Trafalgar Multi Asset Trading Company v James David Hadley & Anor.
[2023] EWHC 1184 (Ch)
London Capital & Finance Plc & Ors v Michael Andrew Thomson & Ors
14 November 2024
[2024] EWHC 2894 (Ch)
High Court
London Capital & Finance scammed investors by pretending to lend money to many small businesses. Instead, they mostly lent to their own friends' companies and pocketed the rest. The court found the CEO, other key people, and even the marketing company guilty of fraud and ordered them to repay the stolen money.
Key Facts
- •LCF, a mini-bond issuer, raised over £237 million from approximately 11,600 bondholders between 2013 and 2018.
- •LCF misrepresented its lending activities to bondholders, claiming to lend to numerous unconnected SMEs with robust due diligence and ample security.
- •LCF primarily lent to a small number of interconnected companies associated with four individuals, including its CEO, Michael Thomson.
- •LCF operated as a Ponzi scheme, using funds from new bondholders to pay interest and principal to existing ones.
- •Substantial sums were misappropriated from LCF through a series of complex, uncommercial transactions (SPAs) benefiting Thomson, Spencer Golding, and others.
- •Surge Financial Limited, a marketing company owned by Paul Careless, received a 25% commission on all funds raised, further contributing to the fraudulent scheme.
- •Robert Sedgwick, a solicitor, played a significant role in drafting and backdating documents to conceal the fraudulent activities.
Legal Principles
Fraudulent trading under Section 246ZA of the Insolvency Act 1986 requires (1) carrying on business with intent to defraud creditors or for a fraudulent purpose; (2) defendant's participation; and (3) defendant's knowledge.
Morris v State Bank of India [2003] BCC 735
Dishonest assistance in a breach of fiduciary duty requires a breach, assistance, and dishonesty.
Agip (Africa) Ltd v Jackson [1990] Ch. 265
Equitable proprietary claims are based on tracing misapplied assets and establishing whether the recipient was a bona fide purchaser for value without notice.
Byers v Saudi National Bank [2023] UKSC 51
Knowing receipt liability arises when it's unconscionable for a recipient to retain benefits received from a company in breach of directors' duties.
Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437
Breach of directors' duties under the Companies Act 2006 (sections 171, 172, 174, 177).
Companies Act 2006
Outcomes
Mr. Thomson, Mr. Golding, Mr. Careless, Surge, Mr. Russell-Murphy, GP, and Mr. Sedgwick were liable for knowing participation in LCF's fraudulent conduct.
They each played critical roles in the fraudulent scheme, from making false representations to misappropriating funds and concealing the fraud.
Mr. Thomson and Mr. Golding were liable for breach of directors' duties.
Their actions were dishonest, lacked consideration for LCF's interests, and ultimately led to its collapse.
LCF had established equitable proprietary claims against all defendants.
The defendants had not established bona fide purchaser status without notice and hadn't provided value for the funds received.
Defendants were liable for dishonest assistance.
They knowingly assisted in the breaches of fiduciary duty committed by Mr. Thomson and/or Mr. Golding.
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