L & S Accounting Firm Umbrella Limited (In liquidation) v Idusogie Laurel Oronsaye & Ors
[2024] EWHC 1919 (Ch)
Lime and Black BPS Limited (in liquidation) v Dharminder Singh Gill & Ors
24 July 2024
[2024] EWHC 1898 (Ch)
High Court
A company went bankrupt due to a big tax fraud. One of the people involved, Mr. Mistry, was found to be secretly running the company even though he wasn't officially a director. The court decided he was responsible because he helped commit the fraud and took money that should have gone to the government. He has to pay back the money he took.
Key Facts
- •Lime and Black BPS Limited (in liquidation) sued five defendants for breach of fiduciary duty, dishonest assistance, knowing receipt, and unlawful means conspiracy.
- •The claim was settled with all defendants except the Second Defendant, Mr. Kiran Kumar Mistry.
- •The court considered whether Mr. Mistry was a de facto director of the Company and whether he breached his duties.
- •A significant VAT fraud was perpetrated by the Company, resulting in substantial underpayment to HMRC.
- •The court examined various aspects of Mr. Mistry's involvement in the Company's operations, including client introductions, fee agreements, staff management, and the handling of bank accounts.
- •The court analyzed the credibility of witnesses, focusing on contemporaneous documents and the absence of documentation.
Legal Principles
In cases of fraud, credibility of witnesses should be tested against objective facts, documents, motives, and probabilities.
Armagas Ltd v Mundogas SA (The Ocean Frost) [1985] 1 Lloyd's Rep 1, 56-57; Central Bank of Ecuador v Conticorp SA [2015] UKPC 11
The absence of contemporaneous documentation can be significant in assessing credibility and drawing adverse inferences.
Wetton v Ahmed; Re Mumtaz Properties Ltd [2011] EWCA Civ 610
Contemporary documents are more reliable than oral evidence.
Simetra Global Assets Ltd v Ikon Finance Ltd [2019] EWCA Civ 1413
To determine de facto directorship, the court considers whether a person assumed the functions of a director, focusing on the acts performed and their cumulative effect.
Revenue and Customs Commissioners v Holland; Re Paycheck Services 3 Ltd [2010] UKSC 51; Smithton Ltd v Naggar [2014] EWCA Civ 939
Directors owe fiduciary duties to the company, including acting in the best interests of the company (section 172 Companies Act 2006) and avoiding conflicts of interest (section 175 Companies Act 2006).
Companies Act 2006, sections 171-175
Outcomes
Mr. Mistry was found to be a de facto director of the Company.
His involvement in the Company's conception, administration of the pension scheme, setting up the IFX account, and processing payments demonstrated the assumption of directorial functions.
Mr. Mistry was found liable for breach of fiduciary duties.
He acted dishonestly by causing or permitting the Company to underdeclare VAT and by receiving payments representing money that should have been paid to HMRC. The court rejected his assertion that payments received were for legitimate services.
Judgment for the Claimant (Lime and Black BPS Limited) was granted.
The amount of compensation was to be calculated based on payments made to Mr. Mistry and other defendants from the IFX and Payfect accounts, excluding payments from the HSBC account.
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