"I will express the opinion that the words 'defraud' and 'fraudulent purpose,' ... are words which connote actual dishonesty involving, according to current notions of fair trading among commercial men, real moral blame."
“Miss Hoffmann, who appeared for Mr Monti and Mr Bernasconi on this appeal as she did in the court below, pointed out, correctly, that not every fraud or fraudulent misrepresentation perpetrated by a company amounts to fraudulent trading under section 213 of the 1986 Act. That was made clear by the observations of Mr Justice Oliver in In re Murray−Watson Ltd (unreported;6 April 1977 ) which are cited and explained by Mr Justice Templeman in In re Gerald Cooper Chemicals Ltd[1978] Ch 262 , 267. In the former case Mr Justice Oliver had said this, of what was thensection 332 of the Companies Act 1948 (the statutory predecessor of section 213 of the 1986 Act): [The section] is aimed at the carrying on of a business . . . and not at the execution of individual transactions in the course of carrying on that business. I do not think that the words ‘carried on' can be treated as synonymous with ‘carried out', nor can I read the words ‘any business' as synonymous with ‘any transaction or dealing'. The director of a company dealing in second−hand motor cars who wilfully misrepresents the age and capabilities of a vehicle is, no doubt, a fraudulent rascal, but I do not think he can be said to be carrying on the company's business for a fraudulent purpose, although no doubt he carries out a particular business transaction in a fraudulent manner." In Cooper Chemicals , Mr Justice Templeman accepted that analysis. He said this (ibid, 267g −h ): In the example given by Oliver J [in Murray−Watson ] the dealer was carrying on the business of selling motor cars. He did not carry on that business with intent to defraud creditors if he told lies every time he sold a motor car to a customer or only told one lie when he sold one motor car to one single customer. When the dealer told a lie, he perpetrated a fraud on the customer, but he did not intend to defraud a creditor. It is true that the defrauded customer had a right to sue the dealer for damages, and to the extent of the damages was a contingent creditor, but the dealer did nothing to make it impossible for the customer, once he had become a creditor, to recover the sum due to him as a creditor. For my part, I would accept that a business may be found to have been carried on with intent to defraud creditors notwithstanding that only one creditor is shown to have been defrauded, and by a single transaction. The Cooper Chemicals case is an example of such a case. But, if (which I doubt) Mr Justice Templeman intended to suggest that, whenever a fraud on a creditor is perpetrated in the course of carrying on business, it must necessarily follow that the business is being carried on with intent to defraud creditors, I think he went too far. It is important to keep in mind that the pre−condition for the exercise of the court's powers undersection 332(1) of the 1948 Act − as under section 213 of the 1986 Act - is that it should appear to the court "that any business of the company has been carried on with intent to defraud creditors of the company". Parliament did not provide that the powers under those sections might be exercisable whenever it appeared to the court "that any creditor of the company has been defrauded in the course of carrying on the business of the company." And, to my mind, there are good reasons why it did not enact the sections in those terms”
“Section 213 of the 1986 Act is not engaged in every case where an individual creditor has been defrauded. The section is engaged only where the business of the company has been carried on with intent to defraud.”
“Dishonesty as such is not in terms a condition of liability under section 213. But if knowledge of the fraud in either of the senses indicated above is established, Mr Hirst accepts that it must follow that BOI was dishonest.”
“These several considerations provide convincing grounds for holding that the second leg of the test propounded in R v Ghosh[1982] QB 1053 does not correctly represent the law and that directions based upon it ought no longer to be given. The test of dishonesty is as set out by Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan[1995] 2 AC 378 and by Lord Hoffmann in Barlow Clowes International Ltd v Eurotrust International Ltd[2006] 1 WLR 1476 , para 10: see para 62 above. When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual's knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.”
“…of a man who comes from a country where public transport is free, and on his first day here travels on a bus without paying, at para 60: The answer to the court’s question is that dishonestly, where it appears [in theTheft Act 1968 ], is indeed intended to characterise what the defendant did, but in characterising it one must first ascertain his actual state of mind as to the facts in which he did it. It was not correct to postulate that the conventional objective test of dishonesty involves judging only the actions and not the state of knowledge or belief as to the facts in which they were performed. What is objectively judged is the standard of behaviour, given any known actual state of mind of the actor as to the facts.”
“The power under section 213(2) is to order that persons knowingly party to the carrying on of the company’s business with intent to defraud make ‘such contributions (if any) to the company’s assets’ as the court thinks proper. There must, as it seems to me, be some nexus between (i) the loss which has been caused to the company’s creditors generally by the carrying on of the business in the manner which gives rise to the exercise of the power and (ii) the contribution which those knowingly party to the carrying on of the business in that manner should be ordered to make to the assets in which the company’s creditors will share in the liquidation. An obvious case for contribution would be where the carrying on of the business with fraudulent intent had led to the misapplication, or misappropriation, of the company’s assets. In such a case the appropriate order might be that those knowingly party to such misapplication or misappropriation contribute an amount equal to the value of assets misapplied or misappropriated. Another obvious case would be where the carrying on of the business with fraudulent intent had led to claims against the company by those defrauded. In such a case the appropriate order might be that those knowingly party to the conduct which had given rise to those claims in the liquidation contribute an amount equal to the amount by which the existence of those claims would otherwise diminish the assets available for distribution to creditors generally; that is to say an amount equal to the amount which has to be applied out of the assets available for distribution to satisfy those claims.”
“At [55] of his judgment, Chadwick LJ added (again on an obiter basis) that he was not persuaded that there was power to include a “punitive element” in the amount of any contribution ordered under section 213 . He continued: “As I have said, I think that the principle on which that power should be exercised is that the contribution to the assets in which the company’s creditors will share in the liquidation should reflect (and compensate for) the loss which has been caused to those creditors by the carrying on of the business in a manner which gives rise to the exercise of the power.”
“(1) This section applies if in the course of the winding up of a company it appears that a person who— (a) is or has been an officer of the company, ….has misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company. […] (3) The court may, on the application of the official receiver or the liquidator, or of any creditor or contributory, examine into the conduct of the person falling within subsection (1) and compel him— (a) to repay, restore or account for the money or property or any part of it, with interest at such rate as the court thinks just, or (b) to contribute such sum to the company's assets by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just.”
“The Companies Act 2006 codifies the duties of a modern-day director in Chapter 2 of Part 10. The duties include a duty to exercise their powers for the purpose for which they are conferred (s.171 of the Companies Act 2006 ); to exercise the powers in what the directors consider in good faith to be likely to promote the success of the company for the benefit of the members as a whole (s.172)); a duty to exercise independent judgment (s.173); a duty to exercise reasonable skill and care (s.174) and a duty to avoid a situation giving rise to a direct or indirect interest which conflicts, or which might possibly conflict, with the interests of the Company (section 175).”
“… that the collegiate or collective responsibility of the board of directors of a company is of fundamental importance to corporate governance under English company law. That collegiate or collective responsibility must however be based on individual responsibility. Each individual director owes duties to the company to inform himself about its affairs and to join with his co-directors in supervising and controlling them. A proper degree of delegation and division of responsibility is of course permissible, and often necessary, but not total abrogation of responsibility.”
“It has been submitted that a director's duties are "non-delegable". In my judgment the proposition is put too high. A director is entitled to delegate certain duties as long as the delegation is reasonable. There has been some consideration by the courts as to what constitutes reasonable delegation and whether all the powers of a director can be delegated. In Re Barings plc (No 5)[2000] 1 BCLC 523 Jonathan Parker J (as he was) explained that directors have a collective and individual duty to maintain sufficient knowledge and understanding of the company to enable them to discharge their duties. The delegation he spoke of concerned specific duties rather than a delegation of all duties. Accordingly, exercising the power of delegation "does not absolve a director from the duty to supervise the delegate's discharge of the delegated functions". The determination of reasonableness is fact sensitive. Such matters as the relationship between the one delegating and the one to whom power is delegated is an obvious and important factor. The nature of the tasks delegated, and whether the individual is qualified and trusted to undertake those tasks are other factors.”
“... each company within the corporate group is a separate legal entity and the directors are not entitled to sacrifice the interests of that company for the benefit of the group. But it does not follow that the absence of separate consideration ipso facto means that the directors were in breach of their duty.”
“(1) the directors of a company must not approve accounts for the purposes of this Chapter unless they are satisfied that they give a true and fair view of the assets, liabilities, financial position and profit or loss— (a) in the case of the company's individual accounts, of the company;”
“(4) “If annual accounts are approved that do not comply with the requirements of this Act, every director of the company who— (a) knew that they did not comply, or was reckless as to whether they complied, and (b) failed to take reasonable steps to secure compliance with those requirements or, as the case may be, to prevent the accounts from being approved, commits an offence. (5) A person guilty of an offence under this section is liable— (a) on conviction on indictment, to a fine; (b) on summary conviction, to a fine not exceeding the statutory maximum.”
“Where the only manner of enforcing performance for which the Act provides is prosecution for the criminal offence of failure to perform the statutory obligation or for contravening the statutory prohibition which the Act creates, there are two classes of exception to this general rule. The first is where upon the true construction of the Act it is apparent that the obligation or prohibition was imposed for the benefit or protection of a particular class of individuals, as in the case of the Factories Acts and similar legislation As Lord Kinnear put it in Butler (or Black) v. Fife Coal Co. Ltd. [1912] A.C. 149 , 165, in the case of such a statute: “There is no reasonable ground for maintaining that a proceeding by way of penalty is the only remedy allowed by the statute... We are to consider the scope and purpose of the statute and in particular for whose benefit it is intended. Now the object of the present statute is plain. It was intended to compel mine owners to make due provision for the safety of the men working in their mines, and the persons for whose benefit all these rules are to be enforced are the persons exposed to danger. But when a duty of this kind is imposed for the benefit of particular persons there arises at common law a correlative right in those persons who may be injured by its contravention.”
“(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action— (a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy;”
“The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence. Deliberate physical injury is usually less likely than accidental physical injury. A step-father is usually less likely to have repeatedly raped and had non-consensual oral sex with his underage stepdaughter than on some occasion to have lost his temper and slapped her. Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation. Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established. Ungoed-Thomas J. expressed this neatly in In re Dellow's Will Trusts [1964] 1 W.L.R. 451 , 455: "The more serious the allegation the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it." This substantially accords with the approach adopted in authorities such as the well-known judgment of Morris L.J. in Hornal v Neuberger Products Limited[1957] 1QB 247 . This approach also provides a means by which the balance of probability standard can accommodate one's instinctive feeling that even in civil proceedings a court should be more sure before finding serious allegations proved than when deciding less serious or trivial matters.”
“It does not seem to me that the law is now much in doubt. It is encapsulated in the following passages from Lady Hale’s judgment in Re B, which, though stated to be applicable to care proceedings are, I think, of more general application in civil proceedings:- “Lord Nicholls’s nuanced explanation [in Re H] left room for the nostrum, “the more serious the allegation, the more cogent the evidence needed to prove it”, to take hold and be repeated time and time again in fact-finding hearings in care proceedings” … My Lords, for that reason I would go further and announce loud and clear that the standard of proof in finding the facts necessary to establish the threshold under section 31(2) or the welfare considerations in section 1 of the 1989 Act is the simple balance of probabilities, neither more nor less. Neither the seriousness of the allegation nor the seriousness of the consequences should make any difference to the standard of proof to be applied in determining the facts. The inherent probabilities are simply something to be taken into account, where relevant, in deciding where the truth lies. …” “As to the seriousness of the allegation, there is no logical or necessary connection between seriousness and probability. Some seriously harmful behaviour, such as murder, is sufficiently rare to be inherently improbable in most circumstances. Even then there are circumstances, such as a body with its throat cut and no weapon to hand, where it is not at all improbable. Other seriously harmful behaviour, such as alcohol or drug abuse, is regrettably all too common and not at all improbable. Nor are serious allegations made in a vacuum. Consider the famous example of the animal seen in Regent’s Park. If it is seen outside the zoo on a stretch of greensward regularly used for walking dogs, then of course it is more likely to be a dog than a lion. If it is seen in the zoo next to the lions’ enclosure when the door is open, then it may well be more likely to be a lion than a dog.”
“[t]he claimant does not have to plead primary facts which are only consistent with dishonesty. The correct test is whether or not, on the basis of the primary facts pleaded, an inference of dishonesty is more likely than one of innocence or negligence. As Lord Millett put it, there must be some fact “which tilts the balance and justifies an inference of dishonesty”
“The 15 properties had been held for redevelopment and, whereas most had planning consent to be developed, no works had been undertaken prior to the refinancing.”
“Mr Booth, honestly and reasonably believed that the restructuring of the Demi [Mr Ramadan] Loans would provide an exit route for Mr Ramadan and his associates from the financial difficulties they had been experiencing as a result of the financial crisis”
“As discussed further below the effect on the bridging industry in making new loans was to exercise extreme caution because they would now be lending into a falling market. As such, they would lend for shorter periods at lower LTVs. In relation to loans made before the financial crisis struck (i.e. pre September 2007, when problems emerged at Northern Rock), these would usually have matured during 2008 and bridging lenders would have been looking on with concern as they saw their LTVs being eroded by the falling market. Further, the market information to which I refer, below, was published on-line at the time and publicly available. I believe that this is relevant when I consider statements made in the Information Memoranda. Lending in a falling market is difficult because the Market Value of a property being financed is at risk of falling during the life of the loan, notwithstanding the fact that the property may have been improved and/or refurbished during the same period. In addition, lenders will generally be more risk adverse and will therefore apply lower LTV requirements. This means that borrowers get hit with a combined disadvantage of lower valuations and lower LTVs which will restrict the amount they can borrow. Frequently properties are initially purchased with a bridging loan and then refinanced with longer term debt once completed and/or let. Hence, one of the key factors for any borrower is the availability of finance for the long-term refinancing of a bridging loan, for example, when a refurbished property is let out and the borrower seeks a BTL mortgage. The same applies where a borrower wishes to sell the property and the buyer is relying on finance from another lender to complete the purchase. If such finance is in short supply, it will usually take a long time to arrange and/or is only available at a lower LTV and at a greater cost compared LTVs/costs in a more competitive rising or stable market; this in turn affects the price that the prospective buyer can afford to pay. This in turn drives the Market Value down and means that the LTV upon which the bridging lender’s loan was originally advanced and secured, is substantially eroded. Many of the property lenders working in 2008 had direct experience of the recession of the early 1990s and knew how sharply values could fall and how quickly demand could evaporate. Accordingly, many property lenders viewed the events of late 2007 and early 2008 with trepidation and consequently exercised tremendous caution in their dealings. The Bank of England expressed the view that the level of caution being exercised could, itself, become a self-fulfilling prophecy and could contribute to market problems.”
“At the times the properties were acquired, the purchase prices were “full” for the market. In some instances, it appears that the borrowers had bid for the sites at a premium level and hoped to recoup sums, either by hoping for a continued rise in the sales market throughout the development period, or by reducing the development costs to a lower level. If either, or both, of these options were not to come about, the profit margins would be severely eroded at these purchase prices. My valuations of each site at the date of acquisition are generally slightly below the purchase prices. I was asked to address two specific issues, which I summarise below (a) what movement was there in the prices of property of their type between mid-2007 and the start of 2010 (i) in England or the UK generally; and (ii) in the localities of those properties? There was a dramatic downward movement of both the residential housing market and the commercial investment market between mid-2007 and 2010, caused largely by the onset of the “credit crunch”, itself triggered by an over exposure to sub-prime residential lending in the US. This was very widely reported in the mainstream media at the time, and also in the specialist property and banking media. The property sector was one of the worst affected parts of the economy, owing to the large amount of debt that had been secured against property in the five years prior. With the onset of the credit crunch, most banks recalled whatever loans they could, and debt funding rapidly reduced in availability. In the limited instances that debt remained available, it increased substantially in pricing. Generally, only extremely well capitalised corporates with strong track records could achieve debt funding at all, with property development in many cases coming to a standstill. With capital more expensive, property prices fell dramatically, even for completed and let developments. This was widely reported in both the specialist property press and mainstream media. The worst affected sector was speculative development, which came to an almost complete standstill owing to the lack of debt funding available and the high cost of utilising equity. This was against a backdrop of rapidly falling end values, and steadily increasing build costs, squeezing both developer’s profits and substantially reducing site values. The Market Value of each of the sites fell markedly from the time of its acquisition to the time of its refinance by Tiuta. Any banker active in the market at that time would have expected to see speculative development sites falling dramatically between these periods. I have addressed the market generally in Section 3 of this report, which confirms and clarifies this poor performance. Although many figures and indices were quoted on a national basis, I have also referred to specific indices and data available for the localities of each of the subject properties. Many of the properties were located along the north Kent coast and in the Channel Ports of Kent, which are all depressed areas when compared to most of southeast England. These areas were affected worse than many other parts of southeast England and also took much longer to recover. As with the rest of England, the other subject localities (Ipswich, Northampton, Leicester, and Eastbourne) were also adversely affected.”
“As the properties were all sites, held for development, they were all within the category that was worst affected by the credit crunch. Speculative development schemes such as these were faced with declining end values (gross development value (“GDV”)) against a backdrop of continually increasing building prices (through inflation), together with very limited and much more expensive debt funding. This led to a very marked deterioration in site values and prices and in many parts of the country speculative development came to a complete standstill.”
“At Tiuta, we are of course being affected by the on-going credit crunch crisis. However, there is no reason for alarm. Whilst the market for lenders and bridging companies is becoming smaller we continue to have a full loan book and continue to turn a profit. The effects of the credit crunch have been felt throughout the business from front end sales with an increase [in] enquiries and a decrease in parameters in a shrinking market to choose from and diminishing exit routes to be considered in underwriting. We are also feeling the effect in back end redemptions where existing clients are finding it harder to redeem in a constantly changing market. This means our funds are tied up longer than we would want and has a direct effect on accounts. This will inevitably lead to a higher level of problematic loans and therefore more work for the legal department which is also under pressure to maintain our relationships with our subordinated lenders. We have been adjusting our lending criteria accordingly and have stepped up our underwriting procedures …”
“The fund although being more expensive than our historic lenders, is now crucial to the ongoing survival of the Company given the attitude of our banks.”
“AS OF TODAY WE DO NOT EXCEPT [sic] ANY MORTGAGE ARREARS WHATSOVER. CURRENT CASES AGREED WILL BE HONOURED SUBJECT TO A SECOND APPRAISAL BY UNDERWRITING.”
“[W]e too are looking to cover our funds by offering 12 month terms with an absolute maximum LTV of 65% […] We require a valuation instructed by us – NO RE-TYPES – and a demonstrated exit route in place (please use your heads with this … if someone tells you they will re-finance in 2 months with Birmingham Midshires they are lying … BM only re-finance after 6 months) […] It’s our job to lend money – not sit on it … where there is a will there is a way (within reason)!”
“I did not design or work on the setting up of the Connaught Asset Management Fund except if I was asked by Steven Nichols, Tim Nichols or later Adam Reed for specific detailed information within my field of expertise. Nigel Walter, Mike Davis, Steven Nicholas, Tim Nichols and possibly other people did this from CAM who I did not know or ever meet. I looked at it purely from the sales and product perspective plus cost of funds for product design.”
“The fund although being more expensive than our historic lenders is now crucial to the ongoing survival of the Company given the attitude of our banks. […] Going into the 2009 the utilisation of the fund and maintaining the relationship with Connaught and Capita remains key. We have to use funds in the short term to maintain the relationship with our other lenders and provide cash for the business, however one of the crucial tasks for management will be to time the marketing and sales of the new fund products as the clean up of older loans comes to an end, this will keep the fund utilised and also mean lower LTV loans and loans more likely to redeem quickly will improve the statistics for the Fund administrators and investors.”
“The Guaranteed Low Risk Income Fund”
“Risk Warning An investment in the Limited Partnership or the Exempt Unit Trust involves a degree of risk. Investment results may vary substantially over time. When reviewing historical performance data in this Information Memorandum, prospective investors should bear in mind that such information is not indicative of future performance. Certain information in this Information Memorandum represents or is based upon forward looking statements or information. The Operator believes that such statements and information are based upon reasonable estimates and assumptions. However, forward-looking statements and information are inherently uncertain and actual events or results may differ from those projected. Therefore, undue reliance should not be placed on such forward-looking statements and information. Throughout this document, reference is made to `very low risk` `low risk` and `medium risk’. Such terms are used with the specific meanings as set out on page 12 of this document and should not, therefore, be considered, or relied upon, as having a generic meaning.”
“With increasing volatility in world-wide markets, Connaught Asset Management was formed in February 2007 to research and offer investment opportunities directly into the investment market based and secured against tangible assets to minimise investment risk and offer investors and institutions innovative ways to diversify their asset portfolios. The current conditions in the lending market have resulted in an increase in the time it takes to obtain a mortgage; traditional mortgage lenders have increased their credit and affordability checks, meaning that the time between applying for a mortgage and obtaining funds is longer. Equally a number of businesses may wish to exploit a market opportunity to acquire a property more quickly than it takes to process a traditional mortgage application. This has resulted in growth in demand in the ‘bridging’ finance market and this Fund has been developed to offer potential investors the opportunity to invest money directly into the bridging loan market with a guaranteed annualised income paid quarterly in arrears from 8.15% to 8.5%, depending on investment levels, with any monies lent being secured as a first charge on the property made in favour of the Limited Partnership. Bridging loans charge a premium interest rate typically between 1.25% and 1.4% per calendar month which is based on the speed the loans are required by a third party and not only on the risk profile of the loan itself, which is designed to be a very low or low-risk investment, based on strict investment rules. Initial interest costs and charges made on a bridging loan are taken from the loan up front by deducting from the gross loan, which further reduces the lending risk. In addition, the interest paid out to investors will also be guaranteed and underwritten by the Specialist Partner to the Limited Partnership. The combination of a relatively high guaranteed income from The Fund, one month’s notice to withdraw monies and with all loans secured against a property makes this potentially a very attractive investment proposition for the investor market. Internet searches suggest that the best rates achievable from long-term savings accounts are less than 6.5%. (Source: Moneyfacts.co.uk (26/3/08)). All interest monies will be paid to investors quarterly in arrears and will be paid on the first working day of January, April, July and October. After an initial minimum investment period of 6 months, investors can withdraw their money from The Fund giving one calendar month’s written notice. Historically property as security for lending has been low risk and remains so. House prices have increased from an average of£85,879 in Jan 2001 to£196,649 in February 2008, and have shown no annual decreases of 10% or more in the last 20 years. (Source: Property Prices: Halifax Price Index March 2008). Bridging finance is offered as a percentage of the market value on which it is secured and will cover a maximum of 80% of the value of a property to ensure that the bridging monies are protected in the event of any loan default.”
“To March 2008 Tiuta Plc has made 721 loans (542 of which have redeemed), and has never failed to claim back the full capital amount lent on any of the loans. This is a reflection of its low risk lending criteria detailed on page 16. The annual value of the loans provided has risen from just over£1 million at the end of 2004 to£117 million at the end of 2007. The number of loans made annually in the same period has risen from 6 to 374 per year. The default rate (being when the loan is unable to be repaid and Tiuta has exercised its first charge and taken possession of the property) remains at less than 1%. Tiuta Plc. is authorised and regulated by the Financial Services Authority for the conduct of mortgage business in the UK. The Guaranteed Low Risk Income Fund, Series 1, has been developed to make this market accessible directly to investors whilst reducing risk levels through: strict lending criteria; independent valuation of any asset lent against; secondary valuation by the Specialist Partner; investment diversification; a first charge secured against the asset; title insurance to protect against third party negligence with regards to the title; using a Limited Partnership structure so the beneficial ownership of the first charge and income guarantee remains with the investors and the guarantee from the Specialist Partner for all interest monies due to The Fund.”
“From an investment perspective, the high rates of interest charged reflect the speed of the loan and not only on the risk profile of the loan, which potentially offers an excellent low risk investment opportunity for investors. Bridging finance is a very low risk lending business because it rarely allows the lending to be more than 80% of the valuation for mortgage purposes of a property (a higher percentage lending is only allowed when the borrower has a guaranteed exit route). Interest and fees deducted up front normally reduce the net amount lent to nearer to 75%. Because of its short term nature of between three and six months, property values would have to fall by more than 20% in the corresponding period for the loan not to be secured against a tangible asset. Therefore, in the worst case scenario that the property is repossessed, the full loan amount should still be recovered. If the full amount is not recovered, Tiuta Plc has a legal obligation to repay the original investment to all investors.”
“Bridging finance is best explained through the use of an example. Take the example of a property investment company which has purchased a prime development property at auction for£500,000 . The majority of the property investment company’s equity is being effectively used in other projects and they require quick funds to complete the purchase within fifteen days or forfeit their deposit. A further£70,000 is needed to refurbish the building. The available equity has covered the deposit and can fund some of the purchase price -£150,000 in total; a further£350,000 is needed to complete the initial transaction. The developers’ high street bank cannot release funds within the timeframe required, so a bridging loan is utilised. The current value of the property is£500,000 and expected value once refurbished is£750,000 . Initial funding of£400,000 constitutes 80% of the value of the property as is, and total development funding of£420,000 is 56% of the expected value on completion. Because the developer has a clean credit rating and the loan to value ratios are acceptable the loan is provided. The project is completed in 3 months and the property sold at a healthy profit; the money lent by the bridging loan is then re-paid plus interest and fees.”
“The majority of loans will be to fund a property purchase with a short completion deadline, to fund a short term renovation or project or to refinance to raise capital. All loans will be secured with a first legal charge over one or more properties that will be registered to the Limited Partnership for the duration of the loan. The Fund will seek to reduce risk by ensuring that not more than 15% of the total lending of The Fund is to any single loan after the first six months of The Fund opening date. Each individual will have a clean credit record as confirmed through an Experian Credit Report and have a viable exit route to pay back the loan. Only loans in England, Wales and Scotland will be considered, however exposure to any one geographical area will be managed. The Specialist Partner and Asset Manager will assess the property market and avoid areas in which there is a perceived risk of a material fall in property value during the loan period. Areas in which property prices are expected to remain most stable such as the South East of England and areas of Scotland will be looked upon more favourably. Property types are also assessed as part of the lending decision. Certain properties, such as commercial properties, carry greater risk in the current economic market and therefore are subject to greater restrictions or are deemed unacceptable for security purposes. Loan size ranges from£25,000 to£7,000,000 , but must always fall within the ratios of loan to value defined in The Fund lending rules. Regardless of the loan categorisation, all clients must currently be prime borrowers, i.e. have no CCJ’s, no previous loan defaults, and no mortgage arrears or missed credit card payments in the previous 12 months. The Fund is designed to be of Very Low to Medium risk within the above loan to value risk categories. It will seek to lend monies in Great Britain with differing time scales, criteria and risk profiles to fully utilise lending capacity whilst minimising exposure to risk. The targeted risk profile of The Fund is for up to 90% of the available monies to be held in Very Low or Low Risk loans and up to 10% in Medium Risk loans.”
“Very Low Risk Loan to Value < 70%; Low Risk Loan to Value 70% to 75%; & Medium Risk up to 85% (above 80% must have a guaranteed exit route)”
“To maximise the usage of investor funds, it is recognised that the Operator can, if necessary utilise funds for medium risk loans (up to 80% LTV, or up to 85% where there is a guaranteed exit route).”
“My worries are that in the current environment we are almost discouraging new lending so will not be able to utilize large amounts of money without compromising our lending policy. I think the absolute maximum we should be accepting is£5m and the more we can get direct from your contacts Steve the better. We are to pay interests on all monies in the fund, not just those we draw down, and while Nigel’s eyes may be widening at the prospect of the fees he can earn at the end of the day he hasn’t got our best interests at heart. I think that anything over 5m would mean that at the current rates of sales Tiuta may not remain profitable. We should be viewing this as a short term manoeuvring tool rather than a long term source of funds.”
“I have just been told by Josh Martin that Northside has a GDV of 1.45mil but in it’s current state with the underground car park scheme it is worth£113k and without the car park it is worth in the region of£400k . Our loan outstanding on this is£644k – im not sure if there is a mix up or we have been fucked but im sure all will come to light once we get all the reports in as this is only an indication on value verbally. If you talk to Demi tell him he isn’t getting any money this week because we need to look at the whole picture because I think we might have a few shocks!!!”
“In February 2009 the property was valued by SE Surveys at£1,365,000 , almost three times the purchase price and over twice the internal valuation. It was 82% higher than the DDuff valuation of 15 months prior, although no works had been undertaken at all. By this time, however, the market had dropped substantially, which is illustrated both by comparable transactions evidenced and HMLR statistics.”
“In February 2009 Tiuta refinanced the loan at£1,023,750 at an interest rate of 1.75% per calendar month. I have appraised of Northside to reflect the actual position that Tiuta put it in with the new loan. I have used the amount of actual loan made,£1,023,750 , as the day-one site cost. As Tiuta charged, I have added an arrangement fee at 1.00% of the loan amount, together with a provision of the cost of legal fees on the loan at£700 . I have then calculated the development taking place with interest charged at 1.75% per calendar month (23.14% pa), the amount charged by Tiuta. On this basis, on completion the Northside development would show a total loss of£1,018,599 , with the total costs (including the construction costs, fees, loan capital and interest payments) at£2,418,599 , compared to a projected GDV of£1,400,000 . Undertaking appropriate analysis of the proposals and financing, Tiuta would have known that their refinanced loan placed too high an obligation on to Northside in terms of the amount of debt to service and the cost of servicing the debt, such that any development of Northside was entirely hopeless.”
“Gary requires this out of Laiki by the end of this week to ensure we retain our facility”
“Whilst looking at Top Introducers for Lisa on MPS, I looked at Demi’s deals, as Lisa is looking for the amount that any one introducer has passed to us this financial year. You may wish to be aware of the following loans for Demi that are still outstanding according to MPS. The figures shown are the original gross loan amount:- Karashialis£ 348,500 Brinson£ 361,250 Brinson£ 408,000 Brinson£ 680,000 Brinson£ 612,000 Brinson£ 497,250 Brinson£1,606,500 Brinson£ 616,250 Brinson£ 305,150 Brinson£ 204,000 Brinson£ 800,000 Brinson£1,335,000 Brinson£ 752,250 Artimades£ 637,500 Artimades£ 259,250 Patel£ 784,000 Patel£ 561,000 Patel£ 216,000 Kyriacou£ 285,000 Kyriacou£ 212,500 Kyriacou£ 670,000 Ramadan£1,100,000 Swann£ 238,000 Swann£ 471,000 Swann£ 714,000 ____________ TOTAL£14,674,400 ____________ The following deals have redeemed and are not included in the above figures:- Karashialis£ 238,000 Brinson£ 221,000 Brinson£ 782,000 Green£ 750,000 Green£ 427,000 Green£ 561,000 Green£ 595,000 Green£ 382,500 Green£ 304,000 Hassan£ 212,500 Hassan£ 272,000 Satanas£1,105,000 Swann£ 255,000 __________ TOTAL£6,105,000 __________ Whilst this means a whopping£20,779,400 worth of business from Demi, he still has£14,674,400 outstanding. Also, we shouldn’t put any more deals in Sally Brinson’s name for a while as she is already well exposed.”
“I am re-financing another one in the name of Khan... it is one of Brinsons properties and she owes£270k odd and the val is£495k so we will be able to release him some cash but more importantly I want to retain some cash for us to cover the massive deficit looming! It wont be a lot to hold back, but I will agree once I see the redemption statement that we give him half the cash – he will take anything at the moment and has also confirmed there are others that he can chuck into new names and pull a bit of cash out of. I am not doing any favours on new deals for him so 70% is his max with interest deducted... he has more than he lets on, that’s why its so hard to get A & L statements out of him!”
“Have a chat and if he wants to proceed we will talk to Demi and get it assigned to us. This will be useful because this is a site which I need to get out of Clydesdale by January and mothball in the fund if Heskew does not get him out.”
“Hi Andy, Mr Mujibur Ibrahim called regarding 38-44 York Street, LE1 6NU (owner Sally Brinson). He found our details on the Land Reg along with Sally Brinson’s. He was enquiring over the possibility of renting the land until such time as development begins. He asked if I could pass the details on to Sally Brinson but as this is one of Demi’s I thought we had better look into it first.”
“this shows us that the borrower had very little money.”
“What these figures suggest very clearly is that more than one-half of the eventual deficit on the Ramadan Loans was already present from the outset of the loans within TIL – which is not surprising given that they followed the financial crisis of 2008 and had been identified as problem debtors, in many cases representing re-financing of earlier unpaid debts. The increase in shortfalls in 2010 and 2011 reflects the continued application of normal monthly interest on the loans, with no evidence of material repayments – as is evident from the analysis within Appendices 6.1 – 6.15.”
“SUMMARY Speaking to Sally they have no money plus most of the workforce has left but will not have a problem getting more staff. Work must be done on the sites that are nearly finished enabling funds to be released with finished product redeemed. I believe No. 1,4,5,6 and No. 2 (being the gem) being worked on first. Number 2 needing about£300,000 -£400,000 .but must have roof done first then things should move quickly. Then No.3 if council agree what has to be done then No.10,11. Number 10 was the only one that had people working on it.
“Steve WARNING - we do not have any spare cash to fund Demi deals. Please be careful and talk to Adam and me before you agree anything.
“Thanks Andy I have tried everything I know with this guy. Maybe time for a fresh look from either Steve or Charles ? He phoned me today with a new offer from the investor of£1.25M , we owe the bank£1.85 !”
“I don’t mean to sound negative but we may have to consider this kind of offer to release us from these properties and the shortfall will have to worked off with any Joint Ventures that we do with Demi. The way the interest is accumulating we will owe more that the properties are worth even in a good market. This is something that is needed to be discuss at Monday Cash meeting (I have already had a discussion with Adam) I don’t like the idea of taking a hit as much as everyone else but we do need act.”
“We took the view 18 months ago to deal with the whole portfolio in the best possible way, which was to get out of existing lenders to avoid withdrawal of facilities and get as much of the shareholder cash out as possible…. It appears this stuff in Margate is no longer saleable or rentable in the open market. I think we will have to agree to let Demi rent to scum bags and use thugs to evict and collect rent. Demi starts his marketing this weekend Andy, do you want to cancel ? The lesson from this is we need to do more research before developing any of his stuff. Better to mothball at lower levels of dept.”
“York Street comprised a cleared site, located close to Leicester city centre in an area where some residential development had taken place. Although the area had been emerging as popular for development, there were still a large number of derelict and semi-derelict buildings and vacant sites. York Street was described in the Belleveue [TIL Valuers] report as being in an established residential and commercial area which had seen a spate of high-quality developments over the previous five years and was one of the more sought after locations within Leicester. Had Tiuta inspected the site, they would have seen that this overstated the position. Being close to the town centre, there was potential for development, however, at the time of the lending, the area was still developing. York Street had planning consent for the development of a five to seven storey building to accommodate 20 x two-bedroom and 4 x one-bedroom flats with semi-basement parking and three further flats fronting Dover Street. Several other buildings on York Street also had planning consent. York Street had been acquired in January 2008 for£1.1 million . At the same time Belleveue valued the property subject to the developments proposals at£1,650,000 , 50% more than the acquisition price of the same time. There was no explanation as to why this should be higher; no work had started on the site. Tiuta undertook an internal valuation as part of a credit review on14 January 2008 , which placed a value of£1,400,000 on York Street, 27.3% above the acquisition price, but 15% below the Bellevue Valuation. In their SWOT analysis, Tiuta identified the weakness as being 83% LTV, with a handwritten note “price£1,100,000 – lending in excess of this.”
“The deal I negotiated with Demi is outstanding balance at time of loan including ALL penalties will be transfered to the new loans in International. Fees will be added to this and interest rolled up on the basis we take a profit share, register (or best endeavours,OS1's) all Brinson 2nd charges that we have details of plus a new one for Swann. 1% fac fee. 1.75% per month, deffered monitoring fees. Val, admin and legals as per normal. Craig will give copy of val instructions asap to Adam. When vals are in Me Craig and Adam will finalise the deal.
“When we get vals back we'll look at the ones that will release us the most cash. It may be that I prioritise those rather than doing all at once to better manage the fund pipeline.”
“I agree Demi needs controlling. We also need to liquidate our repos and bad dept asap. We also need to increase availability in the fund to transfer some existing clients so as we can release cash. We also need the Andy bar as a matter of urgency. What I am looking at the moment Steve is liquidity which has to be our priority but I must try to balance it with the required ratio's for our lenders.”
“This seems appropriate at this time . it will slow things down until we get demi money back . If we have to finish the works ourselves to move things along with Demi then I think we should . What ever we do for him he always seems to dig a bigger hole for himself . We need to keep out of it. What do you think. I can go down with Andy and get a commercial view on what to do.”
“This whole Demi thing is pissing me off. Its costing us a fortune, there in co-ordination. Martin Please do a spreadsheet of what we have paid, owe on everything related to Demi eg valuers, brokers, building works, gangsters, blow jobs and general shit. Can I have this by close of business on Monday. You may as well include all the outstanding black hole monies not redeemed.”
“Q:But the properties we’re going to sort out, they need to be valued by Glenny’s,” and there are other emails where it actually says, “Go and arrange the valuation.”
“I think Bank of Cyprus are probably close to calling in our loans. Rather than have another panic if they do, I suggest we get Folkestone Road valued, this will allow us to drawdown monies from the Fund to pay of Bank of Cyprus. Admittedly it is only moving the debt but I would feel more comfortable with owing the Fund than having Bank of Cyprus (a) charging us extortionate fees and (b) potentially pulling the funding.
“Ok, what do we owe and what was the last val, by whom and how much for ?
“Sorry I didn’t say the one I want to repay is Golban, not all the remaining. The BoC loan is£959k and 15 months old, I am proposing we use Folkestone Rd to move our debt away from BoC and on to the fund by drawing£959k against the val and get Demi to sign a new facility letter. This means that we have two loans drawn on Folkestone Rd rather than two onPembridge Villas. Like I said it doesn’t solve anything but takes the pressure off of us for hopefully enough time to rectify the situation.
“We confirm that the loan meets the investment criteria for assets to be acquired for the fund, as set out in the investment memorandum for the Guaranteed Low Risk Investment Fund, and complies with Tiuta Plc Credit Policy.”
“need to get it out of Laiki”
“Cash flow is extremely tight at the moment, therefore NO DEVELOPMENT LOANS TO BE SENT OUT WITHOUT AUTHORISATION FROM BOTH MYSELF AND STEVE UNDER ANY CIRCUMSTANCES.”
“Outside Criteria, why? Agreed by who, when?”
“Just thought I would bring to your attention that the new “Demi” deal in Chris Theo’s name – 126 Northdown Road, Margate, has been to Lancashire Mortgage Corporation – there are 2 priorities on – one to Lancashire Mortgage Corp dated17th April 2008 , and one to Blemain Finance Ltd (same group) dated25th April 2008 . There is also a priority on in favour of Georgiou Nichola”
“Interesting Are you sure you want to keep lending to Chris, it is just Demi and know one else is doing it, ALTHOUGH THEY ARE OBVIOUSLY TRYING. If a bridger will not lend what chance have they of a take out ?
“Have spoke to Gary, Steve and Pui and they are happy to lend over the purchase price on this Demi deal as the discount is under 20%”
“Boys We have to refinace two deals out of liaki into the fund 1. 45/47 black bull road folkestone and parkmount . We have a 25% profit share on each of these. Interest rate is 1.75% pcm . Please-restructure asap . Ta
“act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole….”, pursuant to subsection 1.(e) the director must also have regard to: “the desirability of the company maintaining a reputation for high standards of business conduct”
“a. As to (b), the Liquidators contend that the loss should be calculated on the basis that had the Company not refinanced the Restructured Ramadan Loans, the Company could instead have advanced commercially viable loans to creditworthy borrowers which would, almost invariably, have fully redeemed, permitting the Company to re-lend to other creditworthy borrowers. The Liquidators will therefore contend that the contribution should equal, in respect of each of the Restructured Ramadan Loans: (i) the principal advanced by the Company to Ramadan/the Ramadan Associate in fact, less the net realisation made on sale of the relevant property; (ii) interest on the principal in fact advanced by the Company at the rate of, the Liquidators have estimated, 1.4% per month from the date on which each loan by the Company in fact incepted to the date of administration, being5 July 2012 , or (in the event that the hypothetical loan would have remained outstanding for a period of time after5 July 2012 , the estimated date of redemption); plus (iii) a multiple of the fees as typically charged by the Company, which the Liquidators have estimated as£350 per loan, the multiple being based on the time between inception of the loan in fact divided by an average redemption and re-lending time (i.e. “churn rate”) of, the Liquidators have estimated, 332 days; and the facility fee charge, which has been based on an average fee of 1.11% multiplied at the same churn rate. An indicative schedule of the quantum of the contribution sought under this head is at Appendix P, which calculates the overall loss as£18,683,555.22 . The indicative schedule is calculated on the assumptions pleaded above, i.e. that the relevant “churn rate” would have been 332 days, that the fee for each loan would have been£350 , that interest would have been charged at 1.4% per month (though the indicative schedule calculates interest only to5 July 2012 ). The indicative schedule gives credit for professional negligence recoveries made in respect of certain of the loans but does not make any allowance in respect of the extent to which any of the hypothetical loans may have defaulted;”
“What is the quantum of the loss suffered by the Company as a result of the Company making/refinancing each of the Restructured Ramadan Loans? I have reviewed the eventual shortfall on each Ramadan Loan as at5 July 2012 , and the net loan balance (excluding penalty interest) at each balance sheet date. The shortfall applicable at each balance sheet date is individually calculated as the lesser of the eventual shortfall and the net loan balance. The gives me a total shortfall for the Ramadan Loans at each balance sheet date that needs to be deducted from the reported net assets. This gives me shortfall provisions of: a) £(10,654,863) at31 March 2009 ; b) £(17,628,983) at31 March 2010 ; c) £(19,145,454) at30 September 2011 ; and d) £(19,990,358) at5 July 2012 . Based on that summary, the overall shortfall and hence the loss suffered attributable to the Ramadan Loans was £(19,990,358) (paragraph 36).”
“Each of the 15 loans is individually summarised at Appendices 6.1 – 6.15. Data has been lifted from the TIL statements where available, corroborated by loan book transactions, and supplemented by loan book transactions from the “CK - Summarised Access Dimensions”
“The loans that have hit certain trigger points such as missed interest or capital repayments will be brought to the attention of the (credit) committee. When these points are triggered, Arrears Interest and Penalty Interest amounts are credited against the gross loan in balance sheet, as around 80-90% are rebated as an exit route incentive. Tiuta tend to use these penalties as incentives rather than an income stream.”
“The power under section 213(2) is to order that persons knowingly party to the carrying on of the company's business with intent to defraud make "such contributions (if any) to the company's assets" as the court thinks proper. There must, as it seems to me, be some nexus between (i) the loss which has been caused to the company's creditors generally by the carrying on of the business in the manner which gives rise to the exercise of the power and (ii) the contribution which those knowingly party to the carrying on of the business in that manner should be ordered to make to the assets in which the company's creditors will share in the liquidation. An obvious case for contribution would be where the carrying on of the business with fraudulent intent had led to the misapplication, or misappropriation, of the company's assets. In such a case the appropriate order might be that those knowingly party to such misapplication or misappropriation contribute an amount equal to the value of assets misapplied or misappropriated. Another obvious case would be where the carrying on of the business with fraudulent intent had led to claims against the company by those defrauded. In such a case the appropriate order might be that those knowingly party to the conduct which had given rise to those claims in the liquidation contribute an amount equal to the amount by which the existence of those claims would otherwise diminish the assets available for distribution to creditors generally; that is to say an amount equal to the amount which has to be applied out of the assets available for distribution to satisfy those claims. In the present case there is nothing to suggest either (i) that the deception which the judge found to have been practised on Ramac led to the misapplication or misappropriation of the company's assets, or (ii) that the letter of12 November 1993 led Ramac to make a claim in the liquidation that it would not otherwise have had. In my view there was no material on which the judge could have reached the conclusion that it was correct to order contribution of£17,500 , or any other sum.”
“A claim was made for professional negligence in respect of the Dover Street property but the settlement was eaten up by costs. Claims were made against Lorrels [Solicitors]. In respect of conveyancing solicitors, all claims were made that could be. I disagree with SN. We reviewed each and every loan and advanced a claim to the extent possible. Consideration was given and each loan looked at to see if development possible but there was already a Mortgagee in possession and also other security enforced…. No development funding was given for the Restructured Ramadan Loans. The borrowers were long in default and the properties were marketed over 4/5 mth period as is standard practice.”
“The Liquidators therefore seek orders pursuant tosection 212(3) of the Insolvency Act 1986 compelling each of the Respondents to contribute such sum to the Company’s assets by way of compensation in respect of their breaches of duty as the court thinks just. In respect of the breach of duty undersection 172 of the Companies Act 2006 , the Liquidators claim equitable compensation, alternatively damages, in respect of the loss caused to the Company by reason of the Company refinancing the Restructured Ramadan Loans. As regards that loss, paragraph 99(b) and 100 above are repeated.”
“ (1) If in proceedings for negligence, default, breach of duty or breach of trust against– (a) an officer of a company, or (b) a person employed by a company as auditor (whether he is or is not an officer of the company), it appears to the court hearing the case that the officer or person is or may be liable but that he acted honestly and reasonably, and that having regard to all the circumstances of the case (including those connected with his appointment) he ought fairly to be excused, the court may relieve him, either wholly or in part, from his liability on such terms as it thinks fit.”