On 23 January 2020, Lord Brailsford in the Outer House of the Court of Session issued his judgment in the case of James Stephen and another v Dorothy Thompson Melville and Alistair Melville. Whilst the decision itself is very fact specific, it serves as a good reminder to insolvency practitioners that what is presented by a debtor is only one half of the story.
Stuart McCallum Melville (“SMM”) and Calum Gerrard Melville (“CGM”) were brothers who were sequestrated within a short time of each other. SMM was sequestrated on 27 July 2017 and James Stephen appointed his trustee. CGM was sequestrated on 7 January 2016, with the Accountant in Bankruptcy acting as his trustee.
SMM and CGM were involved in a family business, together with their parents, Dorothy Thomson Melville (“DTM”) and Alistair Melville (“AM”) (note that a third brother was not involved).
The facts are (as with many family businesses) a little complicated and messy but essentially, prior to the sequestrations of CGM and SMM, the family business was sold to a third party, following an investigation on behalf of the Bank which established that CGM had been embezzling funds from the business. There were also allegations from CGM that SMM had been complicit in this.
Both CGM and SMM had advised that their parents had entered into a loan agreement with CGM and SMM (something which was strenuously denied) by DTM and AM and the trustees in their sequestrations sought to recover the funds from DTM and AM (which amounted to €2,750,024). Documentation was produced to back up the claims; although DTM and AM maintained that their signatures had been forged.
Lord Brailsford ultimately found in favour of DTM and AM – the judgment is critical of CGM and SMM, in particular focussing on CGM’s own admission of a pattern of lying, both in relation to the present case and other business dealings. It was also established that the purpose of the fraudulent loan agreement was to exclude the third brother from a rightful inheritance in the family business (as I said, the circumstances were very messy and involved a personal element).
The outcome itself is very specific to the facts but it will serve as a useful reminder to insolvency practitioners that what may appear on the surface to be an open and shut case with regards to a recovery, may not always result in the desired outcome.