Case No. CR-2019-LDS-000669

505.The last set of audited accounts for each of the Companies was for the year ended 31 October 2018. In each case, they were signed off by John Hughes on behalf of the respective boards of directors on 26 July 2019.506.The 2018 accounts for Portbond show a consolidated income statement for the year with a turnover of over £29 million, an operating profit of over £1.4 million, an exceptional item of some £1,125,000 (being a debit), a profit before tax of £145,656 and a profit after tax of £245,648. The exceptional item related to a fire at the company premises in 2016. Initial indications had been that a payment out of £1,625,000 would be made and provision for such sum had been made. In the event, an out of court settlement was agreed at £500,000. This necessitated the adjustment of £1,125,000. Had this adjustment not had to be made the profit before tax would have been inflated by the relevant sum to over £1.2 million. The consolidated balance sheet showed net assets and shareholders’ funds of over £7.4 million. Portbond’s balance sheet showed net assets and shareholders’ funds of over £9.6 million.507.The 2018 accounts for LWC showed a turnover of over £29.2 million, the same exceptional item of £1,125,000 and a loss for the financial year of just over £91,500. The balance sheet showed net assets and shareholders’ funds of just over £2.1 million. 508.During 2019, the financial position of the Companies worsened. The Bank decided that it wished to exit its relationship with the Companies. 509.John was diagnosed with cancer and, in June 2019, started a course of chemotherapy. He had major surgery in September 2019 and did not come out of hospital until December 2019.510.Remet, a scrap metal dealer that traded with LWC, expressed an interest in the Companies. 511.In early September 2019, there were some meetings broadly between Lisa on the one hand and the Relevant Respondents, or their representatives, on the other hand which took place with a view to reaching a settlement of various disputes between them. Evidence regarding these meetings was relied upon by Lisa, on the basis that they demonstrated an early intention on the part of the Relevant Respondents to place the Companies into insolvency in order to defeat any attempt by her to realise the value of her shareholding in Portbond.512.On 3 September 2019, there was a round table, “without prejudice” meeting at the Holiday Inn in Doncaster between Lisa and her solicitors (Prodicus) and James and his solicitors (Ansons, who were also representing Charles and James). Charlie and David also attended. The purpose of the meetings was to attempt to reach a settlement in relation to the various disputes between Lisa and the Relevant Respondents (which included, among other things, the property disputes later determined by Mr Lenon KC as well as matters relating to the Companies). In the proceedings before me, privilege was waived by the parties in relation to this meeting and the other “without prejudice” meetings that I mention.513.At the meeting on 3 September 2019, and as regards disputes regarding the Companies, the Relevant Respondents put forward an offer of £3.2m to buy out Lisa’s shareholding in Portbond. The Anson’s note records trading as stated to be “currently not easy” and that the Company (Portbond) was “more or less breaking even”.514.Lisa’s counteroffer was a single package dealing with all aspects of all the relevant disputes. As regards Portbond, the offer was an exchange of her shares for £3.2 million plus all shares in Caprina not held by her plus the other half of Pondfield House This was said to value her shares in Portbond at over £6 million.515.In discussion, the valuation of Lisa’s shares was considered further. Anson’s note records the following, including a question from Ansons as to whether Lisa would be prepared to buy the Relevant Respondents’ shares for £6 million:“David Hughes commented business could be worth more than £12M. He said machinery written down and valued at nil despite having value….. MDR [solicitor at Ansons] asked if they would be prepared to purchase it for £6M. David Hughes said he was looking at it on the basis it went bump first and then he would buy it after it was wound up following the court case. MDR suggested that he should not be involved in the negotiations if that was his position.”516.In cross-examination, David admitted that he had suggested buying the company after it “went bump”. He said that he was being sarcastic, because this had been James’ plan from “day one”. That this suggestion was indeed made by David is confirmed by the Prodicus’ note of the meeting. If the suggestion was taken as being purely sarcastic and facetious I would not have expected it to have appeared in both notes in the way that it does or to have generated the recorded comment of the solicitor from Ansons (MDR).517.Reference to an investor also appears in the Anson’s notes of the meeting on 3 September 2019. As I read those notes, what was suggested was that there was an unnamed potential investor in Portbond. Investment by that investor would enable a share sale to go ahead and would involve a company reorganisation once the share purchase from Lisa was completed. 518.There was another meeting between Lisa and James at the Holiday Inn on 5 September 2019. Initially this meeting was between Lisa and James only but David joined the meeting later in the day. Of this meeting, Lisa says that James offered her £6 million for her shares in Portbond. James, on the other hand, says that Lisa said that she wanted £6 million for her shares and that he agreed to take that figure to the potential investor for his consideration.519.Lisa also says that having offered to pay £6 million for her shares, James threatened her, saying “if you don’t sign we will make sure you get nothing not a penny, we will bust it”. She said in evidence that this threat overshadowed the whole meeting and worried her.520.The meeting was the subject of an email from Prodicus to Ansons the following day, 6 September 2019. According to that email, it was Lisa’s understanding that James would return to her once he had discussed terms with “the investor who remains prepared to purchase my client shares in Portbond Ltd” and once the investor had “indicated the price at which he is prepared to acquire” Lisa’s shares. This does not suggest that a price of £6 million had been offered to be paid by James or that he had threatened that is she did not “sign” an agreement to sell her shares for £6 million, he would “bust” the Companies. There is no mention of any threat by James in any of the contemporaneous documents.521.The Prodicus email also says:“Your client told my client in stark terms that Portbond Ltd “ has no money”. I am instructed that there was a frank exchange of views between our clients regarding the financial position of London Wiper Company.My client told your client that she is prepared to work with James Hughes in the business in order to work through the financial problems in an attempt to ensure that Universal returns to profitability.There was also a blunt discussion regarding the stock position at Universal. Mr James Hughes indicated that he is unable to explain why there is very little stock on site at Kilnhurst. My client understands that Mr James Hughes does acknowledge that the stock position is very worrying.”522.The meeting was also the subject of an email dated 7 September 2019 from James to Ansons, telling the latter the key points from the meeting. As regards Lisa’s shares in Portbond, the email records that:“I explained to Lisa that for a real bid to come with proof of funds etc, I insist that Lisa puts a proper figure on her shares in Portbond with no package, no bolt ons etc, this was hard at 1st to obtain, but eventually after sometime Lisa agreed to £6 m for her shares in Portbond, but said how long would it take etc to get paid for them.I quite rightly stated that in order for a bid to be tabled, I needed to get this figure you had provided of £6 m and now go back to the investors and go from there when they have chance to view all of the documents etc. I said it could take 3-6 months (David now present) and said “we can’t wait that long, you haven’t gotten investor and you’re just delaying things” he then went on to say “put them in court and wind the Fokker (business) up, and I’ll buy it back” Lisa then said David calm down etc and asked him to sit back down”.523.The record in the Prodicus’ email that Lisa was told that Portbond “has no money”, fits in with the reaction of David recorded in the email of James stated 7 September 2019.524.I find that the Prodicus email (and John’s account in evidence and in his contemporaneous email) on this point of how the price of Lisa’s shares was to be dealt with, is more accurate than Lisa’s memory. I also find that James’ email of 7 September 2019 accurately records the gist of the words used by David, it being a contemporaneous record and Lisa having accepted in cross-examination that David mentioned buying the company and David having accepted in cross-examination that Lisa said she wanted £6 million for her shares and that he, David, suggested winding up the company.525.I find that no threat was made by James, as suggested by Lisa, to “bust” either Portbond and/or LWC if she would not sign an agreement to sell her shares for £6 million. As is clear from the contemporaneous records, the suggested £6 million price came from Lisa, not James. James agreed to take the figure back to the proposed investor and did not (and was not able to) agree it (or to make a threat with regard to her not signing an alleged agreement which clearly had not been made but which in any event related to an offer price originating from Lisa). The making of such an alleged threat makes little sense in the full context of the circumstances and the contemporaneous documents.526.Meanwhile, on 6 September 2019, James wrote to Remet referring to the talks that “we” are in regarding the purchase of 50% of Portbond’s shares from Lisa. The email then set out some broad parameters of valuation and suggested that the business had net assets of some £10.2 million plus goodwill and forecasting that “with a partnership” some”£3-4 million per year nett” could be made using “your buying power and our technical capabilities”.527.By letter dated 19 September 2019, Prodicus, on behalf of Lisa, made demand for sums due to Nora’s estate in respect of rent for the Kilnhurst Site, declared but unpaid dividends and the balance of Nora’s loan account. The full amounts claimed, exceeded £190,000 as against LWC and just under £10,000 as against Portbond . In default, presentation of winding up petitions was threatened. This reflects the line that David had threatened.528.By email dated 8 October 2019, James wrote to Remet with a “proposal to move forward”. The proposal involved the setting up of a new company owned equally by Remet on the one hand and John and James on the other. The email then set out a number of detailed steps. In summary, the first step was for Lisa, Remet and John/James to agree an independent valuer to value the Kilnhurst Site (with a view to Lisa’s 50% interest being purchased) and the plant machinery and vehicles associated with the business to be purchased by the new company in order to trade. The next proposed step was seeking to release the Bank charge over the Kilnhurst Site and the charge over certain Company assets proposed to be purchased by the new company. 529.As regards the company business, it was reported that “at present” the companies would have a:“group loss for the end of year accounting period due to many issues and ongoing issues. Working capital, Bricks, market decline in ferrous and nonferrous and export limitations of the main contributor among other things. Also, there has been ongoing works to please the local environment agency and the residential site next door plus consultants in this field which is ongoing to keep things smooth.”530.It was then proposed that the new company would purchase the plant machinery vehicles in stock at an agreed and fair amount, provided that the Bank would lift the debenture on the company for fixed assets etc. Lisa would then obtain an enhanced shareholding percentage in Portbond, which was to be calculated by the accountants. Portbond and LWC would thereafter only be property companies with an ongoing bank debt and directors loan debits. The benefit for Lisa was the immediate cash payment for 50% of the true market value and the higher percentage shareholding in Portbond.531.These arrangements were finessed by way of a draft email/letter to Lisa from James into which Remet had a certain amount of input.532.On 30 October 2019, Remet sent James a letter of intent “for onward transmission to the sellers”. In broad terms, it set out “subject to contract”, heads of terms under which Remet, or a subsidiary of Remet, would purchase the trade goodwill staff and certain business assets of the Companies and the Kilnhurst Site. The proposed aggregate price was £2,050,000 for the Kilnhurst Site, fair market value to be determined for the stock/inventory held by the Companies and £4.4 million for the plant machinery employs in trade of the Companies relating to the Universal Recycling business only.533.By Letter dated 5 November 2019, Ansons sent to Prodicus the letter of intent signed by Remet. The letter explained that, as Lisa was aware, and due to a number of factors outside the Companies’ control, the Companies’ financial performance had declined over the last few months and that current financial forecasts suggested that the business would make a loss for the year. In light of that, the directors were considering all appropriate options and had been exploring other forms of investment and/or affordable finance. The interest of Remet and details about Remet were then set out. The suggestion was that Remet meet with Lisa and the Relevant Respondents to discuss the offer in more detail.534.By the reply, also by letter dated 5 November 2019, Prodicus complained that Lisa had not been involved in the negotiations with Remet nor been kept appraised of the position. As a prerequisite to any meeting with Remet she demanded that the issue of the rent arrears, lease renewal and directors loan accounts be addressed first.535.In the context of the worsening financial position of the Companies, GT was engaged by letter dated 15 November 2019 to carry out further work. This ultimately resulted in the Jan 2020 GT Report.536.The Jan 2020 GT Report, set out the circumstances in which GT had come to be engaged as follows: “Factors leading to this reportTrading performance• The trading performance of Universal Recycling has been below budget throughout FY19• The recycling industry as a whole has suffered a downturn, with Management citing Brexit related uncertainty (with less material available to process) and a decline in the price of non-ferrous metals over the last twelve months• The ill health of the shareholder and director John Hughes has also adversely impacted performance• The aforementioned shareholder dispute has also commanded much of Management’s time, and had an impact on the level of trading achieved in the yearCash constraints and banking facilities• The underperformance of Universal Recycling has led to an increased reliance on the overdraft facility• The invoice finance facility has also encountered two issues: £454,000 of debtor receipts were not paid into the trust account (although the position has since been rectified); and A number of customers of Universal Recycling are also suppliers, resulting in contras being applied• The Bank wishes to exit its relationship with Universal Recycling, and has asked the Company 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 is currently being explored by Management.”537.The agreed remit of the work included various financial work and a report on the proposed sale to Remet. 538.On about 26 November 2019, two payments, totalling £300,000 were received into the bank account of LWC from Caprina Trading. I have dealt with these payments in connection with the allegations about the director’s loan accounts. 539.By email dated 26 November 2019, Prodicus revealed that, notwithstanding her complaint that she had not been kept informed by the Relevant Respondents, Lisa had discussed a proposed sale of the trading assets of LWC with Sims on a confidential basis. Apparently, she had met with Sims, which employed Charlie, and understood that Sims was keen to make an offer to acquire the assets referred to in the Remet offer and to take a lease of the Kilnhurst Site. The email asked to hear back as soon as possible:“as I understand that your clients believe that LWC is likely to run out of cash shortly and Sims wish to proceed as quickly as possible”.540.It was agreed between Lisa and the Relevant Respondents that they would work together “in good faith to present a unified and coherent approach to Sims”. Negotiations with Remet were put on pause, at Lisa’s request. A non-disclosure agreement was entered into with Sims. Sims made a site visit in December.541.In the meantime the Bank’s position was reflected in a letter dated 28 November 2019. The Bank confirmed that it was willing to support the Companies until 31 January 2020, but said but that it was seeking full repayment of all its exposure and that in the event that a sale to achieve that end in full was not realised then alternative means to achieve the Bank’s goal should be pursued. 542.A draft of the 2020 GT Report was sent to James on 20 December 2019. Management comments were provided to GT. The report was finalised on 15 January 2020.543.The Jan 2020 GT report analysed offers or potential offers from two companies. First, Remet and secondly Sims. It confirmed that Sims had been introduced by Lisa, but that subsequently negotiations had been opened by James and John.544.As regards Remet, the 30 October 2019 letter of intent was summarised in the Jan 2020 GT Report as follows, which also note that the directors of the Companies considered that the offer should be increased:“1.Remet• On 30 October 2019, the Directors received a letter of intent from The Remet Company Limited (Remet) to acquire the trade (as a going concern), goodwill, staff and certain business assets of the Company and the freehold site of the business• The Remet offer (excluding the value of inventory which is to be determined based on the fair market value at completion), totals £6.45 million