Grosvenor Property Developers Ltd, Re

The Liquidators pursued claims under the Insolvency Act 1986 (notably sections 234, 238 and 212) and equitable causes including knowing receipt and unjust enrichment arising from the collection and dissipation of about £7.6m raised to buy and convert the Grosvenor Hotel. The court found that the Company never acquired the hotel, that the scheme was principally a fraud orchestrated by the First Respondent, and that the registered director, Mr Jonathan England, had permitted substantial payments to be made for purposes other than the Company’s and was dishonest under the Ivey test.

Accordingly the court held Mr England liable under section 212 for payment away of company monies in the sum of £6,548,076 (interest and any joint-and-several apportionment to be determined on hand-down). The court also found against Mr Arjun Khadka for misfeasance/delivery up and awarded the Company the sum claimed for the jewellery (£4.95m) as the best evidence of its value.

The claims against Siddhant Varma ("SVJ") were dismissed. The court accepted that payments to him for a Bentley and other sums were made under a genuine loan facility (albeit certain documents bore a later signature) which had been repaid, and that £2m paid to him by his father was properly characterised as an inheritance; accordingly claims in knowing receipt, unjust enrichment and transactions at undervalue failed or were answered by change of position.

Background and parties: Grosvenor Property Developers Ltd (the Company) raised circa £7.6m from investors to acquire and convert the Grosvenor Hotel. The Company was wound up and the Secretary of State appointed joint liquidators. The Liquidators sued a number of individuals and companies: principally the First Respondent (Sanjiv Varma), the registered director Mr Jonathan England, the third respondent (a Dubai company owned by the First Respondent), the de jure director Arjun Khadka, and Siddhant Varma (SVJ), the First Respondent’s son and recipient of various transfers.

Nature of the application and relief sought: This was a trial of the Liquidators’ claims for misfeasance and delivery up under Insolvency Act 1986 s234, transactions at undervalue under s238, director misfeasance/payment away under s212, and equitable claims in knowing receipt and unjust enrichment. The Liquidators sought delivery up of assets, compensation and tracing of company monies into persons and assets.

Issues framed: (i) Were the sums paid out of the Company and Casa accounts misapplied and recoverable from Mr England under Companies Act duties and Insolvency Act remedies? (ii) Did Mr Khadka hold jewellery which the Company was entitled to and should it be delivered up or valued? (iii) Were payments to SVJ (Bentley, £210,552 and £2m from his father) recoverable by the Liquidators as transactions at undervalue, knowing receipt or unjust enrichment? (iv) What was the probative value of disputed documents, including the alleged Loan Facility and authorisation letters?

Court’s reasoning and subsidiary findings:

• The court accepted extensive investigative material supplied by the Liquidators (bank statements, an "Investment Pictogram", solicitors' records) and found that most of the investors' money had not been applied to the Company’s stated purpose.
• The First Respondent was found to have orchestrated the fraud; many documents and explanations were fabricated and a putative beneficiary called "Maneet Singh" was likely fictional.
• Mr England, as sole de jure director and signatory to accounts, failed to ensure Company assets were used for proper purposes and gave implausible and fabricated accounts; the judge concluded he acted dishonestly (Ivey v Genting Casinos test) and so was liable under s212 (payment away). The court quantified the loss at £6,548,076 (subject to interest and apportionment). Section 281(3) will operate to prevent discharge of this debt on bankruptcy.
• Mr Khadka was found to have taken possession of jewellery purportedly held on trust for the Company and to have failed to deliver it up; the best evidence of value was the June 2017 invoice for £4.95m and judgment was given accordingly for misfeasance/delivery up.
• As to SVJ: the judge accepted that the Bentley and various payments derived from Casa monies but concluded the Loan Facility relied upon by SVJ was, on balance, genuine and had been repaid (repayments and third-party payments were traced and accepted). Experts disagreed over dating of signatures; a later signature date for Mr England was established but did not show the loan was a forgery. The £2m from the father was accepted as an inheritance; the knowing-receipt and unjust-enrichment claims therefore failed and, in any event, change of position would have succeeded. The claims against SVJ were dismissed.

Practical observations: the judgment addresses difficulties of remote hearings, heavy reliance on forensic accounting and document experts (GC-MS analysis), and highlights the summary remedies available to office-holders under the Insolvency Act and equitable tracing principles.

This first-instance trial disposed of the Liquidators’ claims as follows: judgment for the Company against Mr Jonathan England under section 212 Insolvency Act 1986 for £6,548,076 (reason: as sole de jure director and signatory he permitted company monies to be paid away for purposes other than the Company’s, acted dishonestly under the Ivey test, and breached his duties); judgment for the Company against Mr Arjun Khadka for misfeasance/delivery up in the amount of £4.95m (reason: he took possession of jewellery which the Company was entitled to and failed to deliver it up or secure its proceeds); claims against Siddhant Varma were dismissed (reason: the court accepted a genuine loan facility for the Bentley and repayments, and accepted that £2m from his father was an inheritance so that knowing receipt and unjust enrichment claims failed and change of position would have applied). Interest, apportionment and which liabilities are joint and several were reserved for hand-down.