Woman Who Helped Friend to Defraud Creditors Hit Hard in the Pocket

July 17, 2019

Helping friends in financial trouble is one thing, but assisting them in defrauding their creditors is quite another. In this case, a woman who came to the dishonest aid of a businessman facing bankruptcy was herself hit hard in the pocket.

Outline of the case

The woman was sole director and shareholder of an entirely asset-free company.  The businessman, a long-standing friend, transferred a residential property to the company for £550,000. She made no contribution to the purchase price and the transaction was funded by a number of loans, or purported loans, to the company. The transfer took place a few months before the businessman was declared bankrupt.

For a time the property was leased back to the businessman and his cohabitee, but was later sold for £899,000. Most of the money was paid to the lenders, or purported lenders, but £250,000 was remitted to the businessman’s trustee in bankruptcy in settlement of his claim that the original transaction had been at an undervalue.

When the company was wound up, it had substantial unpaid debts, including a liability to HMRC of over £100,000. As a result of this, the company’s liquidator issued proceedings against the woman, alleging fraudulent trading, misfeasance and breaches of her fiduciary duties as a director.

The liquidator claimed that the businessman was the property’s beneficial owner and that the woman had acted as his knowing front. She accepted that the business of the company was carried out with intent to defraud creditors, but claimed that, as a result of her lack of commercial experience she had been duped by the businessman.

What was the outcome?

In upholding the liquidator’s claim, the High Court found that the woman was a knowing party to an attempt to defraud the businessman’s creditors by putting the property and the proceeds of its sale beyond their reach. She was aware of his impending bankruptcy and, as an intelligent woman; her claimed lack of knowledge was wholly implausible.

In addition she had breached her duties as a director in failing to promote the success of the company, distributing the proceeds of sale in a manner that inevitably led to insolvency and in failing to exercise her independent judgment, having ceded de facto control of the company to the businessman. The Court found the woman liable to pay equitable compensation to the company under Section 212 of the Insolvency Act 1986. The amount she would be required to pay would be assessed at a further hearing.

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Pantiles Investments Limited & Anr v Winckler. Case Number: CR-2015-007093