English court finds two former directors of fraudulent property company in breach of Companies Act



England and Wales High Court
England and Wales High Court

Two former directors of a company allegedly established to renovate a derelict hotel in Bristol into student accommodation have been found in breach of their legal duties, while the claims against another were dismissed.

Paul Atkinson and Glyn Mummery, the joint liquidators of Grosvenor Property Developers Ltd, raised the action against five respondents, of whom only the fourth, Siddhant Varma – who was not a director – was represented. Mr Varma was being pursued for the return of a car and company funds – but was ultimately found not liable for anything. 

The case was heard in the High Court by ICC Judge Prentis

Student flats 

Grosvenor Property Developers Ltd was incorporated in December 2016 to purchase the derelict Grosvenor Hotel in Bristol and convert it into student flats, raising £7.6 million from investors in order to do so. Work on the student flats never commenced. The company was wound up in July 2018 having never acquired title to the hotel or obtained planning permission for its proposed developments. The liquidators were appointed in December 2018. 

Four of the named respondents were involved in the management of the company, some of whom had already been ordered to pay monies to the liquidators by previous interim applications. Siddhant Varma, the fourth respondent, was a recipient of the proceeds. The liquidator’s claims in this application were for jewellery from the second respondent, a Bentley car and company monies from the fourth respondent, and payment away of company monies from the fifth respondent. 

In his judgment, Judge Prentis said of the whole case: “In overview, then, this is a simple claim. This was a single purpose Company. That purpose has not been fulfilled. Save for the £542,220, its monies were not applied for the purpose.” 

Purported authorisation 

The fifth respondent, Jonathan England, was the company’s only director. It was argued that he was bound to ensure that the company’s assets were applied only towards its purpose, and he failed to do so. The alleged misappropriations amounted to over £6 million spent on luxury items and other unidentifiable purposes. 

Mr England’s defence for the manner in which he conducted business was that he was acting on the instructions of a Mr Maneet Singh, an Indian national who contacted him in 2016 regarding the Grosvenor and asked him to deal with “the administration” for the project while he made the main decisions. Mr England required Mr Singh’s approval to make payments over £5,000, thus he argued he had limited control over the company. 

In previous litigation against the other respondents, Deputy Judge Agnello QC remarked on the lack of evidence concerning Mr Singh’s existence, and was inclined to believe the liquidators’ assertion that he was a fictional person. 

On analysis of the purported authorisation documents sent by Mr Singh, which expert evidence identified as being signed in a stack at about the same time, Judge Prentis said: “The letters on which Mr England relies are a construct. Thus his account of how he dealt with Mr Singh is false: he was not transferring funds following receipt of the authorisation letters at all, even though they were a precondition under the supposed Nominee Agreement.” 

On the quantum of the misappropriation claim, he said: “This sum represents plain misdealings by the Company’s director with its money, expended for purposes other than its own. It is no excuse that he was at all times acting at the direction of Mr Singh, because as director of the Company he was bound to act independently in furtherance of its interests.” 

For these reasons, Mr England was found liable for £6,548,076, a debt that would not be discharged upon his discharge from bankruptcy. 

Diamond jewellery 

The second respondent, Arjun Khadka, who had ceased contact in April 2019 and not engaged in any way with the proceedings, took over as company director from Mr England in June 2018. He was said to possibly be located in India or Nepal. 

The jewellery that was sought from him was apparently placed by the first respondent, Sanjiv Varma, into the ownership of a Dubai company he owned, Grosvenor Investments Ltd. The invoice listed nine items, mostly diamond jewellery, worth £4,950,000. 

It was allegedly instructed by Mr Singh that all the assets of the company, including the jewellery, be handed over to Mr Khadka in June 2018. Following some correspondence with solicitors for the liquidators, he ceased contact in May 2019. 

Judge Prentis said of this matter: “His failure to deliver up that Jewellery on the request of the Liquidators, and then the court, is a breach of his ongoing fiduciary duties; they were breached as well in his apparent failure to secure the Jewellery or its proceeds for the Company.” 

For these reasons, Judge Prentis found for the liquidators against Mr Khadka in misfeasance, with the respondent liable to the company for the stated value of the jewellery. 

Bentley on loan 

The fourth respondent, Siddhant Varma, was the son of the first respondent. He was said to have held or acquired property in London using company monies. He was said to have worked for Mr England’s company, Casa, between January 2017 and January 2018, known to be false as it was accepted he was in Dubai until April 2017. 

In May 2017, a Bentley was bought for him using money transferred directly to the dealer from Casa. Further, he had acquired £210,552 over 52 transactions from Casa between February and December 2017. He claimed the monies spent to acquire the Bentley were a loan from Casa. 

Judge Prentis said of this: “Casa was not in the business of making loans. It was lending a large sum to a young man with no job, without security. Perhaps most piquantly, for the last few months its bank account had hovered around zero. The Liquidators suggest that this was a ‘commercially implausible’ loan for Casa.” 

However, on examination of the evidence for the loan, including alleged repayments made by Siddhant Varma to Casa, he said: “There is no other realistic reason for why SVJ should be paying Casa this money. It follows that the repayments are very strong evidence that the Loan Facility is genuine.” 

For these reasons, the claims against the fourth respondent were dismissed. Of the attempt to bring committal proceedings against Mr Varma by FRP’s lawyers, the judge said: “It just seems to me to illegitimately tip the scales and upset the trial process.”

Mr Varma’s own lawyer, Kelly Tinkler of Keystone Law said: “It is pleasing that the court has totally exonerated Mr Varma, and in so doing has shone a light on the egregious conduct of FRP Advisory [the liquidators] and their lawyer Seamus Gray who sought to pressurise an innocent man into agreeing a settlement by threatening to have him committed to prison.” 

© Scottish Legal News Ltd 2021