Dominik Thiel-Czerwinke & Anor (Joint Liquidators of Courtside Recycling Limited) v Nicholas James Crabb

The liquidators brought claims under section 213 Insolvency Act 1986 for fraudulent trading, section 212 IA86 for misfeasance, and section 127 IA86 to recover void dispositions made after presentation of the winding-up petition. The court applied the established test for fraudulent trading (s.213) requiring that the business was carried on with intent to defraud or for a fraudulent purpose, that the defendant participated in carrying on the business in that manner, and that he did so knowingly; the legal test of dishonesty was applied in line with Ivey.

The judge found that the respondent, who controlled every aspect of Courtside’s business, deliberately concealed trading accounts (Lloyds and Barclays) from the company’s accountants and HMRC, systematically under-declared VAT (HMRC assessed undeclared VAT of £754,995) and extracted large sums in cash (£2,547,370) which were undocumented. The respondent deliberately destroyed trading records and gave inconsistent, manipulative evidence. The court concluded these acts amounted to carrying on the business with intent to defraud HMRC and breaches of fiduciary duties (notably duties in sections 171 and 172 Companies Act 2006) and misfeasance.

Relief ordered: contribution in the sum of £2,547,370 (measure of fraudulent trading/misfeasance), repayment of £15,500 received by the respondent post-presentation (void under s.127), and compensation of £12,926 paid to third parties post-presentation. The court directed consideration of consequential relief including possible disqualification under section 10 Company Directors Disqualification Act 1986.

This is a first-instance trial of an application by the joint liquidators of Courtside Recycling Limited against the company's sole director and shareholder, Mr Nicholas Crabb. The liquidators issued proceedings seeking (i) a declaration and contribution order under section 213 Insolvency Act 1986 for fraudulent trading, (ii) misfeasance relief under section 212 IA86 for breaches of directors' duties and related misconduct, and (iii) repayment of dispositions void under section 127 IA86 for payments made after presentation of the winding-up petition.

Background and facts:

• Courtside, incorporated February 2014, was compulsorily wound up on 23 May 2018 following an HMRC petition. The same individual, Mr Crabb, had earlier run Recyferro.
• HMRC raised assessments in March 2018 and June 2019 concluding that Courtside had under-declared VAT by £754,995 (total with interest assessed to £800,443) based on evidence from bank accounts the company held at Lloyds and Barclays and resulting declared turnover of £5,151,975 compared with declared VAT-return sales of £545,772.
• Bank analysis disclosed total cash withdrawals of £2,547,370 across Courtside accounts, while VAT returns prepared by the company's accountants (ESW) reflected only Santander account activity and standard VAT treatment.
• Mr Crabb admitted destroying company records from about October 2017 (and gave varying accounts of earlier losses), concealed the Lloyds and Barclays accounts from ESW and HMRC, and gave inconsistent explanations at interview and at trial.

Issues framed by the court:

• Whether Courtside’s business was carried on with intent to defraud creditors (HMRC) or otherwise for a fraudulent purpose within s.213 IA86;
• Whether Mr Crabb participated in that carrying on and did so knowingly and dishonestly (application of the Ivey test and civil standard of proof);
• Whether misfeasance under s.212 IA86 and breaches of directors’ fiduciary duties (notably s.171 and s.172 CA06) were established; and
• Whether dispositions after presentation of the petition were void under s.127 IA86 and should be repaid.

Court’s reasoning and findings:

• The judge accepted that the onus lay on the liquidators and applied the objective test of dishonesty after ascertaining the respondent’s actual state of knowledge or belief. The judge also recognised the need for cogent evidence to establish serious wrongdoing but found the documentary and bank evidence persuasive.
• Documents available (bank statements, VAT return calculation sheets and emails from ESW) showed that VAT returns were prepared on a standard-20% basis and that ESW had not been informed of a margin/global accounting scheme or of the Lloyds and Barclays trading accounts. The respondent’s later account of operating a margin scheme was unsupported and contradicted by contemporaneous documentation.
• The large cash withdrawals bore no documentary trail showing their use for company benefit. The respondent’s repeated and materially inconsistent explanations, deliberate concealment of trading accounts from ESW and HMRC, and deliberate destruction of trading records led the court to conclude the concealment and destruction were intended to mask the true trading position and to enable misapplication of company funds.
• On s.127 IA86 the payments to the respondent and to third parties after presentation of the winding-up petition were not validated and therefore must be restored.

Outcome sought and awarded:

• The court ordered that Mr Crabb be liable to contribute the sum of £2,547,370 by way of fraudulent trading/misfeasance remedy; and to restore £15,500 paid to him post-presentation and £12,926 paid to third parties.

The judge also indicated that consideration should be given to disqualification proceedings under section 10 Company Directors Disqualification Act 1986 at a consequentials hearing.

This is a first-instance judgment: the court found for the applicants. The claim succeeded. The judge held that Mr Crabb knowingly carried on Courtside’s business in a manner intended to defraud HMRC by concealing trading accounts, under-declaring VAT and extracting large undocumented cash sums; that he deliberately destroyed trading records; and that those acts amounted to fraudulent trading under section 213 IA86 and misfeasance under section 212 IA86 (breaches of directors’ duties including sections 171 and 172 CA06). The court ordered contribution and repayment: £2,547,370 (contribution), £15,500 (payments to the respondent void under s.127) and £12,926 (payments to third parties), and directed consideration of disqualification relief under section 10 Company Directors Disqualification Act 1986.