The Group began operations in 2015 and raised some £76 million from investors worldwide. However in 2019 it fell into arrears in paying fixed returns to those investors. Three of its c. 40 companies entered administration in late July 2019.
The Group had brought an application challenging the validity of two of those appointments, while other applications were brought by investors, creditors, and the existing administrators. These sought administration orders in relation to the two companies already in administration (in case the existing appointments were held invalid) and in relation to other parts of the Group.
After a two-day hearing, the High Court decided to place eight companies into administration, including its two holding companies. Thomas Robinson acted for the successful administrators, Carl Jackson and Simon Bonney of Quantuma LLP, instructed by Cathryn Williams and Paul Muscutt of Crowell & Moring LLP.
Dealing with arguments over invalid appointments
The dispute as to validity concerned i) the enforceability of a Qualifying Floating Charge, and ii) which persons held shares in the company in question at the relevant time and whether shareholders could rely on the Duomatic principle to appoint under paragraph 22 of Schedule B1 when the appointment in fact relied only on directors’ powers.
Adopting a approach that may be useful in other cases, the court noted that it had before it applications by creditors to put the same companies into administration with retrospective effect. Doing so avoided the need to decide on the validity of the initial appointment. If the appointments had been valid then paragraph 7 of Schedule B1 would apply to prevent administrators being appointed to a company already in administration. The court addressed this by terminating their appointment, to the extent necessary, under paragraph 79. This follows the approach in Pettit v Bradford Bulls  BCC 50.
Need for investigation
The court recorded, but made no findings on, the allegations made regarding use of investors money. These included its diversion to the Group’s director’s personal bank account, the acquisition of a private jet, yachts, two houses and five luxury cars for the director. They also included allegations of running a collective investment scheme in contravention of s.19 of FSMA 2000 and a practice of paying investors with money from later investors amounting to a Ponzi Scheme. The court concluded simply that there was a “pressing need” for investigation.
Purpose of administration
The Court considered at some length the test at paragraph 11(1)(b) of Schedule B1, and reasons why it was reasonably likely that the purpose of administration would be achieved. It adopted a “holistic” approach to the Group, noting that the administrators may wish to put together packages of subsidiaries for realisation purposes, and address issues such as planning permission and change of use regarding several properties (held in different companies). The court placed weight on the views of the two existing administrators, and rejected certain criticisms of their conduct.