Mercy Global Consult Ltd (in liquidation) v Abayomi Adegbuyi-Jackson & Ors

A debarring order does not entitle a claimant to judgment without proof. The claimant must still satisfy the court that the relief sought is established on the evidence.

A director who orchestrates a company’s VAT fraud breaches the duty under Companies Act 2006, section 172, and may be liable in equitable compensation for the company’s resulting liability to HMRC, subject to credits for recoveries. Other directors are not liable merely because they held office, but may be liable where breach of their duties to prevent and detect fraud caused the loss.

Knowing receipt requires receipt of assets traceable to a breach of duty and knowledge making retention unconscionable. Dishonest assistance requires assistance in the breach and dishonesty.

The claimant company, in liquidation, supplied health workers to recruitment agencies. It alleged that its sole shareholder and director orchestrated a large-scale VAT fraud involving under-declaration of VAT, diversion of customer payments and acquisition of assets with the proceeds.

The defendants did not participate in the trial and most had been debarred from defending. The claimant sought equitable compensation, liability for knowing receipt and dishonest assistance, and proprietary relief over assets allegedly acquired with its money.

The court determined whether the fraud and the individual and corporate liabilities were established on the evidence, and whether the claimed proprietary interests were sufficiently traced.

1. Proof despite debarring orders. The defendants’ absence and the debarring orders did not produce judgment by default. The claimant still had to establish entitlement to relief. The court could have regard to struck-out pleadings to understand the case, but assessed the evidence independently.
2. VAT fraud and directors’ duties. The evidence established a large-scale fraud involving VAT charged to customers but not accounted for to HMRC, diversion of customer payments and use of the proceeds to acquire assets. The first defendant breached his duty under section 172 of the Companies Act 2006. He was liable in equitable compensation for Mercy’s full HMRC liability, including penalties, subject to appropriate credits for recoveries and realisations.
3. Other directors. Directors were not liable merely by virtue of holding office. Breach and causation had to be established. Directors had duties to take reasonable steps to prevent and detect fraud and could not allow themselves to be dominated or bamboozled by another director. Those breaches caused the HMRC liabilities incurred during their periods of office.
4. Knowing receipt and dishonest assistance. The court applied the test in BCCI (Overseas) Ltd v Akindele [2001] Ch 437. Mrs Adegbuyi-Jackson and the relevant corporate defendants were liable in knowing receipt where they received traceable proceeds with knowledge making retention unconscionable. Mrs Adegbuyi-Jackson and the relevant companies were also liable for dishonest assistance where they participated dishonestly in dealing with the proceeds. Mr Somade’s claim failed because neither dishonesty nor meaningful assistance was proved.
5. Evidence and tracing. The court treated the forensic accountant’s tracing evidence as factual evidence derived from expertise. It accepted the claimant’s tracing case where the evidence clearly connected company money with acquisitions. Proprietary interests were declared in the specified properties, an investment account and the Bitcoin asset, with the extent of the interests varying according to the tracing evidence.
6. Liability was established against the relevant defendants, with consequential calculations, credits and certain sums for dishonest assistance to be addressed on further submissions. The claim against Mr Somade was dismissed.

First-instance judgment. The judgment records outstanding appeals concerning debarring orders and an application for permission to appeal a Court of Appeal decision in the same litigation, but no earlier decision is identified as the judgment under appeal.