Mercy Global Consul Ltd v Adegbuyi-Jackson

The court found that the first defendant, Mr Abayomi Adegbuyi-Jackson, orchestrated a large-scale VAT/labour supply fraud by diverting sums collected from customers and failing to account for VAT to HMRC. The judge accepted forensic tracing evidence and held that the unpaid VAT assessments and penalties quantified by HMRC (totalling the assessed liability) represent the loss for which equitable compensation is payable.

Mr Adegbuyi-Jackson was held to have breached his duties as a director (including under section 172 of the Companies Act 2006) and to be liable to equitable compensation equivalent to Mercy's liability to HMRC, subject to credit for recoveries. Other directors who served during the fraud period were held to have breached duties by failing to prevent or detect the fraud and were ordered to make equitable compensation for losses attributable to their periods of directorship.

The court also upheld claims in knowing receipt and/or dishonest assistance against the first defendant's wife and several corporate entities connected to the defendants where tracing showed receipt or handling of proceeds; the claim against Mr Somade was dismissed. Proprietary remedies were granted over specified properties and assets held to have been acquired with traceable proceeds of the fraud.

Background and parties: Mercy Global Consult Ltd (in liquidation) supplied health workers to recruitment agencies and collected VAT from customers. HMRC assessed unpaid VAT and penalties in excess of £21.9m and £2.3m respectively. Mercy brought proceedings in liquidation alleging that the unpaid VAT was the product of a deliberate fraud orchestrated by its director and sole shareholder, Mr Adegbuyi-Jackson, and sought equitable compensation, knowing receipt and dishonest assistance remedies, and proprietary claims over assets said to have been bought with traceable proceeds.

Nature of the claim / relief sought: (i) equitable compensation equivalent to the HMRC assessments (including penalties); (ii) personal claims in knowing receipt and dishonest assistance against the wife and a number of corporate defendants; (iii) proprietary claims to identified properties and other assets acquired with traceable funds.

Procedural posture and evidence: Most defendants did not participate at trial and had been debarred for failure to comply with court orders. The claimant relied on unchallenged witness evidence from HMRC officers, the joint liquidator and a forensic accountant who carried out tracing. The court carefully considered admissibility and the factual nature of forensic accountancy evidence.

Issues framed by the court: (i) whether a VAT fraud had been established; (ii) whether Mr Adegbuyi-Jackson and other directors breached fiduciary duties and were liable to equitable compensation; (iii) whether third parties (including the wife and corporate defendants) were liable in knowing receipt and/or dishonest assistance; (iv) whether proprietary interests in identified assets could be traced to Mercy's funds; (v) quantification and any double counting of remedies and need for credits.

Reasoning and conclusions: The judge found on the evidence that VAT was billed and collected by Mercy but not passed to HMRC; customer payments were directed to numerous accounts of companies connected to the defendants; forged documents and misleading communications evidenced deliberate diversion; and trace evidence showed substantial transfers to defendants and assets purchased with traceable funds. The judge concluded that (a) Mr Adegbuyi-Jackson orchestrated the fraud and breached s.172 duties, entitling Mercy to equitable compensation equal to the HMRC assessments (subject to credit for recoveries); (b) certain other directors breached duties by failing to prevent or detect the fraud and were liable for losses during their tenures; (c) Mrs Adegbuyi-Jackson was liable in knowing receipt and, in the judge's view, dishonest assistance; (d) several corporate defendants were liable in knowing receipt and/or dishonest assistance to the extent shown by tracing; (e) proprietary claims succeeded in respect of a number of properties and other assets where tracing established a link to Mercy's funds; (f) the claim against Mr Somade for dishonest assistance failed on the evidence.

At first instance the court found that Mercy had established a large-scale VAT fraud orchestrated by the first defendant. The court awarded equitable compensation to the claimant equivalent to its liability to HMRC (the assessed unpaid VAT and penalties), subject to appropriate credit for recoveries and realisations. Several other defendants (director-defendants and corporate entities connected to the first defendant) were held liable in equitable compensation, knowing receipt and/or dishonest assistance to the extents supported by tracing. Proprietary interests in specified properties and assets were declared in favour of the claimant where tracing established acquisition with Mercy's funds. The claim against the tenth defendant, Mr Somade, was dismissed for failure to prove dishonest assistance. The reasoning rested on unchallenged witness evidence, accepted forensic tracing, findings as to breach of s.172 duties, and established principles for knowing receipt and dishonest assistance.