Management receivers will want to give careful consideration to the case of CPS v Eastenders Group and another [2012] All ER (D) 365 (Nov) when deciding whether to accept instructions to act over restrained property, particularly in those cases when it is not clear that the assets that they are being asked to control belong to the defendant.

We recently discussed this case in an article, by Nicola Laver, headed ‘Restraint and receivership orders under POCA 2002’.

Eastenders Cash and Carry PLC was a parent company in which the defendants owned all of the shares.  Accordingly, on the application of the Crown Prosecution Service (CPS), the Crown Court pierced the corporate veil and extended the restraint orders against the defendants to cover the assets of Eastenders.  A management receiver was appointed; the usual terms of instruction applied and the receiver understood that his remuneration and expenses were to be paid from the assets under his control.

On an application to dismiss the orders, the Court of Appeal concluded that the defendants did not wholly own the Eastenders subsidiaries. The Court of Appeal also concluded that, “there was insufficient material for the judge to conclude that there was reasonable cause to believe that these companies are or were just a front, sham or device for a diversion fraud committed by the alleged offenders or that they were sheltering behind a façade or veil of the companies to hide their fraud, or the proceeds of their fraud.”  The restraint and management receivership orders were quashed and the management receiver subsequently applied to the Crown Court for an order for payment of his expenses and remuneration out of the Eastenders' assets that he had retained.

Understandably the Eastenders Group opposed this application arguing that their assets were not the realisable assets of the defendants and that to conclude otherwise and to order the payment of the receiver from their assets would be an interference with their Article 1, Protocol 1 rights under the European Convention on Human Rights.  The Crown Court agreed ordering the CPS to pay the Management Receiver.  An appeal was made to the Court of Appeal.  

The Court of Appeal agreed with Eastenders and held that the receiver was not entitled to payment from the retained assets of Eastenders but that there was no provision in law which allowed them to order that the CPS pay the management receiver's remuneration and expenses.

They also took the opportunity to remind the CPS of their statement in R v Windsor [2011] EWCA Crim 143 that applications of such complexity should be listed in advance of anticipated arrests and preferably before a High Court or Circuit Judge with experience of complex frauds, who has sufficient time to read and absorb the papers and with sufficient time to conduct a proper hearing.

It is hoped that in future applications the prosecution and the courts will be mindful of R v Windsor and CPS v Eastenders Group.  Their procedures for applications for restraint and management receivership orders should be reviewed and tightened.  If such a review and improvements are not implemented, prosecutors may find management receivers are reluctant to agree to be appointed by the court, when their remuneration from restrained funds is not completely guaranteed. It may be that ultimately, it will be the concerns of the management receivers that bring about greater scrutiny in applications for such orders and in turn, provide greater protection for defendants - certainly in ex parte hearings for the granting of management receivership orders.