plc (No 5) [1999] 1 BCLC 433, 484; "albeit the standard of proof remains the balance of probabilities":
24. Mr Warents draws from a dictum of Falk J in Re Keeping Kids Company [2021] EWHC 175 (Ch) at [869] that "In principle it is hard to see how conduct which was honest (and not otherwise lacking in probity or integrity) could give rise to a finding of unfitness if it fell within a range of reasonable decision-making in the circumstances".
26. In re Barings (No 5), Jonathan Parker J at 483-484 spoke to the need to assess the relevant conduct "in its setting"; "Thus, the only extenuating circumstances which may be taken into account in addressing the question of unfitness are those which accompanied the conduct in question". Likewise, "the court will assess the competence or otherwise of the respondent in the context of and by reference to the role in the management of the company which was in fact assigned to him or which he in fact assumed, and by reference to his duties and responsibilities in that role? Thus, while the requisite standard of competence does not vary according to the nature of the company's business or to the respondent's role in the management of that business- and in that sense it may be said that there is a 'universal' standard- that standard must be applied to the facts of each particular case".
28. In the same case, the judge at 489 provided a summary of general propositions on directors' duties, beginning with "Directors have, both collectively and individually, a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company's business to enable them properly to discharge their duties as directors". Part of the second enunciation was that "the exercise of the power of delegation does not absolve a director from the duty to supervise the discharge of the delegated functions".
30. Any disqualification order under s.6 will by s.6(4) be for a minimum of 2 years and a maximum of 15 years, periods banded by the Court of Appeal in Sevenoaks.
32. Witnesses
33. The Secretary of State's affirmations are from David Argyle, a Deputy Head of Investigations based in Southampton. By consent order sealed on 27 February 2025 his attendance for cross-examination was dispensed with, "on the basis that he has no contemporaneous or direct knowledge of the matters referred to in his affirmation[s]". As Mr Warents said, the defendants were not thereby agreeing his evidence.
35. The defendants were each cross-examined.
37. The evidence of both Christopher and his mother was significantly undermined by its seismic shift between the date of Mr Warents' skeleton, 5 February, and the commencement of trial five days later, as to the operation of the Company's IT system, the largest part of their defence to ground one. That will be explored in detail below. The oral evidence of each on this point was expedient, pre-prepared, and untrue; and while set against wider background I accept some of what they say, neither can be regarded as a reliable witness.
39. There were other issues with the evidence of Christopher who, given his role, provided the bulk of the evidence. A combination of covid, for which he was treated in an intensive care unit, and, within a short period, the failure of the family business, precipitated a crisis and a threatened suicide on 16 March 2021. He confirmed to the court that his health was now restored, but raking over this period caused great upset at times, especially when it mentioned the administrators; and his evidence was apt to veer into irrelevancies and incomprehensibility.
41. It was also insufficiently engaged with the facts, as he himself recognised: he wished he could re-write his affidavit three times longer, to provide a full account. He complained that he had not had access to all documents, but that was not right: the order of ICC Judge Mullen of 14 May 2024 recited the Secretary of State's "agreement that, upon receipt of any request for assistance by the Defendants, it will promptly take all reasonable steps to assist the Defendants in their efforts to obtain documents controlled by third parties which the Defendants reasonably consider are relevant to the determination of the Claim, including (but not limited to) documents under the control of the administrators"; and by its paragraph 5 the defendants were given specific permission to apply "to file and serve supplementary evidence? in the event that they obtain access to documents which they reasonably believe are relevant to the determination of the Claim". No requests were made, nor was there any application to rely on additional evidence. In closing Mr Warents suggested that it was obvious from his clients' affidavits that they needed more documents, and so the Secretary of State should have then enquired what more help they needed; a submission which at least recognises the evidential deficiencies, if not the terms of the May order.
43. Nigel gave his evidence in an uncomplicated manner, with due acknowledgment of matters of which he could not actually be certain, notably the number of containers on site. At its conclusion Miss McGowan sensibly withdrew the Secretary of State's case on the robots, which were Nigel's concern. He was a reliable witness.
45. The grounds
46. There are two grounds of alleged unfitness, contained in Mr Argyle's initial affirmation in support.
48. The first, alleged against all three defendants, is that each "caused [the Company] to breach terms of Hire Purchase ('HP') agreements by failing to maintain possession and keep control of third-party goods, held by [the Company] under the HP agreements, resulting in a loss to financial institutions of at least ?2,478,224".
50. Three particulars are then given: "In that": the Company "entered into twenty-five HP agreements between 13 February 2018 and 7 October 2020 in respect of construction goods and equipment to the value of at least ?3,212,323"; as at the date of administration, 26 February 2021, "goods and equipment that were subject to HP agreements could not be located and were subsequently unable to be recovered by the administrators or owners resulting in outstanding amounts of ?2,478,224"; "This has resulted in [the Company] breaching the terms of the HP agreements by failing to maintain possession and keep control of the goods and equipment".
52. The second ground, alleged against Christopher and Helen only, is that each "caused [the Company] to sell goods that were secured under a debenture without permission of the charge holder".
54. Four particulars are given: "In that": "On 16 January 2025 [the Company] granted a debenture, containing a fixed and floating charge on [its] assets"; the Company "entered two Sale and Hire Purchase Back ["SHPB"] agreements with a bank, on 3 February 2020 and 9 November 2020, selling goods owned by [the Company] valued at ?789,230"; they "were entered without authority of the debenture charge holder and no notification was provided to the bank of the requirement of a Debenture Holders Waiver"; as at the date of administration "the goods subject to the hire purchase agreements were unable to be recovered by the bank as they were claimed under the debenture. This resulted in a loss to the bank totalling ?655,274 due to the shortfalls on the [SHPB] agreements".
56. No doubt with regard to the dicta of Laddie J in Re Finelist Ltd [2003] EWHC 1780 (Ch) at [16-19], the 14 May 2024 order obliged the Secretary of State to provide further evidence containing short summaries of the unfit acts or omissions of each defendant, and whether those were "negligent, reckless or dishonest"; together with clarification of whether he accepted various specified factual accounts from the defendants.
58. Mr Argyle therefore provided a second affirmation, addressing those issues. In doing so he drew out various evidence from his first, such that there are now sub-heads of particulars, which together with the two grounds have formed the agreed list of issues (agreed, because the issue on which that was not possible, being the obligation to keep equipment on HP in good condition, which related to the robots, is no longer pursued by the Secretary of State).
60. As general points, Mr Argyle says that the maintenance of control and possession was a term of each HP agreement; that each defendant signed some of those, so were aware of the terms; and anyway as director were under a duty to ensure compliance with them by the Company.
62. Each "had a responsibility to ensure" but "failed to ensure" that the Company "had sufficient procedures in place and in implementation to ensure the Company kept control and possession of third party assets under its control".
64. Each "appear[s] to have lost control of the Company's stock and equipment control system", and "failed to ensure that the Company's database was understood by them and that it operated properly".
66. "As directors? the Defendants? had a responsibility to ensure [the Company] had sufficient procedures in place and in implementation to ensure that, where third party assets were at risk by not being insured, or went missing, the assets could be identified and the relevant owners informed at the earliest opportunity"; and they are said to have failed in this.
68. As to the insurance obligation, it is said that they "failed to ensure that assets on hire purchase were insured", contrary to the terms of each agreement.
70. Strictly, it would seem to me that the insurance aspect is additional to ground one rather than being a sub-particular, insurance having nothing to do with possession or control; but the parties have treated it as an open topic, and on the basis that it is not a separate head.
72. As to the second ground, it is said that Helen and/ or Christopher "knowingly or alternatively carelessly sold? assets [which] did not belong to the Company? this was at the very least reckless". More details are also provided: the SHPB agreements were with Metro Bank; the items were already subject to the BLME debenture; the SHPB agreements included declarations that the Company was the owner of the assets, and that there "are no other third party interests, encumbrances, or other such claims" over them; that the executor of the agreement had power to do so; that Helen and/ or Christopher "knew or ought to have known that those declarations were untrue" and "that the appropriate permissions had not been sought or obtained from BLME"; this all being "negligent or careless", if not reckless.
74. So, as confirmed by Miss McGowan, the Secretary of State's case is based on conduct which was "reckless and/ or careless? this is a case alleging gross incompetence rather than dishonesty".
76. The Company
77. The Company was incorporated on 19 August 1992 as Electro Services Limited. Helen and Nigel were directors from 21 August 1992, Helen acting also as secretary. Christopher was 28 when he joined the board, on 22 May 2007. He resigned on 22 May 2023. The three were equal shareholders.
79. The business had started from Nigel's garage, servicing electrical and electronic equipment before moving into equipment hire. By the time the administrators were appointed it was operating from a freehold site in Pulloxhill, Bedfordshire, and two leasehold sites in Biggleswade. According to the administrators' proposals, it "manufactured, serviced and hired construction equipment. Key products provided included robotic demolition diggers, Molotok hydraulic breakers/ hammers, tracked winches, attachments, LED4000 lighting towers and electro-fusion control boxes. It also designed and manufactured intelligent hydraulic systems and robotic equipment under its 'Akula' brand name, in respect of which it holds intellectual property rights".
81. Christopher described its operations this way.
83. "The basics of this business are quite simple. The Company would buy expensive pieces of equipment. It would then hire those out to businesses, mostly in the utility industry? We developed a very large fleet of plant over time, so that we had lots of common items and also some more specialist equipment. Because the plant was hired out on demand, it was very heavily used. We therefore needed to have a sophisticated maintenance programme for the equipment. After 3 or 4 years we would sell it on and we constantly needed to buy new equipment to replace it".
84. So, by "about 2016-2017 we had about 65 employees and 5 sites? We had more than 3,000 items of equipment, some of which was extremely large plant. Over the years we had tens of thousands of items of equipment?".
85. In around 2016, and having discussed matters with his parents, he "decided to focus on three main areas": plant sales; the manufacture of its own equipment; and the North American market, where prices for sale and hire could be higher. "I became more and more involved in the North American market over time". So on 14 February 2019 the Company changed its name to its better-descriptive present style.
87. Its last filed accounts were those to 31 October 2019. They were audited, without qualification, and showed large net current assets of ?5.755m, and a balance sheet of ?4.4m. Tangible assets were ?14,199,752, depreciated to ?9,691,997 at 7% pa.
89. The Company ceased operations on the day of administration.
91. The defendants' roles
92. According to the questionnaires returned to the administrators in April 2021, Helen was "Financial Director", Nigel "CEO", and Christopher "Director". Those descriptions need some refining.
94. Helen says "I was the finance director and company secretary"; she says Christopher "was managing director and was in charge of sales as well as the overall strategy for the Company". Nigel "dealt largely with product development, particularly the robots". In the early days of the Company she had been more of a book-keeper, but she took various accountancy exams and was always in charge of "the accounts functions of the business", with assistance from staff.
96. On 15 August 2022 Longmores, solicitors to the (now) defendants, sent the Insolvency Service questionnaires completed by each, together with "a joint response to question 15". The individual questionnaires contained the same role descriptions. That for Helen was this: "She was primarily responsible for the financial affairs of the Company, in particular those that involved the use of the Company's accounting software. Together with people she supervised she was responsible for maintaining the Company's financial records"; she also "had direct responsibility within [the Company] for reviewing the financial position of the Company, authorising payments to creditors, hiring and firing staff, and accounting for and paying HMRC liabilities".
98. Helen's evidence also says that "I accept that ensuring finance was paid off was within my area of responsibility as FD".
100. The August questionnaire said of Christopher that he was "the managing director. His primary responsibility was plant sales. He also dealt with suppliers and the bank, as well as the Company's solicitors"; he also had "direct responsibility? for reviewing the financial position of the Company? and hiring and firing staff", as well as for "negotiating and authorising new contracts".
102. In his evidence Christopher says he became managing director when Nigel stood back after the 2007 financial crisis. He also states that "[a]lthough I was managing director, it was a small business and I was pulled in lots of different directions. I was in charge of the whole North American operation, for example, covering Canada and the US. I also was responsible for many of the sales in the UK, while liaising with the bank and working on the overall strategy for the Company. I had to rely on my co-directors and senior employees to pull their weight, and I did so".
104. In the August questionnaire Nigel was described as "primarily responsible for R&D? particularly the development of the robotic excavators, which was a particular focus of the Company in its latter years". His April questionnaire said "All my time was totally taken up in the design, prototyping and production of robots, from concept to completion", a position echoed in his affidavit: "In the final months before the Company went into administration, I was working more or less full time on the robot upgrade programme"; "I was not involved much on the financial side, but Chris and Helen kept me updated? the best thing for me to do was to concentrate on getting the robot programme into the best possible shape".
106. Nigel's separation from operations was confirmed in his oral evidence: "I purely was totally involved in the robot programme, the construction, and that was quite sufficient to keep me busy": "I didn't have anything to do with finance companies", apart from signing some agreements; he could not comment on the stage at which finance was paid off as "I relied on Christopher and also Helen, but mainly that was Christopher's role". Nor was stock within his remit.
108. The August questionnaires agree that this was a family company, managed informally, without the benefit of board minutes.
110. The decline into administration
111. As above, this was a paragraph 3(1)(c) administration. The statement of affairs discloses a deficit to creditors of ?11.3m, a significant decline from the 31 October 2019 going concern basis; and the management accounts for the next year had showed net profit at ?904,782.
113. The problems seem to have been twofold: the relationship with BLME, and then covid.
115. BLME had been the Company's primary lender since early 2015. The facility end date was October 2021, but BLME indicated in around 2019 that it was not willing to extend it; and its "noises about terminating the finance agreement", in Christopher's words, "took up most of the time between the onset of the Covid 19 pandemic and the administration". Covid meant that the Company's equipment was no longer being purchased; nor was it now being required to maintain or calibrate it. Without income, the Company could not meet the monthly obligations to BLME, and "the financial position suddenly looked very precarious indeed? we were completely unable to meet the payments on our finance". It sought payment holidays which, unlike other creditors, BLME refused; and in addition to the ?8.5m BLME facility the Company obtained coronavirus funding of ?1.73m.
117. The Company took advice from lawyers and, at their recommendation, and "at a considerable cost", Quantuma, who did achieve BLME agreement for time to put a proposal, on condition that Smith & Williamson conduct a "financial audit"; and when BLME appointed administrators, they were the same individuals who performed that audit.
119. An offer from what has been identified only as "HTB", but is presumably Hampshire Trust Bank, was in February 2021 achieved at around ?6.5m; but it fell through when the Company discovered the stocking error, described further below; and in any event it would have been declined by BLME which refused to contemplate any haircut, let alone the writing off of the majority of its debt. A 25 February 2021 offer to BLME, which involved its paying off all the HP liabilities, being declined, the administrators were appointed the next day. Christopher says that "I knew that in the case of the business being broken up, and if our assets were sold on a forced sale basis, the returns were likely to be very small? I specifically warned [BLME] about this". He also says that "Despite having just done an audit the administrators took a very heavy-handed and clumsy approach". The directors were excluded from site immediately.
121. Christopher's health
122. In among these were the issues with Christopher's health.
124. In 2018 he had been signed off work for stress, "but I found it difficult to stay away from the business without putting it in danger", which encapsulates his centrality to it.
126. He was signed off again between 23 April and 17 July 2019, but "[a]gain I found it difficult to actually stop working".
128. Then came covid, and negotiations with creditors, when he was "extremely irritable and aggressive", to such a degree that BLME would not deal with him directly and instead turned, among the directors, to Helen.
130. He was in a covid ICU for nine days over Christmas, with covid and sepsis; thought he was going to die, and he and his family were told as much; but was able to be discharged on 29 December, "completely exhausted". He tried to return to work in the New Year, but "I felt terrible and could not get the thought of being in hospital out of my mind": he had seen the deaths of people next to him in the ward. "I again went to the doctor and was diagnosed with anxiety and PTSD", from which he "had still not really recovered" at administration. "I left a final message but was eventually picked up by the police before I went through with" the contemplated suicide. "I went on to receive counselling for trauma and I believe I have now made a full recovery". He told the court that he "stupidly" returned to work in January 2021, when between then and administration his health was maybe 10 or 15 out of 100; but did so because "the business was my life", and no-one could replace him. "I lived and breathed that company". He regarded the avoidance of suicide "the best reset I've ever had"; and considered that his mental health was 75% afterwards, recovering completely within 3 to 4 months; albeit he still found it difficult to deal with the administrators' queries.
132. The HP agreements
133. Of the 25 agreements originally identified by Mr Argyle, Helen signed 2, Christopher 10, and Nigel a perhaps surprising 13.
135. The evidence of Christopher and Helen was virtually identical in substance. Helen described the HP agreements as usually organised by Rob Piggott, a broker, who, if she were to be the signatory, would discuss with her the "headline terms such as what was being borrowed, interest rates and monthly payments". She would not go through the small print, or take legal advice. She knew that "we could not take out HP finance on something that was on finance with someone else". She confirmed orally that she knew the agreements she signed had terms and conditions, and that the Company would be in breach were they not complied with; so it was important that she knew what they were; but she would not always read them, and instead had the main points explained to her; she knew anyway that under an HP agreement the goods must be kept in the Company's possession, and that the Company would not own them until all sums had been paid under the agreement; and she knew they needed insurance.
137. Christopher also relied on Mr Piggott's advice, which "mainly concentrated on the big picture terms rather than the details. I therefore understood what the Company's obligations were from a practical business point of view but I am not legally trained and I would not have focussed on the fine detail of the terms of the agreement". Orally, he said he knew the contract contained terms and conditions; his broad understanding was that non-compliance with those would breach the agreement, so the Company should comply; so it was important that he and the other directors understood what they were, "but that's why we took advice from our assets finance broker, whom we had used for years and years". He would himself "read the headline, as in the period of time, the deposit, the monthly payments", but not the "miniscule small print". He recognised that as Mr Piggott did not go through every line of the terms and conditions, he cannot have known "every last obligation", so cannot have ensured the Company could comply.
139. Taken to a standard form example of an HP agreement which he signed, that of 6 December 2018 with Corporate Asset Solutions Limited for the hire purchase of 128 buckets in various sizes, at a net price of ?179,448, Christopher said of term 3's option to purchase that he knew that until all sums were paid, the goods were owned by the finance company, not the Company; (indeed, Corporate Asset Solutions Limited was described as the "Owner"); and that it was "commonsense" that "the Company was not allowed to sell the goods while there were still monies outstanding under the finance agreement".
141. By term 5a the "Hirer shall not make or attempt to make any sale or other disposition of the Goods"; but Christopher said that while the Company was not meant to part with possession, the finance companies were aware whether under formal sub-hire permissions or otherwise, that the Company would be hiring them, as that was its business. The term continued: "and shall promptly inform the Owner in writing of any change in the address where the Goods are customarily kept". He knew that there was an obligation to return the goods at the end of the agreement, were they not to be purchased. Fair wear and tear was permitted by term 6a and, he said, "in the demolition and construction industry that counts for a lot".
143. Nigel said that although he had signed many of these agreements in issue, that was "just purely because I happened to be there at the time when the broker came in and he needed a signature? all I knew was that the equipment was finalised for that agreement, so as far as I was concerned there was no issue". He, too, would not go through the small print, as Mr Piggott would point out if there were anything particular he should be aware of; he might have read the small print of one or two, but understood the main points, being the payment terms and "legalities", and that the Company did not own the goods until they were paid off; and he knew of the obligations to keep possession and maintain insurance, but "in all fairness, I didn't really have much to do with insurance, that was down, obviously, to my son Chris".
145. It is not contentious that each HP agreement contained obligations on the Company to maintain possession and control of the hired equipment owned by the finance company; and, as above, its directors were aware of that.
147. Missing equipment
148. With the withdrawal of the case as to robot items, in issue now are 218 items said to be missing under 16 of the original 25 agreements.
150. In this, the Secretary of State is plainly reliant on the administrators, and particularly a spreadsheet of theirs, summarising the position as to the missing categories by reference to the relevant finance agreements, sent by Mr Adshead to the Insolvency Service on 20 December 2022, by when they had been in office for 22 months. Their 22 April 2021 report addresses the steps they had already taken to secure stock. On the day of appointment all the Company's sites were secured, and "[s]ince our appointment we have worked closely with SIA Group to? locate items"; but the "location of a significant proportion of items, including those subject to hire purchase or other finance agreements, remains unknown"; "both we and SIA Group have spent (and continue to spend) significant time trying to trace, identify, establish ownership and secure items? This has involved numerous discussions with funders, shipping companies and customers, together with site visits. It has also required advice and assistance from our solicitors? DLA Piper due to complex jurisdiction and other issues"; that because, among other things, "the Company does not appear to have had adequate records to show the location of items": "the maintenance of the Company's records is not of a standard we would expect of a business of the Company's size", and "there are significant quantities of equipment that are unaccounted for, including equipment both subject to finance and not".
152. The defendants have responded with Christopher's account, including his own summary schedule.
154. For convenience, I will go through the remaining categories using the letters ascribed to them in the schedule appended to Miss McGowan's skeleton.
156. A concerns 8 Hamm Rollers, priced at ?16,150 each (as with the other figures, ex VAT), under an HP agreement with United Trust Bank signed by Nigel on 7 August 2019. As with all the other scheduled items, each item is identified by its unique stock number; so, as Miss McGowan says, the administrators knew precisely what they were looking for. Their location is, they say, "unknown".
158. Six more categories concern Hamm Rollers: H, Q, S, T, U and X.
160. All are said to be of unknown location.
162. H is an agreement of 7 August 2019, signed by Nigel, for 12 rollers, at ?16,150, with Interbay Asset Finance.
164. Q is with Aldermore Bank, 16 July 2019, signed by Nigel, 10 rollers at ?13,228 a piece.
166. S is for 10 rollers at ?13,228 each, 12 March 2019, with Cambridge & Counties Bank, signed by Nigel.
168. T is the same as S, but dated 16 April 2019.
170. For each of S and T, finance on two rollers was paid up just before administration. The location of those four rollers, which are now the Company's, remains unknown.
172. U is a 16 March 2018 agreement with Investec, signed by Helen, for 7 rollers, totalling ?160,800. While the location of none is known, 5 have been traced as "sold in Tecsu name through Ritchie Bros Canada".
174. X is an agreement with PCF Bank for 8 rollers at ?13,228 each, signed by Christopher on 22 August 2018, and according to the administrators being one side of a SHPB for which BLME gave a waiver; so sometimes it was asked. They have not been found.
176. On 30 March 2021 Longmores wrote to the administrators telling them that the rollers had been sold, "from recollection? around 12 months or more ago"; and a 28 June 2021 Longmores letter said the sale was "a considerable time before". Christopher's best estimate in cross-examination was that the 12 months was right. Mr Warents' skeleton says that the rollers "had in fact been sold by the Company".
178. The parting with possession and control is manifest. The partial excuse proferred is in Christopher's affidavit: "Many of the items identified are rollers. These items were missing because of the errors in Gary's computer system". That is all it says directly about them; and what Miss McGowan calls the "IT issue" is only raised in their respect.
180. So, all are agreed they are missing. Whether that is "because of" errors in the system will be looked at below; but it can be noted now that if that is right then what is impliedly lacking in the system are, for example, sales invoices and purchaser details which would allow the equipment to be tracked.
182. Items B and C concern HP agreements for Kubota excavators with De Lage Landen Leasing Limited: two of the four items from the 8 August 2019 agreement, signed by Helen, are missing, at prices of ?25,980 and ?60,205; and both those subject to the 20 December 2019 agreement, signed by Christopher, for ?24,650 each.
184. Christopher's schedule just says "Unsure"; so, again, I am satisfied, given the efforts made to locate them, that possession and control has been lost.
186. D also concerns a De Lage HP agreement, this signed by Christopher on 16 March 2020, for 6 Molotok hydraulic hammers at ?31,923 apiece.
188. Christopher's schedule says for these "In Yard- Auctioned on Euro auctions?". His affidavit says that there was "a batch" of these hammers on site at administration, 6 from De Lage and one from Investec; and that is item W, a 5 March 2020 agreement, again at ?31,923, signed by Christopher. He says that he saw "one of these hammers being auctioned off at Euro Auctions in February 2023 I have now done a search and a number have been sold since the administration. I can only assume this was the administrators or their agents? I strongly suspect these auctions include the ones flagged as missing in the evidence".
190. Although, as Mr Warents says, administrators do make mistakes, they have in other categories filleted out those whose whereabouts are known; and their investigations were guided by the particular serial numbers. It may therefore be expected that they would know if they had sold one, some or all of these. Miss McGowan took Christopher through his photographic evidence of the auctioned items, from which it is clear that no serial number ended in a 2, 3 or 4; that leaves only two hammers, both under the De Lage agreement, because they end in 5 and 6; but their other numbers are asterisked out, so it cannot be confirmed that these are the missing hammers; and given the totality of the evidence as to the administrators' investigations, it is likely that they are not.
192. I am satisfied that possession and control was lost of these too.
194. Category F consists of 18 categories totalling 128 ES Buckets with a price of ?179,444, hired under a 6 December 2018 agreement signed by Christopher with Corporate Asset Solutions Limited, having been sold by the Company to the financer on 3 December 2018: so, this was a SHPB agreement.
196. The administrators say "None found. It had been thought that they may have been at Tecsu in the US but the quantities and sizes of the buckets found there did not match up". This was a point of particular irritation for Christopher, as Tecsu is actually in Montreal; and he wondered how administrators who could not distinguish the two could be relied on. Wherever it is, the important point is that the stock at Tecsu was searched.
198. Christopher's schedule states that these were all held at "Pennsylvania Ward Warehousing", and his affidavit says the administrators were told as much, by a Longmores letter of 21 April 2021, which says "[t]he position with the buckets is unfortunately somewhat complex". It goes on to give "our client's understanding of the position", being that the buckets were stored in a warehouse pursuant to an agreement between Ward Transport and Logistics and ES Buckets & Attachments LLC; the "intention was for the Company to hire the buckets to ESBA"; the Company had paid previous warehousing charges on behalf of ESBA, but "because it is not currently trading" ESBA could not maintain those; "[n]or can it make any alternative arrangements for buckets which belong to the Company"; so, Christopher was hoping to buy the buckets from the Company, as he would then sell them and meet the warehouse charges; "[o]ur client makes no claim on behalf of ESBA to any right or title to the buckets". In the Longmores letter of 8 March 2021 the administrators had been given the warehouse address, as it contained "some items ? which are on hire with ESBA in which the Company has some interest (in particular some buckets)".
200. In cross-examination Christopher explained that ESBA was his company, of which he was sole director. The buckets had been sent over to be sold in America. There was no written agreement between ESBA and the Company, as he would be dealing with himself, but the intention was that ESBA sell the buckets on the Company's behalf; the Company would bill; and ESBA receive commission.
202. The terms on which ESBA received the buckets are therefore confused: perhaps, as Longmores said, hired to it on terms which gave the Company "some interest", perhaps just an agency agreement.
204. Clarity is not provided by the negotiations for their sale. Through Longmores, on 29 March 2021 an offer was made, the price including "All Buckets in storage at ES Buckets in US, around 70off". Mr Warents could not explain what was meant by that, although it would seem not impossible that it may mean "off hire"; whatever, 70 appears to be a number of units, and it is obviously some way short of 128. The offer was also to include the payment "of warehouse charges in the US to obtain the release of the buckets, which we understand are currently about $8,000". Mr Adshead replied on 1 April to ask if the 70 included the 63 buckets held at ESBA and identified in a pre-administration schedule by Christopher. That afternoon, Longmores confirmed that "the buckets would be the 63 listed to you and in the warehouse in the US".
206. So, there is no evidence as to the location of 55 of these buckets; nor to confirm that the 63 are even a part of the category F buckets. Further, the buckets require release from the warehouse on payment: so, it would seem, the warehouse has at least exercised bailment rights over them. It is also surprising that given Christopher owned and controlled ESBA, he was unable to obtain details of what buckets ESBA was causing to be stored in the warehouse.
208. It therefore seems to me probable that the category F buckets could not be located and I read the Tecsu search as reflective of further efforts to find them.
210. It is also apparent that, again, the Company has lost possession and control of the buckets which were not its.
212. Category G is a single item, described as a "Husqvarna Hammer SB 202", with a price of ?73,499, under an HP agreement with Interbay Asset Finance signed by Nigel on 25 February 2019. The administrators do not know its location.
214. Christopher's evidence was vivid: describing something as a "Husqvarna SB202? is incorrect and is like saying a 'Vauxhall Mondeo'"; for him this is another example of administrators' "muddle"; he considers the hammer misidentified, and he exhibits a photograph of what he says is it at auction.
216. Christopher may be right as to the muddled name, but it is how it was described in the HP agreement, and as with the other items it has its unique serial number. The auction photograph is cut off, so there is not even the digit of the sold item's serial number; and therefore insufficient to undermine the administrators' position that they cannot find it.
218. J also concerns hammers, a ?3,600 ESB 02, and a ?14,000 ESB 05, hired under a 29 July 2019 agreement with Carrick signed by Christopher. All the other 32 hammers under that agreement were found
220. Christopher says that the first of these was "sent to Canada where it was one of eight hammers held by Cintec" Environment Inc, as the administrators were told in the 8 March 2021 Longmores letter. The other was "part of a batch sent to Lift Truck Service Centre and later moved across the States to Potter Equipment".
222. It follows that on his own evidence, possession and control has been lost.
224. L is an HP agreement with Haydock Finance of 5 February 2019, signed by Nigel, for a ?150,000 Wirtgen 210 Cold Planer, and again part of a SHPB agreement. Christopher says this "was stored on the yard at Biggleswade and had previously been damaged by fire, which is why we bought it at a cheap price"; it "is an enormous machine" which he saw still at Biggleswade when he lasted visited, within the days prior to administration; it was stored within range of the CCTV cameras.
226. It is not therefore the sort of thing which the administrators could miss. The finance company also carried out its own investigations. A letter to the Insolvency Service of 14 July 2022 from its solicitors, Bermans, confirmed that, along with assets under four other agreements, "Our client has been unable to recover any of the assets". It had traced this machine to "a sub hirer who confirmed he had not sub hired the asset and had no knowledge" of the Company. The administrators' notes record that "When Haydock carried out an audit inspection in November 2020 this machine? [was] claimed to be out on hire, this machine? supposedly to Shell Plant. Shell Plant have told us they never hired anything from [the Company]". In cross-examination Christopher said it had never moved since the agreement, and it was "impossible" they could not find it.
228. Given Christopher's unreliable and self-serving evidence at other points, and that both the finance company and the administrators investigated, I prefer the latter's account.
230. Finally, there is category V, again of large items, being 10 40ft containers, HP'd from Investec at ?3,900 each under an agreement of 31 October 2018 signed by Christopher. He says these 10 were "newer ones, which stood on a concreted area at the Biggleswade site. These were on site the last time I visited that site, just before the administration"; they were used for storage: "[w]e did not hire them out or sell them on"; "also, items I know were stored in them were sold at auction later, so they could not have been stolen".
232. Nigel's affidavit had said that "[a]bout 10-12 nearly new containers were on a concreted area at the Biggleswade site"; "I am therefore sure this must be some kind of error".
234. Mr Adshead provided comments to Nigel's affidavit in December 2024 (it is not clear why they did not do the same for the others'). He said that "Our agents took account of all the containers on the concreted area at the Cow Close, Biggleswade site, and elsewhere. Fourteen containers were still unaccounted for. These were all subject to finance agreements: 10 new units were financed with Investec and four new units were financed with Hitachi along with 6 nearly new units which were present at Cow Close".
236. So, there were six units on the concrete; but none was an Investec unit.
238. Helen said "I cannot see how 14 containers could have been removed from the premises". Nigel began by saying that it was "impossible" that 10 were missing, but could not say definitely how many were on site, or that they were these.
240. Again, in the face of these generalised protestations it seems to me the Secretary of State has proved that the containers were not present, and have not been found.
242. It follows that for each of the remaining categories, and allowing for the fact that through Nigel's evidence the administrators' account has been overridden as to the items within the robot programme, I am satisfied that possession and control was lost, contrary to the terms of the relevant HP agreements.
244. The only generic explanation is the IT issue, covering each of the roller agreements; and only those.
246. The IT issue
247. Until Mr Warents' opening, the defendants, through the evidence of Helen and Christopher, gave a consistent account of how the system was meant to operate.
249. There was a run of correspondence shortly after appointment of the administrators, as they sought to gather information including as to the whereabouts of equipment. Longmores dealt with this, instructed by Helen, Christopher and Nigel. Their letter of 30 March 2021 noted that
251. "The point of greater concern is the rollers, as it is apparent that the finance agreements for these were not paid off when they were sold, as they should have been, and this will have implications in relation to title. From recollection, this was around 12 months or more ago but the sale invoices? will have to be obtained from the job tracking system".
252. The obligation to pay off the finance in order for the Company to obtain ownership to the relevant HP items is there acknowledged; as it was by each defendant.
254. The Company's computer system was first mentioned in a Longmores letter of 7 April 2021.
256. "Our clients believe there was a specific problem in relation to the Hamm rollers. Equipment was meant to be logged on the computer system as subject to finance, and Gary Longford, who operated the system, would notify Helen when such items were sold so that she could arrange for the finance to be cleared. Helen's recollection is that she was not told about the rollers being subject to finance, and that if she had been, she would undoubtedly have arranged for the finance to be cleared. The fact this did not happen for any of the rollers suggests that the rollers were incorrectly logged on the system".
257. This is a patchy account, based on belief rather than evidence; but there are clearly three stages: sale; notification of Helen of sale; her clearing of the finance on the sold items.
259. The August 2022 questionnaire, sent on behalf of all three, was fuller and more formal. "[T]here was another issue that the directors discovered only shortly before the administration, when they were preparing material for an audit by the bank's accountants? with the Company's stock control system".
261. "(a) In later years, the Company's main business was plant sales. Items would be purchased and then re-sold at a profit. To fund the purchase of plant, and where this was not financed through BLME, the Company would obtain fixed asset finance from an external provider? This plant would then be sold to a third party and the finance would be paid off out of the proceeds of sale.
262. (b) The Company had a bespoke stock control system which was built and operated by their IT manager, Gary Longford, many years before. This was the system that generated invoices automatically, based on information entered by Gary Longford. The way this system was meant to operate was that when stock was sold, it would come off the stock control system and a report would be passed to Helen so that she could arrange for the finance to be paid off...
263. (c) The Company' stock control system was very old and based on obsolete technology. The details of how it operated were only understood by Gary Longford. This was a problem that was identified shortly after the Covid 19 Pandemic began, when an employment issue arose with Gary Longford and there was no-one else to operate the Company's systems?
264. (d) At that stage, what the directors did not appreciate was that the system had broken down. Items were not being correctly removed when they were sold, which meant they were neither removed from the inventory, nor was any information given to the accounts department to pay off the finance agreement. The directors only discovered this issue shortly before the administration?.
265. (e) ? It was noted that finance agreements for certain Hamm Rollers? were shown as outstanding, and indeed the Company was still making regular payments in relation to them. However, Chris James was aware that these had been sold to a customer in the United States?
266. (f) The directors no longer have the information to investigate this further. However, Gary Longford admitted he had lost control of the system in conversations he had with Chris James after the administration? [and] admitted he had failed to keep the records up to date, and had covered this up because he was concerned about the consequences".
267. So, this was the system applicable to "the Company's main business", which relied on exterior finance. There were three stages: sale (at which point the stock would be removed from Gary's system): report: payment of finance. The last stage occurred after the first, as the finance was repaid from the sale proceeds; and by the time it occurred, the Company was no longer recording that stock in Gary's system.
269. The questionnaire concludes with an admission: "[f]or at least some of the missing equipment, it is therefore the case that it was (unbeknown to any of the directors) sold to third parties without paying off the relevant finance".
271. Helen's affidavit confirmed that the stock management system was separate from the financial systems which she used. Gary had written the stock management code, and was "a long-standing employee and the most senior person in the business apart from the three directors"; and "on a vast majority of occasions, Gary's system seemed to be working well". She thought that "[w]e would have known if there was a wider issue with finance not being cleared, because in the UK plant finance is recorded on a register", which potential buyers would check; but (rightly) she does not proffer that as an excuse.
273. Her written evidence also confirmed the three-stage system. "When an item was sold or put out on hire, the job tracking system would generate the invoices and I would import them into the accounts software", probably once a week, more at busy times. Although her system did have "information about HP agreements? and also had access to copies of the agreements we had signed, so I could check what items were on finance to each provider? I had no way of marrying that up to physical plant or even the stock list. Gary's job tracking system was meant to keep a record of when individual items of stock were on finance, and automatically prompt him to tell me to pay off the finance. He would then send an email and I would then arrange for the relevant finance to be cleared directly with the provider".
275. So, again, when the system is working it is only after the stock has been sold that the finance is paid off: the Company is selling goods which it does not own.
277. This scheme also relies upon Gary notifying Helen, when he is himself prompted by his system. It is a salient feature that Helen was not in a position herself to pay off finance on sale, because her system did not contain all the information. She confirmed orally that "[m]y accounting system was completely separate to the stocking system"; she needed to be given details of the "piece of equipment, the serial number and who it was on HP with", none of which was on her system. She agreed that it was the stocking system which enabled the Company to understand what equipment it had, and what was on hire or in the yard or on finance; and that this was delegated to Gary.
279. Christopher's affidavit stated that Gary had Asperger's, so was "often difficult to deal with"; they had had a severe falling out over lockdown, which had been resolved, so "we did not have any problems with Gary being unavailable at important moments from that point until the administration": that falling out is presumably what is referred to at sub-paragraph (c) of the questionnaire, which would date it to shortly after covid started; and it was at that point that it was realised that only Gary understood the system, and no-one else could operate it. So, while in the long-term he recognised that the Company had to "move away from Gary's system to more mainstream software programmes", nobody "had any idea that there was anything wrong with Gary's software", "[b]ecause it seemed to be working correctly", until "shortly before we went into administration, in January/ February 2021".
281. Christopher discovered the issue during the proposed HTB refinancing. He reviewed "the outstanding finance from Helen's system. I noticed there were agreements on there with Cambridge and Counties which were largely for rollers. I realised at this point something had gone wrong, as the rollers had all been sold to a customer in the US. These finance agreements should therefore have been cleared, but they showed as outstanding. I investigated further, and realised that the stock system had not flagged to Helen that the finance agreement needed to be cleared". He raised the matter with Gary, who "admitted that the stock system was not working correctly, and had not worked for some time? he was just doing manual adjustments in the 'back end' and made mistakes".
283. It is not clear from that what he then thought the issues were with the system; but he regarded the breakdown as occurring in the notification to Helen.
285. Christopher said that Gary moved elsewhere following the administration, and contact with him has been lost.
287. For his part, asked whether he would know how to use the stock system Nigel said "Absolutely not, no; no, I didn't have a clue, I wasn't involved in it whatsoever, stock was just not in my remit". He thought Christopher would know.
289. Helen confirmed that on discovery Christopher told her to pay off the finance on the relevant agreements; one was paid off before administration, the Company's cash being limited; but she did not tell Cambridge that its rollers had been sold.
291. Christopher elucidated his understanding of the system in his affidavit. "The way Gary explained his system, it was supposed to be an automatic way of accounting for stock when it was purchased, went on hire, or was sold. When an item was purchased, it was added to the stock list at the price we had paid for it. The programme was then supposed to calculate depreciation automatically", which figure "would then form the basis of the management accounts? The software was also meant to log if equipment was purchased using finance".
293. Where the items were hired "they would be recorded as on hire by staff inputting the details? This would then automatically generate an invoice based on the applicable hire rate, which would be pulled into Helen's accounts system (Pegasus Opera) and sent out to the client".
295. "When an item was sold, it would then come off the stock list at whatever its book value was at the time, and an invoice was automatically generated to the purchaser. Again, the sales invoice was pulled through into Helen's system. It would then appear in the debtors until paid".
297. Pulling through sounds like an automated process; but, as Helen said, it was actually effected by her periodically importing the invoices into her accounting system.
299. "Often items of equipment were sold when they were subject to finance agreements. When that happened, the stock system was supposed to generate an alert so that Gary could tell Helen to pay off the finance. She would then do so".
301. As that last passage again shows, the linkage between Gary's stock system and Helen's knowing to pay off finance was Gary himself, Gary being reliant on the IT system for the alert which would be triggered after the item had been sold. At one point in his cross-examination Christopher described the invoice for the sold item being generated "at the same time with a flag being raised to Helen to pay it off if it was on finance"; and he said his understanding was that she would be sent this automatically by the system. That position, modificatory of his written evidence, itself later mutated to not knowing how the "flag" was raised, but assuming that Gary would go and talk to Helen, whose office was a few yards away, "and either give her a copy of a system generated piece of paper or verbally ask her" to pay off the finance. "He would almost certainly give her a copy of the sales invoice, which would contain details like our plant number? our unique ID", and the identity of the finance company "so that Helen could cross-reference it".
303. Christopher in his affidavit avers that the "error only impacted the finance agreement, as the rollers had been correctly invoiced and removed from the stock system", although that is not what was said in the August 2022 questionnaire at (d).
305. Peeled away, while the evidence describes the architecture of the sales process and Gary's system within it, it does not identify what the IT issue is: it might be the mis-recording of the sales themselves, or it might be Gary not being prompted to tell Helen that the sold items were on HP. (There is another theoretical possibility, that for some reason unrelated to the system Gary did not keep Helen informed; but that is not the defendants' case). So, it does not speak to any real comprehension, at the time or now, of what went wrong.
307. As to the architecture the three stages are clearly expressed. Here is how Mr Warents summarised his clients' evidence in his skeleton:
309. "In short, when an item which was subject to an HP Agreement was sold, the Stock System was supposed to notify Helen automatically so that she could then make arrangements with the relevant finance provider to make the payment in full".
310. "The way in which the Company's business was supposed to operate was that when an item which was subject to finance was sold, the finance agreement would be paid off in full".
311. "Accordingly, in circumstances where Christopher was reasonably proceeding on the basis that shortly following the sale of the rollers the relevant finance would be paid off in full in accordance with the established system, it is difficult to see how [his] conduct in this regard could be classified as incompetence".
312. Even had the specific flaw in Gary's system been identified it would be irrelevant. The obvious problem with the IT issue as a defence was that the IT was simply implementing the way the Company carried out its business, which was to sell stock which it did not own, and afterwards repay the finance. It was taking the risk that without asking permission of the HP owners, it could in breach of each relevant HP agreement sell their goods and take the proceeds, no harm being intended because they would be paid out subsequently. That was to operate back-to-front: instead of ensuring that the items were the Company's before any sale, sale came first. At most it might be said that the IT system was one stage in the method by which the directors intended to reduce the financial risks to the HP owners of the Company's choosing to carry out business in this non-contractual way.
314. Miss McGowan put the point in this way in her skeleton, with her emphasis.
316. "As regards the HP Goods that are missing, on Ds' own evidence as to how the Stock System was supposed to operate, Ds knowingly allowed the Company to operate a system whereby it sold goods which were subject to hire-purchase agreements before the finance had been paid off on the same. In other words, a system whereby the Company sold goods which it did not own and which it was not entitled to sell. Such a system was fundamentally flawed".
317. As with Mr Warents' summary, that was reflective of the evidential position, even if their conclusions might differ.
319. It was therefore a considerable surprise when Mr Warents in his opening changed his clients' factual position; without any forewarning; and covertly, in the sense that he did not acknowledge there was any change. It was put to him that that paragraph from Miss McGowan's skeleton was the Secretary of State's conclusion drawn from his clients' evidence.
321. "This is the difficulty. It is not, Judge. It is not and I need to stand firm on this because it is a very important point in terms of the fairness to my clients and so I must make it good. There was no flagging in Argyle 1 or Argyle 2, but what was said was that this system, even if this had worked as we thought it should, operated in a way which involved the goods being sold before the finance had been paid off. That is not- and we do not need to do it now, but I am sure we will be going through it in due course- that is not what the evidence from Helen or Christopher actually says. The reason why the evidence is not as clear as it might be on this topic is because it was never directly raised or even indirectly raised as an issue, even in Argyle 3. We find it for the first time in the skeleton argument that it is being said that the way that this system operates is that goods are sold before the hire purchase operator is paid. I obviously took instructions when I saw paragraph 49 of my learned friend's skeleton argument and I was informed in the clearest possible terms. Had we known they were alleging that we would have made clear the chronology".
322. Neither Helen nor Christopher then corrected their affidavits. Instead, each left it to cross-examination to render their revised accounts by which, now, the HP was to be paid off before any sale.
324. Christopher denied that the Company even needed the sale monies to pay off finance; and said the questionnaire was "clearly incorrect" when it said that was the system. For him, "the stress and pressure was off the scale" when he approved that response (although it was the same as that of Helen and Nigel). He parroted the explanation for the new line, that "[o]ur words are being twisted", which at least acknowledges the origin of the facts; "[w]e weren't challenged on this fully", although he can hardly complain that their evidence was accepted; "if I had been I would have given a much more detailed description". He then gave the description, which was new rather than more detailed: "the sales invoice was raised and at the same time a flag to Helen was also raised for her to pay off the finance, and quite- no, not quite often, that is incorrect- on a number of occasions? so, the two- the sales invoice and the flag to Helen- were raised in tandem. Helen immediately paid off the finance, before the finance- the sales invoice- had even touched the customer's probably inbox or post?". There is a degree of confusion there, but the general intent is clear: to aver a right-facing system by which the Company cannot be selling another's goods. It may be observed that were this version correct, it could have been tracked through the Company's bank statements and invoices; but it has not been.
326. Helen also denied the questionnaire was correct, though she, without Christopher's health difficulties, had contributed to it and read it: "it's obviously my error that I didn't pick up on this and let my lawyer know that it was incorrect". She confirmed that Christopher was head of sales, although there were sales reps as well; and said first that although she did not know when an invoice would be sent to a purchaser, title would pass once they paid, the Company's terms being 30 days. Then she said that an invoice would not be sent on agreement, but "I was notified that these goods were going to be sold and I had to settle the HP"; this by an email from Gary, rather than the visit Christopher posited, "and so I straightaway sent an email to the HP provider to get a settlement figure". Once she had paid it off "I would let Gary know and then say that the goods could leave our premises and then I would imagine he would take it off the stock list then".
328. As though that improved version were not enough, she proclaimed: "I was very particular about paying any HP off before any goods left our premises"; "I always reiterated that fact that until I told everybody that I had paid that HP off, then no goods were allowed to leave our premises".
330. I am afraid that smacked of expedient and pre-meditated invention, contrary to her previous statements, and not supported by anyone, even Christopher, for whom the sales invoice remained the first step. As he said in his affidavit, the "error only impacted the finance agreement, as the rollers had been correctly invoiced and removed from the stock system"; and as he said orally, "the sales invoice always prints out? but what didn't happen on the rollers is the flag": on Helen's new version, that would not be possible.
332. Christopher and Helen also disagreed on her access to Gary system. His oral evidence, as one who said he had the most involvement with it after Gary, was that she could access it, as it "married into" her Pegasus Opera account package; but "Was she au fait with it? Not particularly". Helen said that the system had been delegated to Gary; the directors could not themselves get information from it, and had no way to check if it was working, other than Gary telling them.
334. This was an attempt at trial to remedy the defects in the IT issue defence, and the selling of goods which were not the Company's; and that was though the factual origins of that defence were in the near-contemporary questionnaire to which each defendant contributed. Even now, the IT issue is unidentified and the descriptions of the details of the sales process do not tally. It remains the unexplained position that rollers under seven different HP agreements have passed out of the Company's possession without the finance being met first. The IT issue is no excuse.
336. The defendants have sought to put the rollers into context. The questionnaire noted that "many thousand items of plant [were] owned at any one time. While checks were carried out from time to time by finance providers and BLME to identify where their equipment was, there was never any exhaustive comparison of the equipment said to be held by the Company and the equipment physically held on the companies premises, until the administration took place". Christopher was proud that when the HP owners carried out their own stock checks, the Company had never had even a "yellow light audit".
338. Whether by 2020 and with its recent change in business focus the Company still held many thousands of items is not apparent. Mr Warents in closing provided a list of tentative values for what the HP lenders had lost on each of the categories: tentative because it relied on a number of untested assumptions. The total value lost on the rollers was around ?665,000, as against Miss McGowan's calculation of their price, which totalled about ?740,000. The dates of the HP agreements for these 65 rollers spans 16 March 2018 to 7 August 2019, and it seems that they were actually sold by early 2020. By way of a rough comparison, the last-filed accounts, to 31 October 2019 show that in that year ?3,901,970 was added to stock, and ?2,113,021 disposed; depreciation was ?678,074 for the year on stock held of ?12,384,008. On any measure, the rollers were therefore not an insignificant item.
340. Conclusions on ground one
341. It follows that the Secretary of State has proved ground one, and the first five and the last of the sub-issues. Leaving aside the robots, all the categories of items are missing. The only excuse given for that fails. The scheme by which the Company did its business was primarily the actual responsibility of Helen and Christopher, but bound to be the responsibility of Nigel as well as a member of the board. It was posited on a system, usually effective, of selling goods which were not the Company's, contrary to the terms of the HP agreements; and that despite the directors' knowledge of the terms of those agreements and the passing of title under them. The Company's records were insufficient for those items now to be located. The stock system was indeed something over which the directors lost control, leaving it to Gary. They failed to ensure that whether by itself or coupled with Helen's financial systems it provided a comprehensive record of what items were on hire purchase, or to where they had been disposed. All that was despite the Company's main business being the sale of items which had been acquired with others' funding.
343. It follows as well that this conduct must be characterised as unfit. The failure to comply with the HP agreements put the lenders at undue and uncontracted risk. These directors were bound to ensure compliance with those agreements; yet on multiple occasions they were breached through the sale or other transfer of the items out of the Company's control, at a time when they were still owned by the HP lenders. That was because of the Company's scheme of doing business, and has caused significant losses. While those cannot be calculated exactly, Mr Warents' rough calculations have losses under the agreements of around ?448,000 additional to the ?665,000 on the rollers. I think Miss McGowan was in strictness correct to say that the relevant loss would be the value of the equipment at the time it would have been recovered, and was therefore correct not to pursue Mr Argyle's calculation which was, though larger, on the same basis as Mr Warents'. Working from the original purchase prices, while the sum on that basis cannot be precisely fixed, it would in likelihood also be at least in the high hundreds of thousands of pounds.
345. This was not conduct which was in any way within the range of reasonable decision making: there was a choice to conduct the Company's business with a reckless disregard to the rights of its lenders, in knowledge of those rights, and when borrowing was pivotal to the Company's mode of doing business. This is therefore a case of gross incompetence; but not, to be clear, dishonesty.
347. As the elements of unfitness predate Christopher's covid and subsequent illness, those have no bearing on his responsibility.
349. Insurance
350. As above, to my mind the allegation that the defendants failed to ensure that assets on HP were insured is a separate ground. As Mr Warents points out, it is not linked to the missing equipment losses; or, indeed, any specific loss.
352. Both Helen and Nigel said that Christopher dealt with insurance; and it is his affidavit which primarily addresses it.
354. It was a standard obligation on the Company under each HP agreement to ensure that the items it was hiring were at all points during the hire insured. The difficulty was a practical one, adverted to in the August questionnaire: "there were security issues which made it difficult for the Company to even obtain insurance for its plant, and there were frequent issues with the security systems at one of the sites not working correctly, despite the directors changing security providers and raising their concerns with the security providers". In his affidavit Christopher said that the troublesome site was Biggleswade which had "persistent problems" with theft, and "a time came when our brokers informed us that no one was willing to offer insurance against plant theft from our sites".
356. Nigel's affidavit confirmed there were a "lot of problems with theft of plant, particularly from Biggleswade. This made it difficult for us to obtain insurance? We therefore agreed that the best thing was to invest in security on the site to try and avoid theft". He said that Christopher had told him the Company could not obtain insurance, "hence why we invested a huge amount in security", including burglar alarms and the creation of berms.
358. In his affidavit Christopher stated that "I can honestly say that I did everything possible to try to obtain theft insurance, to the point I very nearly fell out with the brokers in a big way. They confirmed time and again that it was not possible". "I appreciated this was a very risky situation for the business, though I did not specifically think about the HP agreement terms". "Instead, I tried to arrange increased security provision around our site. Unfortunately, there were persistent problems with this security", which is why there were the changes in provider.
360. As was clear from his oral evidence, what also bore on his mind was that the Company did have public liability insurance, transit insurance, and contents and buildings insurance. What it lacked was the hired-in insurance which protected the HP owner's property, but "[i]f we simply could not obtain insurance, the only alternative to trading without insurance was to shut the Company down. This was not in the interests of anyone, least of all finance providers and BLME".
362. Plainly, the failure to obtain insurance was a breach of the terms of each HP agreement; but, given on the one hand the absence of any allegation of consequent uninsured loss, and on the other the efforts made to obtain insurance and to work around the problems in understandably difficult circumstances, I do not consider that within the allegations as put the failure can be characterised as reckless. As Mr Argyle adverts in reply, there are other actions which the directors might have been expected to take, for example consulting with the lenders; but that does not form part of the bare specific allegation.
364. So, this head rests unproven.
366. Sale of goods under BLME debenture
367. This is the second ground, and affects Helen and Christopher only.
369. As above, the BLME debenture was dated 16 January 2015. Helen was the signatory on behalf of the Company. By its clause 3.4(d) it charged all its "plant, machinery? and other equipment? present and future", and by clause 5.3(a) there was a negative pledge, by which it could not "sell, transfer or otherwise dispose of any of its assets on terms whereby they are or may be leased to or re-acquired by it? in circumstances where the arrangement or transaction is entered into primarily as a method of raising indebtedness or of financing the acquisition of an asset".
371. On around 7 February 2020 the Company entered an SHPB agreement with SME Asset Finance Ltd ("SME"), which is part of Metro Bank, concerning ten Molotok hammers. Christopher was the named signatory for the Company, and the HP part contained a warranty that "there are no other third party interests, encumbrances or other such claims over the asset(s)". The sale price was ?319,230 plus VAT.
373. On around 9 November 2020 was another SHPB agreement between the Company and SME, to which the signatory was Helen. This concerned two demolition robots, and contained the same warranty. They were sold for ?470,000 plus VAT.
375. On 6 June 2022 Russell Codd, credit manager at Metro Bank, wrote to Insolvency Service confirming that it had recognised the items were subject to BLME's charge, and that on sale the proceeds should be paid to BLME and not to it. He also raised issues with the conduct of Helen and Christopher, including their signing off the warranties.
377. As already described, BLME was the Company's principal funder, and by early 2020 it was known that it intended not to renew the facility at the end of its term. The sales purported to remove items from BLME's security, without its written permission; and Metro Bank was induced to buy items which were not the Company's to sell, ultimately to its sizeable loss as it never obtained title.
379. Mr Warents is again keen to stress that this is not an issue of dishonesty. He is right. It is said that Helen and Christopher "knew or ought to have known" that the assets were subject to the BLME charge; and that no permission had been obtained from it for the agreements with SME.
381. Their defence has not at all times grasped the seriousness of the allegations. Longmores' 8 November 2022 letter to the Insolvency Service protested that SME "could and should have carried out due diligence to ensure that the transaction was within the specific terms of the debenture", which had been registered at Companies House. That skips over the contractual warranty signed by each of Christopher and Helen. The same letter also asserted that the directors "have no idea why BLME have claimed these items under the debenture", as they were "undoubtedly financed through Metro Bank"; which in a back-handed way underlines the significance of the breaches.
383. Christopher's affidavit, which dealt with the issue, acknowledged he was "very puzzled" by it, as "the Company has lots of assets on HP"; these were not assets charged specifically to BLME; and anyway "BLME both knew and encouraged us to take on third party HP finance. I would never have dreamt that this would happen if this was a breach of their own legal terms".
385. He therefore did not understand the terms of what he was signing, or its consequences.
387. In her cross-examination Helen said she understood that BLME had a charge over all the Company's plant and equipment, which it could not sell and leaseback; but that she did not think it covered the items sold to SME under these two agreements.
389. Christopher expanded on his position orally. He knew of his responsibility to understand the BLME debenture and lending documents, and while he had not read it in full he had taken advice from solicitors, Ashfords, as it was an Islamic financing on a murabaha basis. He said he was dealing with the director of BLME or its senior management at least weekly; and there was a stock list of items bought by the Company, not on HP, but which would include those funded by BLME; there was also an inventory list of all assets which could be hired out. There were different funding levels on each, and the Company would provide monthly returns of movements in those lists, as that would determine how much funding was available for the next month. He therefore regarded assets not on those lists as free, because "BLME weren't drawing down against it", even though "I'm not saying I didn't think they weren't subject to their charge".
391. His evidence broadened to recollection that "BLME made it explicitly clear to me on numerous occasions that if something was not on that list it was free to be sold in the normal course of business". That is not the same as written permission; nor in terms does it override the obligation for specific permission; nor does it explain why SME was not informed of the BLME security. Likewise, reliance on a small chain of emails from July 2019 between himself and Brendan Walsh and Frederick Yu of BLME, and an introduction to Carrick Asset Finance which they had made, does not establish any specific permission applicable to the SME agreements.
393. Christopher did accept that until a week before, he had never heard of a negative pledge. Whatever the terminology, neither he nor Helen seems to have had any comprehension of the limits under the BLME facility on the Company's ability to deal with its items. As properly-acting directors of a company dealing in equipment, largely on finance, they ought to have done. This ground of unfitness is therefore made out against each.
395. There is a small final point, which I record as a matter of evidence. Christopher denied that he had written his name on the February 2020 SME agreement. Mr Piggott had done that, as he did "on a couple of occasions when he was busy". It remained Christopher's responsibility, and he agreed that he would have signed it.
397. Conclusions
398. It follows that unfitness is proved against Helen, Christopher and Nigel.
400. As against Helen and Christopher this is, as Miss McGowan submits, a Sevenoaks middle bracket case. Bearing in mind in particular the failures under both grounds to put in place basic systems and procedures suitable for the proper carrying out of the Company's business, and the large losses caused, it would seem to me that 8 years would be an appropriate period.
402. As against Nigel, with the removal from the allegations of the robots, which were his primary concern, and given that he left the oversight of the stock dealings and control to others, I consider Miss McGowan was right to concede that this was now a bottom bracket case; and that 4 years would be an appropriate period.
404. I therefore intend to order disqualification for those periods, but subject to any further argument on them, given the terms of this judgment, at the consequentials hearing; which will also consider, whether on an interim or a final basis, Christopher's section 17 application.

BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII
URL: https://www.bailii.org/ew/cases/EWHC/Ch/2026/721.html