Geoffrey Wayne Bouchier & Anor v Gary Booth & Anor

This was a first instance trial by the joint liquidators of Tiuta International Limited (TIL) against two former directors, alleging fraudulent trading under section 213 of the Insolvency Act 1986 and breaches of directors' duties (principally section 172 Companies Act 2006) in respect of a series of refinancings (the "Restructured Ramadan Loans"). The court applied the established tests for fraudulent trading, including the requirement of dishonest intent and knowledge (including wilful blindness), and the Ivey test for dishonesty.

The judge found that the directors knowingly took TIL funds raised via an investment Fund to refinance pre-existing non-performing loans to a single borrower group, presented inflated or unreliable valuations and failed to follow the Fund's lending criteria. The conduct was held to be dishonest and carried on the company's business for a fraudulent purpose within s.213. The judge also found breaches of directors' duties under s.172 (including the creditor-interest duty when insolvency was probable) and that the 2009 and 2010 accounts did not give a true and fair view.

On causation and remedy the court declared both respondents jointly and severally liable to make contributions to TIL's assets and fixed a contribution based on the shortfall attributable to the Restructured Ramadan Loans at £19,990,358. The judge explained the appropriate approach to quantification and rejected alternative valuation bases advanced by the directors.

This is a trial judgment of the High Court (Chancery, Insolvency and Companies List) arising from the liquidation of Tiuta International Limited. The joint liquidators (applicants) sued two former directors (respondents) alleging that they caused TIL to refinance a set of non-performing loans made originally by related Tiuta companies to a property borrower and his associates (the "Ramadan Loans") using money sourced from an Investment Fund established to finance bridge lending. The refinancing transactions (the "Restructured Ramadan Loans") were alleged to have been arranged dishonestly, in breach of directors' duties and in contravention of representations made to investors in the Fund.

Nature of the claim / relief sought

• Declarations and contributions under section 213 Insolvency Act 1986 for fraudulent trading;
• Compensation under section 212 Insolvency Act 1986 / equitable compensation for breaches of fiduciary duty (s.172 Companies Act 2006);
• Contended alternative heads of loss and quantum.

Issues framed

• Whether the company’s business was carried on with intent to defraud creditors or for a fraudulent purpose (s.213) and whether the respondents were "knowingly parties";
• Whether the respondents were dishonest (applying the Ivey test) or wilfully blind;
• Whether the respondents breached directors’ duties (notably s.172 and the duty to creditors when insolvency was probable) and whether the 2009/2010 accounts were false;
• Limitation issues and whether an action was time-barred absent proof of fraud;
• Quantification of any contribution or equitable compensation and the correct measure of loss.

Evidence and reasoning in brief

• The judge reviewed documentary and oral evidence including extensive contemporaneous emails, internal loan files, the Fund’s investment memorandum, and expert reports on accounting, banking and valuation.
• The court analysed the law on fraudulent trading (s.213), knowledge (including "blind-eye" knowledge) and dishonesty (applying Ivey), and the law on directors' duties including the modification of fiduciary duties to include creditors' interests in the zone of insolvency.
• The judge found that the Restructured Ramadan Loans were repackaged problem loans, typically unsupported by realistic development prospects or reliable valuations, frequently exceeding the Fund’s stated LTV limits, often with rolled-up interest, and that these features were concealed or misrepresented to the Fund and its investors.
• Both respondents were found to have participated in and had knowledge of the scheme; the court rejected their explanations that they honestly believed the loans were suitable for TIL or the Fund and rejected reliance upon valuers or the Fund's later alleged informal relaxations of criteria.
• The judge held that the liquidators were entitled to a contribution under s.213 and to equitable compensation for breach of duty. For quantification the judge accepted the joint liquidators' expert accountant's method of calculating the shortfall attributable to the Restructured Ramadan Loans and fixed the contribution at £19,990,358 (being the shortfall identified at 5 July 2012), after giving credit for recoveries evidenced in the liquidation records.

The judge declined to allow a separate claim based on civil liability under s.393 Companies Act 2006 (approving accounts) and dismissed arguments that the action was time-barred subject to the fraud exception. The court ordered declarations and a joint and several contribution and invited counsel on the form of the final order and consequential relief.

This first-instance claim succeeded. The court held that both respondents knowingly participated in carrying on TIL’s business for a fraudulent purpose and were dishonest within the Ivey test; they were therefore liable under section 213 Insolvency Act 1986. The court also found breaches of directors’ duties (notably s.172 Companies Act 2006, including the duty to creditors when insolvency was probable) and that the 2009/2010 accounts did not give a true and fair view. The judge declared both respondents jointly and severally liable to make contributions to TIL’s assets and quantified the contribution attributable to the Restructured Ramadan Loans at £19,990,358, giving credit for recoveries properly recorded. The judgment set out reasoning on knowledge (including wilful blindness), the application of Ivey on dishonesty, causation and appropriate measure of compensation under s.213 and s.212.