An Experienced Debtor Outwitted

M Ltd is a family holding company with a significant real estate asset. The company has within it three generations of shareholders, including a number of minors.

A former director but extant shareholder Mr S, caused M Ltd to borrow a seven-figure sum from a bank, secured it on M Ltd’s assets and then gave the money, in effect, to himself/his company. The monies were used it to fund a private school owned by himself and his wife, E Ltd.

Mr S produced a loan agreement between M Ltd and E Ltd his school, however, the only validated signature that we could discover when we worked through the facts was his. The other alleged signatory denied being present and/or signing that document. Although he was a former director, and although obviously the family as a whole had been greatly disadvantaged for a very significant sum of money, Mr S had rights as a shareholder and as part of the family, hence some shareholders were prepared to support him for no apparent commercial reason. Both at Board and Shareholder level it was difficult to be assured of ongoing support when Mr S’s livelihood came under pressure.

M Ltd approached Restitution following some publicity in relation to another case that we had successfully brought against Mr S. The debt was assigned to ourselves. There are a number of good reasons for so doing, not least of which was that stability of the Board of M Ltd could not be guaranteed going forward. Post assignment the torpedo has been locked, loaded and despatched. M Ltd could not recall it as we, rather than they are now owed the debt albeit that the larger part of any recovery by us would go back to M Ltd.

Proceedings were brought by Restitution against Mr S and his company, E Ltd, at which stage Mr S said to us, you are only assignees (assignment being prima facie prohibited by the loan agent relied upon by Mr S) – it was a poor argument for a number of reasons, but insolvency courts like certainty. He also claimed I do not owe Restitution any money, (which was wrong), but if M Ltd asked me for the money my company would have to pay it, and would do so. This was the first admission ever made after years of pressure.

Taking this at face value M Ltd which we had to stabilise by putting our own people onto its Board, together with Restitution, sent E Ltd a joint statutory demand. Mr S had received statutory demands from Restitution Limited on previous occasions. It was met with what one would term the usual obstructions, delays and head in the sand.

Far from turning round and paying the monies over, we were then faced with an application for an injunction in the High Court in London to prevent us proceeding with the petition. That application failed, in the face of stiff opposition from ourselves and M Ltd. This went to a contested hearing at which we prevailed.

Post the failure of Mr S’s injunction application, Mr S deployed a further series of delaying tactics leading to three further hearings – once the writing was undoubtedlyon the wall – we were paid at the last minute – a seven-figure recovery for the client, plus further costs.

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