L & S Accounting Firm Umbrella Limited (In liquidation) v Idusogie Laurel Oronsaye & Ors

Key legal principles: The court applied the Part 24 Civil Procedure Rules test for summary judgment (no real prospect of defence and no other compelling reason for a trial), the Ivey test for dishonesty, and the statutory and common law duties of company directors (including ss.171–175 and s.172 of the Companies Act 2006). The court was mindful of the need to avoid a mini-trial but was entitled to evaluate the evidence where appropriate.

Material grounds for decision: The joint liquidators proved that the claimant operated large-scale labour-supply schemes leading to substantial under-declaration of VAT and PAYE/NICs. Contemporaneous records, bank statements and self-billing/engagement documentation showed agency receipts were paid into accounts controlled by the individual defendants and their companies (notably a Lloyds account), and that significant sums and property purchases were funded from those monies. The defendants produced no credible corroborating evidence; some documents were found to be fabricated or altered. The court found (i) no real prospect of a defence to the claims that the directors caused the company to perpetrate extensive VAT and PAYE/NICs defaults, (ii) the directors' duties had been breached and those breaches were attributable to both individuals and relevant companies, and (iii) the recipients of the claimant's funds held assets traceable to the company such that knowing receipt claims succeeded. Summary judgment was therefore appropriate.

This was a first-instance summary judgment application by the joint liquidators of L & S Accounting Firm Umbrella Limited (in liquidation) seeking final relief under Part 24 CPR against two individual defendants (Mr and Mrs Oronsaye) and three companies they owned or controlled. The claimant sought summary judgment on claims for breaches of fiduciary and statutory duties by the directors arising from alleged large-scale "labour supply" frauds: failure to account for VAT, and under-declaration and non-payment of PAYE and national insurance contributions. The claimant also sought proprietary remedies and declarations, knowing receipt against the individuals and corporate defendants, and post-judgment freezing and proprietary injunctions.

Parties and procedural posture: The joint liquidators relied on extensive documentary analysis and HMRC investigative material. The defendants initially had legal representation and filed lengthy witness statements and a document described as a forensic accountant's report, but at hearing the individual defendants became litigants in person and no formal defence was filed. The court conducted a three-day hearing of the Part 24 application.

Issues framed: (i) whether any defendant had a real prospect of successfully defending the claims; (ii) whether there was any other compelling reason to refuse summary judgment; (iii) the requisite state of mind and dishonesty standards applicable to the claims; and (iv) whether sums and property could be traced into the hands of recipients to support knowing receipt and proprietary relief.

Court's reasoning and findings:

• The court applied the Easyair Part 24 principles and cautioned against a mini-trial but accepted it could evaluate evidence where appropriate.
• On VAT: contemporaneous self-billing agreements, invoices, bank statements and HMRC records established substantial output tax that was charged to customers but not accounted for to HMRC. The court found fabricated invoices and other altered documents and concluded there was no real prospect of a genuine defence to the VAT allegations.
• On PAYE/NICs: payroll records, RTI-related material and bank analysis showed an unlawful scheme (described as "POS") operating to pay workers c.80% of gross pay and to under-declare PAYE/NICs. The court accepted the joint liquidators' calculations as the best evidence available and held there was no realistic prospect of a defence.
• Directors' duties: the court found breaches of duties under the Companies Act 2006 (including s.172) and relevant common law. It held that Mr Oronsaye acted as a de facto director and that the knowledge and acts of both individual defendants were attributable to the corporate defendants where appropriate.
• Knowing receipt/proprietary claims: the court found that monies traceable to the claimant had been paid into accounts controlled by the defendants and used to acquire properties. It concluded it would be unconscionable for recipients to retain those benefits and that knowing receipt claims were made out (subject to limited issues such as legitimate deductions and an account in respect of one property: 1 Hazelwood Road).
• The court emphasised that extensive disclosure obligations and prior freezing/proprietary orders reduced the prospect of additional documentary material emerging at trial that would alter the outcome.

Relief sought and disposition: The claimant sought summary judgment and post-judgment freezing/proprietary orders. The court granted summary judgment in the claimant's favour, gave directions to settle the precise form of order and reserved consideration of post-judgment freezing and proprietary orders to the formal handing down of the judgment.

This was a first-instance application. The court granted summary judgment in favour of the claimant against all five defendants on the pleaded claims. The judge found there was no real prospect that the defendants could successfully defend claims that the directors caused large-scale under-declaration of VAT and PAYE/NICs, that directors breached their statutory and fiduciary duties, and that the corporate and individual defendants knowingly received and hold assets traceable to the claimant. The court accepted the joint liquidators' evidential analysis, found certain defence documents fabricated or altered, attributed de facto director status to Mr Oronsaye, and concluded that summary judgment was proper given existing disclosure and freezing orders and absence of credible contrary evidence. The court reserved precise form of orders and consideration of post-judgment injunctions for hand-down.