Association of Chartered Certified Accountants v Koumettou & Anor [2012] EWHC 1265 (Ch)

8145 OF 2012[2012] EWHC 1265 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue BIRMINGHAM DISTRICT REGISTRY
Civil Justice Centre
The Priory Courts
33 Bull Street
Venue Birmingham B4 6DSDate Tuesday 20 th March 2012
Before
HIS HONOUR JUDGE PURLE QC(sitting as a High Court Judge)
B e t w e e n:
Between
ASSOCIATION OF CHARTERED CERTIFIED ACCOUNTANTSApplicantNINOS KOUMETTOU & COSTAS MORFAKISRespondent
(Transcribed from the Official Tape Recording by Cater Walsh & Co Transcription Suite1 st Floor Paddington House New Road Kidderminster Worcs DY10 1ALTel: 01562 60921 Fax: 01562 743235)
MR O KALFON instructed by Gateley appeared for ApplicantMS S BRISTOLL instructed by Ward Hadaway appeared for First Respondent Ninos KoumettouMR D MARGOLIN instructed by Locke Lord appeared for Second Respondent Costas MorfakisMR G THOMAS of Taylor Walton appeared for Administrators of Bond Partners LLP
JUDGMENTTuesday 20 th March 2012THE ASSOCIATION OF CHARTERED CERTIFIED ACCOUNTANTS – v –NINOS KOUMETTOU AND ANOTHERJUDGMENT

JUDGE PURLE:

[1]This is an application, so far as effective today, to replace Mr Morfakis in respect of a number of insolvency appointments listed in Schedules A and B of a previous block transfer order made by His Honour Judge Cooke on 8th November 2011. Judge Cooke had replaced an earlier office holder, Mr Papanicola with Mr Morfakis, who was Mr Papanicola’s partner in Bond Partners LLP. The application is to replace Mr Morfakis with two other independent office-holders (Mr Hellard and Mr Hunt). In addition, there are other appointments listed in Schedule C to Judge Cooke’s Order in which Mr Morfakis had previously been lead partner under joint appointments with Mr Papanicola. The application today also seeks to appoint Mr Hellard and Mr Hunt, until further order, to act jointly with Mr Morfakis in relation to the Schedule C appointments. It is anticipated that Mr Hellard and Mr Hunt will take on the task of investigating matters relating to Mr Papanicola so far as relevant to those appointments.[2]The reason why it is thought appropriate to investigate Mr Papanicola is that he was previously an insolvency practitioner licensed by the present applicant, the Association of Chartered Certified Accountants (“ACCA”). His licence expired on 31st December 2011 and he did not renew it. Furthermore, on 23rd January this year Mr Papanicola was adjudged bankrupt on his own petition. Mr Papanicola had been a partner of Bond Partners LLP, themselves now in administration since January of this year.[3]Last year various agreements appear to have been entered into between Bond Partners and the successor appointees or their firms which secured Bond Partners some sort of income stream from Mr Papanicola’s unfinished insolvency appointments. Upon the back of Mr Papanicola’s intended retirement orders were obtained, as I have said, in the case of Mr Morfakis in November last year and, in, the case of another successor, Mr Koumettou, on 23rd December last year. The order relating to Mr Koumettou was made by me.[4]Prior to either of those orders, on 22nd July 2011 a Tomlin Order was made by consent between Mr Papanicola and one of the proposed appointees, Mr Hunt, arising out of proceedings that were brought by Mr Hunt in his capacity as liquidator of Sunbow Ltd against Mr Papanicola. Those proceedings related to Mr Papanicola’s conduct as a joint administrator of Sunbow. Mr Hunt alleged inter alia that Mr Papanicola had appointed an individual as a director, in spite of his prior knowledge of that individual’s history of convictions for fraud, failed to closely monitor and control the activities of that individual, made losses but declared profits, failed to act when he must have realised that the administration was doomed, allowed that individual to continue running the business, incurring liabilities, and trading in a manner of his own choosing despite the increasing losses, misled the creditors over the viability of that individual’s offer to purchase the business, attempted to seek his own appointment as liquidator to avoid an independent investigation of his conduct and subsequently resisted Mr Hunt’s efforts to rescind his release from office. The Tomlin Order required Mr Papanicola to pay Mr Hunt as the liquidator of Sunbow the sum of £1.9 million.[5]None of that was disclosed to either his Honour Judge Cooke or to myself when either of the block transfer orders were made. Some fairly desultory disclosure was made as to some critical reports made by Mr Papanicola’s professional body but the overall impression was that he was retiring principally as a result of ill-health. His poor health was presumably exacerbated, if not brought on, by the professional difficulties he faced. The court’s attention was also not drawn to the decision of Mr Justice Norris in the Institute of Chartered Accountants for England & Wales v Webb [2009] EWHC 3461 (Ch), which has some similar features to this case. Mr Justice Norris refused to make a block transfer order in favour of Mr Webb’s chosen appointee but instead appointed Mr Hunt and Mr Hellard. Mr Justice Norris in clear terms emphasised the importance of there being not just an independent appointment but one which was seen to be in the public interest and not seen to be favouring the chosen appointee of the person whose activities might come under investigation.[6]The allegations that Mr Hunt previously made bore fruit in the form of the Tomlin Order, and may reflect a pattern of conduct affecting other appointments. Mr Papanicola seems to have held office in several hundred cases at once. 382 cases were transferred under the two block transfer orders, not including, except possibly by mistake in one or two cases, insolvencies which had concluded. In some cases there were, it is fair to say, joint appointments with Mr Morfakis, where Mr Morfakis was lead appointee.[7]So far as Mr Koumettou is concerned, the application today has been adjourned for the completion of evidence. Counsel for Mr Morfakis has not, however, sought an adjournment. Mr Morfakis wants the matter to be dealt with today, and his Counsel has made helpful submissions. I have also had assistance from the solicitor (Mr Thomas of Taylor Walton) now acting for the administrators of Bond Partners LLP, who were appointed by the Bank of Ireland. Taylor Walton have suggested the appointment of alternative office-holders, two individuals, both members of Chantrey Vellacott, a well-known and respected firm of insolvency practitioners. It is suggested in correspondence that they have a greater independence because Mr Hunt, by virtue of his previous activities as liquidator of Sunbow, is --- whilst clearly independent of Mr Papanicola --- not open-minded in the sense that he comes to the case with a predisposition against Mr Papanicola.[8]The application is made by the Association of Chartered Certified Accountants. It is accepted by Morfakis, as I have said, that he must stand down in relation to the Schedule A and B appointments and that he should allow whoever is to be appointed to take joint appointments with him in relation to the Schedule C appointments. It may be that the ACCA would wish subsequently to seek his removal in relation to those appointments as well, but that would require a change of circumstances which would require some evidence (going beyond the evidence available to the court today) as to Mr Morfakis’s unsuitability. There have been letters to the court from third parties which have raised some colourful and intemperately-worded complaints against both Mr Papanicola and Mr Morfakis. I drew those letters to the attention of the parties today and the position is that the ACCA has not yet considered those letters or whether they are well-grounded for the purpose of today’s application. When they have done so, if they reach a conclusion which causes them to act otherwise than they are doing today, that could potentially be a material change of circumstances. I make it plain that no case of wrongdoing has been made out against Mr Morfakis or, for that matter, Mr Koumettou, who is not the subject so far as I am aware of any allegations against him in the correspondence to which I have referred. The matter as of today is proceeding on the politest basis that I have encountered in a contested appointment, namely on the basis that everyone (apart possibly from Mr Papanicola) is highly competent and professional and that any of them could properly be appointed.[9]That leaves the court with a difficulty. The court is not here to conduct the sort of horse trade that goes on in creditors’ meetings; the court is here to consider whether or not to accede to a particular application. Where the court is faced with an application by a responsible professional body, such as the ACCA, seeking the appointment of individuals who are acknowledged to be reputable in place of a current appointee, then, in my judgment, the presumption must be that the professional body has had due regard to the public interest, and is as well placed as anyone and better placed than most to identify appropriate replacement appointees. The onus then shifts to those who seek to disagree with the applicant’s choice of appointees to demonstrate positive reasons why someone else should be appointed. It is not enough, as has been done in this case, to identify other people who are equally respected and suitable. Whilst, therefore, the decision ultimately remains the Court’s, the judgment of the professional body must in practice carry significant, and in very many cases decisive, weight.[10]The only objection to Mr Hunt is his previous contentious relationship with Mr Papanicola. In my judgment, the idea that that makes him unsuitable to undertake the sort of investigatory work which is now to be undertaken is misconceived. On the contrary, I agree with the professional judgment of the ACCA, as recorded in its solicitors’ correspondence, that this confirms his independence and makes him suitable to undertake investigatory and other work across all the appointments to which Mr Morfakis has succeeded.[11]In those circumstances, I accede to the application and will appoint Messrs Hunt and Hellard. I will now hear counsel on the terms of the order. I assume, though I have not yet had confirmation, that counsel will give me the same sort of comfort that was given to Mr Justice Norris in the Webb case as to the running up of costs where Mr Justice Norris recorded this in relation to Messrs Hunt and Hellard:
“They have indicated in the course of submissions that they will delegate to the appropriate employee level and at the appropriate location such tasks as are capable of delegation. They will have firmly in mind my [that is Mr Justice Norris’s] expression of concern [which now becomes my expression of concern] in open court that their appointment as office holders shall not lead to a significant depletion of the respective estates.” [Following further discussion, the Judge received the confirmation he sought, and the Order was made accordingly] delegate to the appropriate employee level and at the appropriate location such tasks as are capable of delegation. They will have firmly in mind my [that is Mr Justice Norris’s] expression of concern [which now becomes my expression of concern] in open court that their appointment as office holders shall not lead to a significant depletion of the respective estates.”