Case No. CR-2019-LDS-000669

83.LWC was incorporated on 30 September 1987.84.From very early days, each of Nora and Charles was a 50% shareholder of LWC. They each held one of its two issued shares of £1 each. 85.For many years, up and including the accounts for the seven-month period ending 31 October 2002, LWC filed dormant company accounts, showing LWC as having £2 of issued share capital and assets of £2. As at 31 October 2002, Nora and Charles were the two directors of LWC. They had been the two directors of that company for some years.86.In respect of the year ending 31 October 2003, LWC filed abbreviated accounts showing it to have traded, with significant transactions with a related family company, Caprina Limited. The abbreviated balance sheet shows net assets of just over £85,000, with Caprina Limited being a creditor for just over £222,000. Fixed assets of just under £58,000 are shown, having been acquired in that year (the value takes into account a small disposal and depreciation). 87.Although not a director, Lisa was employed by LWC between about June 2005 to 31 August 2010, when Portbond became its holding company.88.In September/October 2006, John became a third director of LWC.89.Portbond was incorporated on 9 March 2009. It was on “off the shelf” company. The two issued shares were transferred one each to Charles and one to Nora in that year and Charles and John were appointed directors in November 2009. According to Companies House, Nora was also appointed a director in November 2009, but the relevant filing was not made until 20 December 2012. She did not appear as a director on the annual return filed for the period ending March 2010. It seems likely therefore that she was only formally appointed in December 2012 but purportedly with retrospective effect.90.On 1 September 2010, Portbond became the holding company of LWC. Two further shares were issued in consideration of the transfer of the shares in LWC. Nora and Charles then became the indirect owners of LWC through their respective ownerships of 50% of the issued shares of Portbond, being two shares each.91.At this point, Lisa became an employee of Portbond until she was initially suspended (in November 2015) and then removed. From February 2014 she was a director of each of the Companies, again until removed in December 2015. 92.Consolidated accounts for Portbond and LWC for the period ending 31 October 2010 show that Portbond did not act solely as holding company but also owned and hired out plant and machinery. The consolidated accounts show Portbond as having some over £154,000 of plant and machinery in its balance sheet as at 31 October 2010. The consolidated accounts show a combined turnover of over £11.4 million, with a gross profit of just over £1.2 million and a net profit of just over £195,000 after tax. The accounts also show, on a consolidated basis, fixed assets of over £5.2 million (after depreciation) of which the vast majority (£3 million) was plant and machinery and some £1.5 million represented freehold land and buildings and some £184,000 represented short leasehold property. 93.Lisa is recorded at Companies House as having become a fourth director of each of LWC and Portbond on 7 February 2014.94.In July 2014, LWC purchased the site next to the Kilnhurst Site. That site was known as, and I shall refer to it as, the “Redirack Site”. The purchase price was just over £1.1. million. A Regional Growth Fund grant was obtained, with the assistance of Smith Craven. However, ultimately the project was not completed due to objections raised by the Environmental Agency. 95.In December 2014, Mr Fitton of Smith Craven provided a proof of evidence for use at a planning inquiry relating to an Enforcement Notice served on LWC. In that proof of evidence he gave a convenient summary of the nature of LWC’s business:“The Company trades in recycled ferrous (steel) and non-ferrous (copper, aluminium, lead, nickel, brass, bronze, stainless steel and catalytic converters) metals, including recycled aluminium (including aluminium profiles), electronic waste (WEEE) and cable (lead, jelly and copper). The Company process [sic] all of the aforementioned recovered materials on site, converting them into high quality granulated products such as PVC and copper granules.”96.Lisa is recorded at Companies House as having ceased to be a director of LWC on 2 November 2015 and of Portbond on 11 December 2015. Although the relevant forms refer to her having resigned it is common ground that she was in fact removed.97.James is recorded at Companies House as having been appointed a director of each of Portbond and LWC on 11 December 2015.98.Companies House records show that Charles transferred his 2 shares in Portbond to John on 8 March 2016. It is not disputed that this transfer was by way of gift.99.GT was initially introduced to the Companies through the Bank (in its capacity as secured lender) in April 2016. 100.In 2016 the Redirack Site was rented out to Mouldings Solutions Limited on a five-year lease.101.On 21 April 2016, GT was engaged by the Bank and the Companies to carry out reviews of the then current financial position of the Companies and management's medium-term financial forecasts with a view to recommending a more suitable funding structure from the Bank; to consider the impact of any proposed revised funding structure on the cash and working capital position of the Companies; and to prepare an estimated outcome statement for the Bank illustrating its position in the event of a failure of the Companies.102.The context of this engagement was reported in the relevant SIP16 statement1 later prepared by the Joint Administrators and dated 9 October 2020, (“the SIP 16 Report”) as follows:“The context for the requirement of the work was that the Bank was becoming concerned regarding the cash position of the Companies and ultimately their debt servicing capacity. Key drivers for this were a significant (over 50%) fall in turnover in the five years to 31 October 2015, the loss of key customers, an alleged fraud to the value of c£1 million by a former employee, and deteriorating metal commodity prices.”103.The resulting report was delivered in June 2016 and focussed on the Companies’ request for an additional £2 million of banking facilities, which the report supported.104.In July 2016, the Bank borrowings were re-arranged as follows:(1)Sterling Loan term agreement (£2,900,000) dated 20 July 2016;(2)Property Investment Loan agreement (£900,000) dated 20 July 2016;(3)Trade Cycle Loan Agreement (£1,102,500) dated 25 August 2016.105.Nora, as I have said, sadly died on 25 October 2017.106.Lisa is recorded at Companies House as being a person with significant control of Portbond on 14 August 2018. This was as a result of Nora’s shares in Portbond being transferred to her by way of transmission under Nora’s will.107.On 1 March 2019, Charles assigned his beneficial interest in the Kilnhurst Site to John.108.On 15 November 2019, GT was the subject of a further engagement by the Bank and Portbond. As well as conducting, in effect, a business review by reporting on and analysing cash flow forecasts and trading and balance sheet forecasts, GT was also engaged to report key points in relation to the proposed disposal of assets to the Remet Company Limited (“Remet”), including by reference to the Letter of Intent from Remet dated 30 October 2019 and any subsequent revised offer that might be received.109.The resulting GT report was dated 15 January 2020 (the “Jan 2020 GT Report”). 110.The background to the GT report was explained as being that the Bank wished to exit its relationship with the Companies and that it had asked the Companies to explore options that would allow all amounts owed to the Bank to be settled by 31 January 2020. A potential sale of the trade and assets of the business was said currently to be being explored by management. At that point, Remet had made an offer that would result in the Bank being paid but would not satisfy other creditors in full. An offer from Sims plc was anticipated and a letter of intent had been received. Management was confident that this offer would be higher than the Remet offer. The immediate question was whether, as recommended by GT, the Bank would provide further funding after 31 January 2020 to enable the sale process to be completed.111.According to the SIP 16 Report, a continued deteriorating financial position of the Companies, compounded by the Covid pandemic, resulted in the further engagement of GT on 30 March 2020: “to consider the ongoing viability of the Companies and the options available to the Directors and the Bank. The scope of this work was as follows:• assess the Companies' current financial position, short term cash flow forecast and ongoing viability• conduct a high-level contingency planning exercise; and• update the estimated outcome statements previously shared with the Bank”112.GT delivered a further report described as “Contingency Planning” (the “May GT Contingency Planning Report”) which included a letter of delivery dated 5 May 2020. The headline message contained in the “Executive summary” was as follows:“The Group is unable to meet its liabilities as and when they fall due and is technically cash flow insolvent. Given recent (pre-Covid-19) trading, it is unlikely that is [sic] will be able to trade out of this once restrictions are lifted. We estimate that assets are sufficient to repay the Bank in full, even on a breakup basis, albeit this is heavily dependent on achieving asset valuations, around which there is material uncertainty”.113.The report considered the various options available. These included a solvent winding down and members’ voluntary liquidation; a going concern sale; an AMA; an AMA combined with a pre-pack; a closure administration and a creditors voluntary liquidation. 114.The ultimate conclusion was that:“the Group is insolvent on the cash flow basis with no prospect of trading out of or reversing the position. The Directors should be mindful of their position in this regard and seek independent advice as appropriate.”115.The recommendations for the Group were as follows:“• The Directors must therefore take proactive steps to manage the current situation for the benefit of all creditors, which given the financial position of the Group is their primary responsibility• In terms of options available, given the current financial position we are of the view that there is insufficient time or desire from Remet to execute a going concern sale. However, the Director should pursue this in short order to bring matters to a conclusion• Assuming Remet do not wish to or cannot execute, then we recommend the following steps:• The Directors should engage [GT] to undertake an AMA process, as set out on page 24 with the conclusion of the process by the end of May 2020• The Directors and/or Shareholders should work with [GT] to identify potentially interested parties who may wish to acquire the business and assets, either on a solvent or insolvent basis• All parties should plan for an administration appointment in early June 2020, followed either by a pre-pack sale or a planned managed wind down, the viability of which should be considered as a contingency option during the AMA phase.”116.The Directors, says the SIP 16 Report, “concluded that the optimal solution for the stakeholders would be to pursue a sale of the Companies on an accelerated basis, be that on a share sale or business and asset sale basis. Grant Thornton was subsequently engaged by the Directors on 3 June 2020 to commence an accelerated sale process (AMA) for LWC.”117.Various documents were prepared with professional assistance, including that of GT. The Companies, their business and assets were marketed.118.In June 2020, the proposed sale was given the name “Project Copper.” I deal with the detail of the circumstances in which a pre-pack sale eventually came about in October 2020 in more detail later in this judgment. The immediately following paragraphs summarise the outcome.119.Various offers were received but, says the SIP 16 Report, by September 2020 the directors of the Companies had determined that a solvent solution was not feasible and instructed GT on 2 September to assist in placing the Companies into administration.120.On 3 September 2020, an offer, subject to contract, was received from Remet Processing. A number of subsequent letters were received revising or stating the terms of the offer in more detail. On 15 September 2020, GT provided an analysis, including by way of estimated outcome statements, of the various options then considered to be realistic and which was provided to the Bank. GT backed the option of a pre-pack sale to Remet. Remet’s offer involved an immediate cash offer encompassing the Companies’ assets and business and the Kilnhurst Site.121.On 7 October 2020, the directors of LWC and the directors of Portbond appointed Christopher Petts and James Bulloss of GT as joint administrators of respectively, LWC and Portbond (the “Joint Administrators”). 122.On the appointment of joint administrators, a pre-pack sale (the “Pre-Pack Sale”) was entered into under which the Administrators sold the Business and the assets of the two Companies to Remet Processing Limited (“Remet Purchasing”). In their proposals to creditors the Administrators, having set out the statutory hierarchy of the purposes of administration and having explained why they could not pursue the objective of rescuing either company as a going concern given the inability to find a purchaser for the shares in the Companies, go on to say:“6.3 The administrators have pursued and achieved the objective of achieving a better result for the Companies' creditors as a whole than would be likely if the Companies were wound up. We concluded that the best way of achieving the objective of the administrations was to implement the sale of the Companies' business and assets via a pre-packaged sale…”123.The purchase price for the Company Assets was £5,783,000 apportioned as set out in clause 4 of the sale agreement. The items apportioned more than a nominal £1 value were the Properties (as defined) (£3.6 million), the Plant (£2 million) and Vehicles (£128,000). 124.On the same date, Charles and Nora, Mr Petts and Mr Bulloss (as receivers of the relevant property, appointed by the Bank), Remet Processing and Remet entered into an agreement for the sale to Remet of the Kilnhurst Site for £800,000. In total therefore, the cash offer for the Company assets and the Kilnhurst Site from which it operated from the perspective of Remet was about £6.5 million.125.Also on 7 October 2020, each of James and John entered into service agreements with Remet Processing at annual initial salaries of £80,000 (James) and £100,000 (John). They also entered into settlement agreements with LWC waiving employee claims.126.Further, by a Subscription and Shareholders’ Agreement dated 7 October 2020 between Remet Processing, Philip Reid and John Hughes:(1)John agreed to subscribe for 450 shares and Remet Processing to allot and issue, fully paid, 450 Ordinary Shares of £1 each in Remet Processing;(2)The aggregate consideration for the share allotment is stated as being, (a) John entering a Deed of Assignment referred to below relating to the transfer of any interest in the balance of the proceeds of sale of the Kilnhurst Site after discharge from those proceeds of any debt owed to the Bank. (A Deed of assignment was duly entered into on 7 October 2020); (b) the transfer by John of the “Consideration Assets” being assets owned by John and used in the Companies’ Business, including those set out in Schedule 2; and (c) the transfer of the Disputed Strip.(3)It was acknowledged that Remet had lent Remet Processing sums (secured by a debenture) to enable it to acquire the business from the Administrators and to provide ongoing working capital requirements. (In fact a £6.4 million loan facility was put in place by Remet to Remet Processing to enable the payment of the purchase price under the Pre-Pack Sale agreement and a further loan facility up to £5 million for working capital was provided for.)(4)The directors of Remet Processing were initially to be Philip Reid, Walter Reid and Shraga Cohen (all from Remet) but with a right in John and James to be appointed directors on completion. Further, there was provision for James and John, providing they retained at least 45% of the share capital of Remet Processing, to appoint up to two directors between them. (5)As is normal on a sale by administrators, the Administrators gave no warranties on their sale of the Companies’ business. However, under the Subscription and Shareholders’ Agreement, John gave warranties to Remet Processing that the business warranties set out in Schedule 5, except as disclosed, were “true accurate and not misleading” at the date of the Deed (clause 9.2). This was subject to the limits of clause 10. Clause 10.2 capped John’s liability under these warranties to a maximum aggregate liability of £6.4 million. In addition, one of the remedies for breach provided for by clause 11 was a clawback of the shares provided to John and James under the agreement. The warranties in schedule 5 were wide ranging warranties in the form that would normally be expected of a company selling a business of the nature and size of that of the Companies. In connection with these warranties, a disclosure letter, as is usual, was also provided to Remet Processing.(6)The dividend policy was set out as being (among other things) that no dividends would be declared paid or made until the loan from Remet had been repaid in full.127.Also dated 7 October 2020, is a share certificate in favour of John in respect of 450 Ordinary Shares of £1 each shares in the capital of Remet Processing. This amounted to a 45% shareholding.128.By a Deed of Assignment and Subrogation entered into between Charles and John in favour of Remet Processing and in consideration of shares being issued to John pursuant to the Shareholders’ Deed, the Subrogated Claim (as defined) was assigned to Remet Processing. The Subrogated Claim was the entitlement of John/Charles to a half share of the balance of the proceeds of the sale of the Kilnhurst Site (if any) after discharge of the Bank’s charge over the same. 129.On 26 January 2021, each of James and John are recorded at Companies House as having been appointed a director of Remet Processing.130.Mr James Bulloss resigned as an administrator on 19 March 2021. I refer to the “Administrators” or the “Administrator” accordingly.