Credit Lucky Ltd & Anor v National Crime Agency [2014] EWHC 83 (Ch)

Case No Case No: 4154 OF 2012APPEAL REF CH/2013/0381[2014] EWHC 83 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, The Rolls Building,, Fetter Lane,Date 29 January 2014
London EC4A 1NL
Before
THE HON MR JUSTICE BARLING
Between
Credit Lucky Limited and Gui Hui DongApplicants/ AppellantNational Crime Agency (formerly the Serious Organised Crime Agency)Respondent
Lance Ashworth QC (instructed by Cavendish Legal Group of London W1G 0PW) for Applicants/AppellantLucy Frazer QC (instructed by Civil Recovery and Tax Legal Department of the National Crime Agency) for RespondentJoseph Curl (instructed by Russell Cooke Solicitors of London SW15 6AR) for LiquidatorHearing Hearing dates: 21-22 November 2013
JudgmentMr Justice Barling :Introduction
[1]This application for rescission, variation or review, alternatively a stay, of a winding up order comes before me by virtue of an order of Mr Justice Hildyard on the 17 September 2013, which he made subject to the approval of Registrar Derrett, who made the winding up order. That approval was given on 1 October 2013.[2]At the same time Mr Justice Hildyard directed that an application for permission to appeal against the same winding up order, together with the appeal itself if permission were granted, should be heard at the same time by the same High Court judge who was to hear the rescission/stay application.[3]All those matters are therefore now before me.[4]Mr Lance Ashworth QC, who appeared for the applicant/appellant, invited me to consider and rule on the rescission/stay application before considering the application for permission to appeal.

Procedural background

[5]The procedural background can be briefly stated.[6]On 21 May 2012 the Serious Organised Crime Agency (“SOCA”) presented a winding up petition to the Court in respect of Credit Lucky Limited (“CL”) on the basis of assessed unpaid corporation tax and interest in a total sum of £1,763,472.80. Additionally an application was made to appoint Mr Ian Mark Defty, a licensed insolvency practitioner and partner in the firm of Kingston Smith and Partners LLP, as provisional liquidator over the business and assets of CL pending the hearing of the winding up petition. Mrs Justice Proudman made an order to that effect on that date, along with various other orders and directions, including a freezing order in respect of certain assets of the company’s sole director and shareholder Mr Gui Hui Dong, and the company’s former secretary Ms Hong Fang. Ms Fang is Mr Dong’s ex-wife.[7]On about 18 June 2012 Mr Dong caused appeals against part of the assessed unpaid tax to be lodged with the First Tier Tax Tribunal (respectively “the Tax Appeal” and “the Tax Tribunal”).[8]Following the lodging of the Tax Appeal there were three or four adjournments of the hearing of the winding up petition, in order to provide an opportunity for Mr Dong to file evidence in support of a contention that there was a genuine dispute in relation to CL’s liability for all or part of the assessed tax, and that a winding up was therefore not appropriate, or not appropriate in advance of the resolution of the Tax Appeal.[9]However, as seen, Registrar Derrett made a winding up order on 21 June 2013, following and pursuant to which Mr Defty was appointed liquidator on 5 July 2013.[10]Since its investigation into the affairs of CL began, SOCA has ceased to exist and its functions are now performed so far as relevant by the National Crime Agency. In this judgment I shall for convenience refer to SOCA as meaning SOCA or NCA, whichever is appropriate.

The evidence

[11]Details of SOCA’s investigation into CL’s business, and of SOCA’s conclusions, are set out in a number of affidavits and witness statements together with their exhibits put before me. These include an affidavit by Anna Petrarca of SOCA dated 21 May 2012, four witness statements of Roy Stoddart of SOCA, and one witness statement of Samantha Kynes of SOCA. In addition Miss Petrarca exhibits a witness statement of Detective Constable Neil Stanley of the Metropolitan Police, dated 9 March 2012. Three witness statements of Mr Defty set out his position as liquidator.[12]In response to these there are three witness statements from Mr Dong, together with two witness statements from Mr Antonios Christodoulides, a solicitor instructed by Mr Dong, and three witness statements from George Georgiou, a chartered accountant of Bond International, instructed by Mr Dong to represent CL in relation to certain financial issues, including the Tax Appeal.[13]I feel it right to record that these witness statements and the exhibits were not presented to me in a particularly helpful manner. They were randomly spread through a number of bundles with no apparent structure – and certainly none that I found of any assistance. The bundles prepared for the rescission application also overlapped with those prepared for the application for permission to appeal. This mode of organisation and presentation added significantly to the burden of the court both during and after the hearing.

SOCA’s investigation

[14]CL, which was incorporated in 2004, is a money services business offering exchange and remittance services, in particular the remittance to China of funds deposited by its customers. CL operated virtually entirely within the Chinese community in the United Kingdom, through six high street branches, in London, Liverpool, Manchester, Birmingham, Belfast and Glasgow. It was registered with the Financial Services Authority.[15]SOCA’s investigation into CL’s tax affairs has led it to conclude that CL has been used by organised criminals to launder the proceeds of their crimes and to transfer those proceeds out of the United Kingdom to China. SOCA believes that the funds received and transferred by CL are derived from, inter alia, prostitution, smuggling of cigarettes, tobacco, and counterfeit DVDs, and the production and supply of cannabis. In his witness statement DC Stanley listed over thirty occasions between 2005 and 2011 when, in the course of police visits to premises where criminal activities were believed to take place, documents evidencing use of CL’s money transfer services were found.[16]According to SOCA, money was either deposited at one of CL’s branches for transfer to China or was paid into one of CL’s numerous bank accounts. The company then transferred the funds to one main account for transmission to China. Ms Petrarca’s evidence is that between 1 November 2005 and 31 December 2009 (the period of the SOCA tax assessments) about £592 million passed through this main account. For example, in the period 1 January 2006 to 31 December 2007 some £217 million was deposited in that account. This scale of deposits is not in dispute. Indeed according to Mr Dong the amount deposited with CL in the period 1 November 2005 to 31 December 2009 was £678 million rather than £592 million.[17]Some of the money transferred to China by CL was first deposited in one or other of the many bank accounts held at various times by Mr Dong or Ms Fang. Between 2004 and 2007 Mr Dong is said by Ms Petrarca to have held 27 personal accounts with 5 different banks. Between 2005 and 2009 Ms Fang held 17 personal accounts with 5 different banks. Over a five year period £75 million was deposited in these accounts, a substantial portion of which was then transferred to CL. However, a significant proportion remained with Mr Dong and Ms Fang, and Ms Petrarca has raised separate unpaid tax assessments on Mr Dong and Ms Fang personally in respect of those sums.[18]One of SOCA’s concerns, which led to the assessment of unpaid tax by Ms Petrarca in respect of CL, is the level of gross income in the form of commissions declared by CL to HMRC in the period 3 August 2004 to 31 December 2009. According to Ms Petrarca the income declared by CL for 2006 represents 0.0596% of the deposits in that period and the income declared for 2007 represents 0.05%. In her view this level of commission is not credible as it would not result in a viable return for CL. She refers to evidence that CL’s advertised rates of commission on transfers was 1%, and that for the years 2010 and 2011 (just outside the assessment period) a commission rate of 1.5% was applicable. Ms Petrarca based her tax assessments on a rate of 1%, which for the reasons set out in her affidavit, she regards as conservative.[19]In his evidence Mr Dong denies any involvement in criminal activity, including money laundering. As for the tax assessments, he states that in the calendar year 2011 CL earned a margin of 0.21% for each transaction carried out, and that the real dispute between CL and SOCA relates to the true net margin earned by CL. As to that, he states that the liquidator and SOCA have few if any documents for the period of the tax assessments, whereas his financial adviser Mr Georgiou had the advantage of access to CL’s servers in China. Thus, he states, Mr Georgiou’s data is more extensive than the police’s or the liquidator’s, and raises the question whether CL is really indebted to SOCA as alleged.[20]Ms Petrarca also gave evidence about other aspects of CL’s governance. For example she said that CL had breached FSA regulatory requirements by not requesting necessary “Know Your Customer” documents, by accepting insufficiently authoritative customer identification documents, by buying identification documents in order to circumvent the Money Laundering Regulations, by misrepresenting client funds as the company’s funds in order to meet the FSA’s capital requirements for registration, and by failing to construct risk profiles as required. Ms Petrarca also identified other likely breaches of the Money Laundering Regulations. Under those Regulations a regulated company is required to appoint a Money Laundering Reporting Officer whose role is to file reports of suspicious activity with SOCA. Mr Dong is the Reporting Officer for CL. Ms Petrarca states that despite the number of criminal organisations which have used CL in order to transfer funds, neither Mr Dong nor anyone else at CL has filed a report. Other witnesses referred to the absence of any management accounts in respect of CL.[21]It appears that the police intended to arrest Mr Dong in pursuance of their money laundering investigation on the day the winding up petition was presented to the Court, namely 21 May 2012. However it has emerged that he was out of the jurisdiction, in China. I am told that he has remained so up to the time of the hearing before me, and that he will be arrested as and when he returns to this country.[22]According to the evidence of Mr Defty, on the day of the intended arrest of Mr Dong the Metropolitan Police, assisted by other police forces, executed search warrants at the various addresses associated with CL and with Mr Dong/Ms Fang across the United Kingdom. The provisional liquidator and his agents attended with the police at some of these premises. The police seized cash, computers, and accounting and other records. Some material left by the police was uplifted by the provisional liquidator or by his agents. These included some counterfeit banknotes, which were handed over to the police. The police later delivered some of the material they had seized to the provisional liquidator and retained other material for the purpose of their investigation.[23]In executing the search warrants on 21 May 2012 the police seized cash totalling about £1.5 million under the Proceeds of Crime Act 2002, including about £1 million held by G4 Security Solutions on behalf of CL. There are currently forfeiture proceedings under the 2002 Act on foot in the magistrate’s court in respect of the sum seized by the police. Having consolidated the various bank accounts of CL, the liquidator currently holds a total of about £504,000 in cash including interest credited to the account. As we shall see, the ownership of these sums, and in particular the £504,000 held by the liquidator, became an issue in the winding up proceedings.[24]In addition to SOCA’s petition debt of £1,763,472.80 the liquidator is aware of other creditors of CL whose claims amount to approximately £70,000.[25]Following his appointment as provisional liquidator Mr Defty says that he wrote to all known depositing customers of CL seeking an indication of any claim. Only 12 gave such an indication. Of these only 4 responded to a request for further details of their identities and claims.

The decision of Registrar Derrett to wind up CL

[26]As I have said, the hearing before Registrar Derrett was preceded by three or four hearings in which the proceedings were adjourned at CL’s request in order to permit it to adduce further evidence. At a hearing on 21 January 2013 before Chief Registrar Baister, Ms Lucy Frazer QC, who also represents SOCA in the present applications, pressed for an immediate winding up order to be made. However, in the exercise of his discretion the learned Chief Registrar granted CL an adjournment and ordered the company to “file and serve notice of opposition and evidence in opposition by 4.30pm on 4th February 2013 indicating inter alia what steps it has taken or is taking to pay the undisputed/un-postponed part of the petition debt.”[27]The reference in that order to the undisputed part of the petition debt relates to the following. Whilst the majority of the petition debt was subject to the Tax Appeal, SOCA drew Chief Registrar Baister’s attention to the fact that £208,824.20 was not the subject of that or any appeal and should therefore be regarded as undisputed. Before me Mr Ashworth was content with the description of that sum as “undisputed” for the purposes of CL’s rescission application, without prejudice to the position on the proposed appeal against Registrar Derrett’s decision.[28]When the adjourned matter came before Registrar Derrett for directions on 21 June 2013 Ms Frazer again pressed for an immediate winding up order, and the learned Registrar acceded to that application. In her judgment she held, in essence, as follows: 1) £208,824.20 of the petition debt was not the subject of any appeal to the Tax Tribunal. 2) The order of the Chief Registrar on 21 January 2013 requiring CL to file a notice of opposition and evidence in opposition dealing amongst other things with what steps it had taken or was taking to pay that part of the petition debt, had not been complied with. 3) When the matter had come before Registrar Jones on 20 May 2013, he had made an order to the effect that unless by 31 May 2013 CL applied (with supporting evidence) for permission to file and serve further evidence in opposition, the company would be debarred from relying on any further evidence. 4) Such an application was made by CL on 30 May 2013 but the evidence in support was “woefully inadequate”: it failed to set out whether there were further documents which would support any genuine dispute in relation to the undisputed sum, and it did not deal with any proposed steps by CL to pay that sum, as required by the original order of the Chief Registrar. 5) Since the matter was last before the court the company had taken no further steps to engage with the provisional liquidator in relation to the funds he held. 6) A director (Mr Dong) had told Mr Georgiou that these were client monies. 7) CL had had ample opportunity to defend the petition and had failed to do so. The undisputed sum was due and payable, and it was appropriate to make a winding up order.

The rescission application

[29]IR rule 7.47(1) of the Insolvency Rules 1986 provides that the Court: “may review, rescind or vary any order made by it” in the exercise of its insolvency jurisdiction. It is common ground that this includes a winding up order.[30]Mr Ashworth acknowledged that for the purposes of this application (as opposed to the proposed appeal) it has to be accepted that on the evidence and submissions before Registrar Derrett, her decision was one which it was open to her to make.[31]The principles governing the Court’s exercise of its discretion to rescind a winding up order are conveniently listed in the judgment of Mr Philip Marshall QC, sitting as a Deputy High Court Judge, in Metrocab Limited [2010] EWHC 1317 at paragraph 36, in which reference is also made to a number of other relevant authorities, including Re Dollar Land (Feltham) Ltd. (1995) BCC 740, at 748D; Re Piccadilly Property Management Ltd. [1999] 2 BCLC 145; Wilson v. Specter Partnership [2007] BPIR 649, at 658); and Papanicola v. Humphreys [2005] 2 All ER 418, at 424). The principles are as follows (paraphrasing paragraph 36 to some extent):(1) The power to rescind is discretionary and is only to be exercised with caution;(2) the onus is on the applicant to satisfy the court that it is an appropriate case in which to exercise the discretion;(3) it will only be an appropriate case where the circumstances are exceptional and those circumstances must involve a material difference from those before the court that made the original order;(4) there is no limit to the factors that the court can take into account, and they may include changes since the original order was made, and significant facts which, although in existence at the time of the original order, were not brought to the court’s attention at that time; but where that evidence could have been made available, any explanation the applicant gives for the failure to produce it then or any lack of such an explanation, are factors to be taken into account;(5) the circumstances in which the court’s power will be exercised will vary but generally where the rescission application involves dismissal of the winding up petition, so that the company is free to resume trading, the court will wish to be satisfied: (a) that the debt of the petitioning creditor has been paid, or will be paid, that the costs of the Official Receiver or any liquidator can be paid, and that the company is solvent at least on the basis that it can pay its debts as they fall due; (b) that the application has not been presented in a misleading way and the court is in possession of all the material facts and has not been left in doubt; (c) that the trading operations of the company have been fair and above board, and there is nothing that requires investigation of the affairs of the company. (a) that the debt of the petitioning creditor has been paid, or will be paid, that the costs of the Official Receiver or any liquidator can be paid, and that the company is solvent at least on the basis that it can pay its debts as they fall due; (b) that the application has not been presented in a misleading way and the court is in possession of all the material facts and has not been left in doubt; (c) that the trading operations of the company have been fair and above board, and there is nothing that requires investigation of the affairs of the company.[32]In relation to the criteria set out under sub-paragraph (5), Mr Ashworth submitted that these were not relevant here, as the purpose of the rescission of the winding up order was to put CL into administration and not for it to resume trading.[33]Rescission is sought on two grounds, each of which is said to satisfy the criteria referred to above: 1) That there is now an “offer on the table” which was not available when the winding up order was made, and which provides an appropriate alternative course to a winding up, namely to put CL into administration with a view to selling the goodwill, name and database of CL to a third party; 2) That on a proper analysis of the evidence as to ownership of the £504,000 now being held by the liquidator, the payment by CL of the undisputed sum should not have been an issue before Registrar Derrett, and but for that issue she would not have made the winding up order.[34]In summary, Mr Ashworth submits in support of rescission generally: 1) that the third party offer would secure payment to SOCA of the undisputed sum of c.£208,000, which might not otherwise be paid; 2) if the winding up order is not rescinded there would be significant prejudice to CL (and possibly to Mr Dong as the sole contributory) in that the liquidator has made it clear that he regards the Tax Appeal as without merit and does not intend to pursue it, with the result that the tax assessments would stand notwithstanding Mr Georgiou’s evidence calling into question the methodology and calculations on which they are based; 3) the third party offer would realise assets of value for the benefit of all creditors; 4) if the tax assessments are successfully challenged there is every prospect of payment of the creditors in full, and a return to Mr Dong; 5) there would be no prejudice, and possible benefit, to SOCA as it would be paid the undisputed sum by the third party immediately, and if the (proposed) administrator were to conclude that the £504,000 now held by the liquidator are client funds rather than funds of CL, that sum would not be available to defray any tax liability to SOCA.

Ground 1

[35]The basis of this ground is set out in Mr Dong’s evidence: “Since the winding up order was made CL’s advisors have been contacted by UHY Hacker Young who have received an offer to invest in CL and on determination of the matters before the Tax Tribunal to purchase the goodwill… If this Honourable Court were to agree to rescind the Winding Up Order the intention is to apply for an administration order with a view to achieving a better result for CL’s creditors than would be likely if it were wound up…This Court will note that Mr Andronikou of UHY Hacker Young has consented already to act as Administrator.” (See paragraphs 16 and 17 of Mr Dong’s first witness statement of 28 June 2013.)[36]There are two versions of the offer to which Mr Dong refers in this statement. The first is in a letter dated 26 June 2013 on notepaper of City Equities Investment Management Limited (“CEIL”), and signed by Mr Yoram Yossifoff who, I am told, is an Israeli lawyer and a director of CEIL. This letter refers to discussions with Mr Dong about the purchase of the goodwill of CL, and recites that Mr Dong has told the writer that he intends to seek rescission of the winding up order and to place CL in administration. It continues:
“We have agreed to make the following immediate investment into [CL]: (a) The sum of £210,000; plus (b) [the reasonable fees of the provisional liquidator]; (c) [the costs of Mr Andronikou as administrator].”
In the final paragraph the letter refers to the Tax Appeal, and states:
“Once the FTT has ruled… and it has decided that the sum claimed is not due in part or in whole, we shall purchase the business of [CL] from the appointed administrator.”
[37]The second version of the offer is in a subsequent undated letter, also on CEIL notepaper and signed by Mr Yossifoff. This letter refers to the earlier letter and to “subsequent discussions”. It continues:
“We write to confirm: (a) We have made a conditional offer to purchase the goodwill, name and database from the administrator for £250,000… (b) The offer is conditional on the winding up order being rescinded, and that you [ie Mr Dong] as CL’s Director appointing an administrator; (c) Within 7 working days of the order rescinding the order to wind up the company being made, the sum of £250,000 will be paid to our solicitors or to UCY Hacker Young; (d) On the appointment of the administrator the sum of £250,000 will be paid to or released to him to be applied as follows: (i) He shall pay immediately the sum of £208,824.50 to SOCA; and (ii) however much is necessary of the balance paid to the Provisional Liquidator to pay off his reasonable fees; (e) Within 2 weeks of the Administration order being made, the Administrator signs an asset purchase agreement with us. The Administrator will give credit for the sums paid under (d) against the purchase price.” (a) We have made a conditional offer to purchase the goodwill, name and database from the administrator for £250,000… (b) The offer is conditional on the winding up order being rescinded, and that you [ie Mr Dong] as CL’s Director appointing an administrator; (c) Within 7 working days of the order rescinding the order to wind up the company being made, the sum of £250,000 will be paid to our solicitors or to UCY Hacker Young; (d) On the appointment of the administrator the sum of £250,000 will be paid to or released to him to be applied as follows: (i) He shall pay immediately the sum of £208,824.50 to SOCA; and (ii) however much is necessary of the balance paid to the Provisional Liquidator to pay off his reasonable fees; (e) Within 2 weeks of the Administration order being made, the Administrator signs an asset purchase agreement with us. The Administrator will give credit for the sums paid under (d) against the purchase price.”
[38]Several aspects of this offer give cause for concern.[39]First, it is said to be conditional upon the winding up order being rescinded and Mr Dong appointing an administrator. There is no obvious reason why someone who is interested in purchasing the goodwill, name and database of a company should only be prepared to purchase them from an administrator, and would not see an equivalent business opportunity in purchasing the same assets from a liquidator. No evidence from the third party in question has been adduced in the form of an affidavit or witness statement, and the liquidator’s counsel, Mr Joseph Curl, described the offeror’s condition as “inexplicable”.[40]The suggested explanation, put forward at one point in the course of submissions, that the condition was because the assets in question would be more valuable to the third party purchaser if CL “cleared its name” by prosecuting and winning the Tax Appeal, is in my view implausible. Although the liquidator has made clear that he will not pursue the Tax Appeal, the idea that a successful appeal in the Tax Tribunal against a corporation tax assessment is likely to make the difference between buying and not buying apparently valuable name, goodwill and database, does not bear scrutiny.[41]Further, the third party’s offer to pay off the undisputed sum of c.£208,000 and also to pay the provisional liquidator’s reasonable fees is not made conditional upon the Tax Appeal being pursued let alone being successful. Indeed, in the most recent version of the offer the asset purchase itself is not made conditional on a successful appeal, and the Tax Appeal is not mentioned at all.[42]Second, it is far from clear that rescission of the winding up on this basis will put CL’s creditors in a better position. Depending on which version of the offer letter one looks at, the asset purchase is conditional upon a wholly or partly successful tax appeal, and in any event is non-specific as to the price that would or might be paid for the goodwill, name and database.[43]Third, although the offer letters are in the name of CEIL, it emerged in the course of the written evidence from Mr Dong that the real investor is City Equities Limited (“CEL”) of which CEIL is the investment vehicle. Mr Defty’s evidence was that CEL was placed into special administration on 11th October 2013, and that one of the joint administrators is Mr Andrew Andronikou who is the person Mr Dong proposes as administrator of CL if the court were to rescind the winding up order. Mr Stoddart’s evidence was that CEIL itself was incorporated in November 2012 and its share capital is £1. It is not registered with the FCA, as Mr Dong accepts, and would therefore not be able to trade.[44]Fourth, there is no satisfactory evidence as to CEIL’s or CEL’s or access to the necessary funds to make good the offer: the only material put in evidence is a letter dated 23rd June 2013 from the Israeli accountants of Mr Yossifoff to the effect that he then had the equivalent of about half a million pounds in an Israeli bank account in his name. Attached to the letter is said to be a bank statement. This however is written in Hebrew and there is no translation. There is some further information about the financial position and structure of CEL in the witness statement of Samantha Kynes of SOCA and in the second and third witness statements of Mr Dong, but this debate does not affect the position in any significant way.[45]Mr Ashworth made clear that the only reason for the company seeking to go into administration was the third party offer; this, he said, is why there was a delay in seeking an administration – because although Mr Andronikou was apparently consulted on the issue in October 2012, at that stage there was no offer on the table. However, on the material before me and in the light of the concerns outlined above, I do not feel it appropriate to place any reliance on the third party offer when considering the application for rescission.[46]In these circumstances it is unnecessary to deal with some of the other points raised by Ms Frazer in relation to the issue of administration, including: 1) Whether the threshold test for administration (“is or is likely to become unable to pay its debts”) could be satisfied in circumstances where CL and Mr Dong are arguing that the company is solvent. Mr Ashworth submitted that there was no inconsistency here: the criterion is satisfied because as things stood the company needed to win the Tax Appeal in order to be in a position to pay its debts. 2) SOCA’s objection to the proposed administrator, as chosen by Mr Dong. 3) Whether it would be appropriate to hand the company back to the director, Mr Dong, even for the potentially short period before an administration order could come before the court, in the light of the evidence relating to CL’s activities, its customers’ activities, and the way the company has been managed (see paragraphs 15 to 20 above). In relation to these aspects Mr Ashworth submitted that they were in any event irrelevant as his client was not seeking the return of the company to its director.

Ground 2

[47]As regards ground 2, it is submitted by Mr Ashworth that absent the issue relating to payment of the undisputed sum (about £208,000) Registrar Derrett would not have made the winding up order. He submits that on a proper analysis of the evidence Mr Defty should have concluded when he was provisional liquidator, i.e. before the winding up order, that the £504,000 held by him belonged to CL and was available for distribution to its creditors, and he should have paid the undisputed amount to SOCA out of that fund, or if necessary applied to the court for permission to do so, without the need for any request from CL or Mr Dong. This would have avoided the non-payment of the undisputed sum becoming an issue before Registrar Derrett, and the winding up order would not have been made.[48]In my view this argument has little substance. It was inevitable that non-payment of the undisputed sum would be an issue before Registrar Derrett. Despite what Mr Dong says in paragraph 16 of his second witness statement dated 21st July 2013 (“…given the finding of the learned Registrar as to the monies held by the PL being in effect client monies…”), in fact the Registrar did not make any finding about the ownership of the £504,000, still less did she find that this sum represented client funds. However, I do not see how in the circumstances she could possibly have concluded that the funds in question were available to satisfy the undisputed sum. Prior to the winding up order Mr Georgiou had unequivocally informed the provisional liquidator that according to his client, Mr Dong, the £504,000 held by the provisional liquidator was not CL’s money but belonged to clients. In an email dated 14th November 2012 to the provisional liquidator’s office Mr Georgiou stated:
“With regard to cash at bank, we have been advised by our client that this relates to client moneys and is not an asset of the Company.”
[49]In his second witness statement, filed after the winding up, Mr Dong states that he did not so inform Mr Georgiou, and Mr Georgiou states in evidence that when he wrote the email to the provisional liquidator he had misunderstood what Mr Dong told him. Regardless of whether such a mistake is likely, Mr Dong appears to put the matter no higher than stating that “there are good grounds for believing that [the funds] are assets of CL”. (See paragraph 18 of his second witness statement). Further, before me it was submitted on behalf of CL/Mr Dong that in the event that the winding up order was rescinded and an administrator appointed, the latter would then have to “undertake a proper investigation as to whose money this really is” (see the applicants’ skeleton argument, paragraph 48, in which it was also submitted that “the available evidence points unequivocally towards these being CL’s monies not client monies”). CL/Mr Dong therefore seem to blow hot and cold on this point. A further example of their ambiguous position on ownership of these monies is that at the hearing before Registrar Derrett on 21st June 2013 counsel then appearing for CL stated:
“…there is an additional problem that, based on the provisional liquidator’s first witness statement, he identifies in the company account a sum in the region of £500,000. It does appear that Registrar Baister was also concerned about that and it does raise the question as to whether the Company is, on this narrow issue, balance-sheet insolvent. But the Company says we do not need to go there because, in fact, the amounts are all disputed.”
As far as the funds seized by the police are concerned, CL/Mr Dong continue to argue that these are beneficially the property of third parties.[50]Equally problematically, the petitioning creditor has always maintained (and continues to do so) that the fund of £504,000 held by the liquidator represents clients’ money.[51]In these circumstances it is simply unreal to suggest that the provisional liquidator ought at that stage to have paid SOCA the undisputed sum out of the £504,000 which he held, or ought to have sought the court’s permission so to pay in the face of SOCA’s objections and in the absence of any request from CL/Mr Dong to make payment. The company’s financial adviser was telling the provisional liquidator unequivocally and ostensibly on the instructions of the company’s sole director and shareholder, that the money did not belong to the company, and the petitioning creditor (and by far the largest one) was saying the same thing. Had an attempt been made to pay SOCA it is perfectly possible that the payment would have been refused, and that had the provisional liquidator sought the permission of the court SOCA would have opposed the application.[52]It is nothing to the point that, following the winding up order and having had the opportunity to make a fuller investigation, the liquidator has since concluded that the funds in question belong to CL and are available to satisfy the debts of the creditors. Registrar Derrett was well aware that the ownership (and availability for distribution to creditors) of these funds would need to be resolved and she must therefore have contemplated that that question could be resolved either way i.e. in favour of either CL’s or its clients’ beneficial ownership. See for example paragraphs 8 and 9 of the learned Registrar’s judgment. But neither the liquidator nor Registrar Derrett was in a position to reach that conclusion at the time the winding up order was made, for the reasons I have explained. Even now the issue of ownership may not be regarded as finally resolved in view of the concerns of SOCA.[53]Accordingly I do not accept Mr Ashworth’s submission on this ground, namely that the payment of the undisputed sum should not have been an issue before Registrar Derrett.

Conclusion on rescission application

[54]It follows that neither ground of rescission relied upon is made out. The application therefore falls at first base. For the reasons I have endeavoured to set out, the applicant has not satisfied me that either the third party offer or the issue relating to payment of the undisputed sum, whether taken singly or in combination, represents circumstances which are either exceptional or materially different from those which were before Registrar Derrett. In any event the applicants have made no headway in seeking to persuade me (the burden being on them) that it would be appropriate to exercise a discretion to rescind the winding up order in this case.

The stay application

[55]In the event that the application for rescission fails, CL seeks a stay of the winding up order under section 147 of the Insolvency Act 1986, until the appeal to the Tax Tribunal is determined.[56]It is submitted by CL that if no stay is granted there will be irremediable damage to CL (and to Mr Dong as contributory if there should be sufficient monies available to provide him with a return), on the basis that the Tax Appeal will be discontinued and the assessments of unpaid tax will not be challenged.[57]CL submits that if a stay is granted there will be no prejudice to SOCA. The liquidator would remain in place as provisional liquidator, CL would not be trading, and if the Tax Appeal was unsuccessful the stay would be lifted and the winding up would continue. If it was successful, the court could rescind the winding up order on the ground that there was an exceptional new circumstance namely that the petition debt was not due.[58]SOCA resists the application. Ms Frazer submits in summary that it is not the court’s practice to stay a winding up pending an appeal to another tribunal. She refers in that regard to the case of In Re A and BC Chewing Gum Limited [1975] 1WLR 579. Further, having regard to the principles set out in In Re Calgary and Edmonton Land Company Limited [1975] 1WLR 355, Re S N Group Plc [1993] BCC 808, and Telescriptor Syndicate [1903] 2Ch 174, she submits that none of the factors generally considered by the court in such an application is satisfied, with the single exception that the only member of CL (namely Mr Dong) does consent to a stay.[59]SOCA also submits that a stay is not in the interests of the creditors – it is not clear that there are sufficient funds even to pay the undisputed sum; SOCA did not agree to a stay and there is no evidence that the other creditors (whose claims amount to the sum of £70,000 to which I have referred) have agreed; nor was it in the public interest to grant a stay – the investigation into this company’s affairs, and in particular into whether it has been involved in money laundering or tax evasion, should continue; if there were any merit in the Tax Appeal then the liquidator would have a legal obligation to pursue it. The fact that he has decided there is no merit is not a reason to stay the winding up.[60]I agree with Mr Ashworth that there is little force in the proposition that the court should not grant a stay of the winding up simply because it is not the practice of the court to do so on the ground that an appeal is pending in another court. If the jurisdiction exists (which is not disputed) then it must be exercised judicially without reference to any fettering as a result of past practice.[61]Nevertheless in all the circumstances I am satisfied that it would not be appropriate to grant a stay in the present case.[62]CL is correct in stating that, if the winding up continues, the liquidator will not pursue the Tax Appeal. Mr Defty has made his position clear in evidence, and this has been reaffirmed by Mr Curl on his behalf at the hearing before me. In his second witness statement Mr Defty said:
“On the basis of my investigation and the evidence I have seen in Credit Lucky’s books and records, I believe that Credit Lucky has no basis for continuing to dispute the tax assessment.”
This was reiterated in his report to the court of 20th August 2013:
“On 14th August 2012 I estimated the Company’s annual turnover in 2010 at about £4,800,000. This implicitly created a corporation tax liability in excess of the amount stated on SOCA’s winding up petition. I reached this conclusion after carrying out a sampling exercise based on a week’s analysis of commissions from one of the Company’s six office premises. Paragraphs 43-51 of my first witness statement describes a clear methodology for this based upon a review of the information available at the time. Sampling was conducted for reasons of proportionality and without the benefit of either (1) management accounts (since they were not contained in the Company’s books and records); (2) hard drive and other information retained by the police until October 2012; (3) the cooperation of the Company’s director Mr Dong; and (4) additional servers now said to be located in China. On the basis of this information, I revisited this initial calculation in my second witness statement on the basis of information available to me on 17th January 2013, which included a large amount of records and hard drives originally retained by the police. My original conclusion remains unchanged.”
The applicants dispute the liquidator’s methodology and conclusions, and the liquidator responds to this criticism. The written evidence contains a debate between Mr Defty and Mr Dong/Mr Georgiou on this issue, the details of which it is not necessary or appropriate for me to record for the purposes of this application.

Sampling was conducted for reasons of proportionality and without the benefit of either

[63]The fact remains that the liquidator is under a legal and professional obligation to act independently and to take all reasonable steps to maximise and recover the assets of CL for the benefit of the creditors generally. It is wholly within the scope of that obligation for the liquidator to decide whether to pursue legal proceedings in the name of the Company in liquidation. In the present case the liquidator has decided that the Tax Appeal is without merit and that he will not pursue it.[64]If CL (or any other interested party such as Mr Dong) is of the view that the liquidator is wrong in the view he takes about the merits of the Tax Appeal then it is open to them to apply to the court for a direction which would enable them to prosecute the Tax Appeal in the name of the company or the liquidator. That being so it is difficult to see how – on the assumption that there is, contrary to the liquidator’s view, some merit in the Tax Appeal - the refusal of a stay would result in irremediable loss to CL/Mr Dong.[65]For the court to stay the winding up would, in my view, be disproportionate given that the only purpose of the stay would be to enable the CL/Mr Dong to pursue an appeal – a result which could be achieved by another, less drastic, route if the court thought it appropriate to make a direction.[66]For the avoidance of doubt nothing I have said should be taken as encouraging any application to the court for a direction enabling CL/Mr Dong to continue the Tax Appeal, or as indicating any view whatsoever of the likely outcome of such an application. It is clear that in such a case substantial grounds would need to be shown to persuade the court that a liquidator’s assessment of the merits was wrong.[67]Further, I do not agree that a stay would not prejudice SOCA. The stay of the winding up order would inevitably hinder if not totally obstruct the liquidator’s investigation of the affairs of the Company, with inevitable delay in the process.[68]For these reasons I decline to grant a stay of the winding up.

Application for permission to appeal

[69]As stated at the beginning of this judgment, I was invited to consider and rule upon the rescission and stay applications before considering CL’s application for permission to appeal against the winding up order. The parties’ skeleton arguments dealt with the application for permission to appeal, and in the course of oral argument much of the ground relevant to that application was covered by both sides.[70]In these circumstances although no oral submissions were specifically directed to the application for permission to appeal, it would be possible to deal with that application “on the papers” and without a further hearing. The parties are therefore requested to let the court know whether they are content to proceed in that way. If that course were taken a further oral hearing might still be necessary, depending on the outcome of the application for permission.

Cited in 3 later judgments