CR-2024-MAN-000540 - [2025] EWHC 2159 (Ch)

The Company was incorporated on 5 September 2015 as a special purpose vehicle for the purpose of developing a brownfield site at Waterfield Mill, Waterfield Avenue, Darwen. The Property is the last unsold unit developed thereat, and is otherwise known as 21 Balmoral Gardens, Darwen.

The Company’s shareholders have, historically, been Darren John Fallows (“Mr Fallows”), Darren Paul Martin (“Mr Martin”), and Fred Bridge (“Mr Bridge”). The latter have also been its directors, although Mr Bridge resigned as a director in June 2023, and Neil Middleton (“Mr Middleton”) was appointed as a director of the Company in May 2023.

On 11 May 2018, the Company entered into an agreement with Milltom in relation to the development of Waterfield Mill, whereunder various development fees became due and payable to Milltom.

As collateral security for the liabilities of the Company to Milltom, Mr Martin granted charges to Milltom dated 24 July 2020 and 11 September 2020 over two properties, namely 5 and 6 Gezzerts Rise, Poulton-le-Fylde, FY6 7XE (“5 Gezzerts Rise” and “6 Gezzerts Rise”).

A dispute arose between the Company and Milltom with regard to the amounts owed to the latter in respect of development fees, which became the subject matter of arbitration proceedings that resulted in arbitration awards dated 25 August 2022, 16 October 2022 to and 11 November 2022 made in favour of Milltom against the Company. By an order made by HHJ Pearce in the Business and Property Courts in Manchester, Circuit Commercial Court, on 30 November 2022, HHJ Pearce granted liberty to Milltom to enforce the arbitration awards, and on 18 January 2023, HHJ Pearce entered judgment in favour of Milltom in the amount of the arbitration awards.

Milltom applied for a charging order in the amount of £577,896.72. The final charging order (“the FCO”), made on 21 March 2023, refers to an interim charging order (“the ICO”) having been made on 26 January 2023, although other documentation refers to this having been made on 31 January 2023. The FCO also refers to Milltom having applied to vary the ICO to account for a payment of £75,163.66 made by the Company on 2 September 2022. Thus, the FCO ordered that the interest of the Company in the Property stood charged with the payment of £510,225.34, comprising a judgment debt of £502,732.56 and interest on that debt of £7,492.78. The FCO further recorded that interest on the Judgment debt secured by the FCO continued to accrue at a daily rate of £110.19.

The ICO was registered as against the Property on 17 February 2023, and the FCO was registered as against the Property on 6 April 2023.

On 22 February 2023, the Company granted a charge over the Property to Property Funding 2 Limited (“PF2L”). This charge was registered on 27 February 2023.

On 23 February 2023, Milltom, as holder of the charges referred to in paragraph 9 above, appointed Gordon Craig (“Mr Craig”) as LPA receiver over 5 and 6 Gezzerts Rise.

On 25 July 2023, the Company granted a charge over the Property to Supahome by Maple Limited (“Supahome”). Mr Middleton has, at all relevant times, been a director of Supahome. Subsequently, on 11 April 2024, Supahome purported to take an assignment of PF2L’s charge over the Property dated 22 February 2023.

On 10 August 2023, Milltom commenced the Order for Sale Proceedings (PT-2023-MAN-000109) against the Company in the Business and Property Courts in Manchester, Property Trusts and Probate List, seeking an order for sale in respect of the Property. The Company served a Defence dated 12 September 2023. This Defence, amongst other things, referred to Milltom’s collateral security over 5 and 6 Gezzerts Rise and the appointment of Mr Craig as LPA receiver, and contended that these properties would be expected to realise £560,000, which it was contended would be sufficient to discharge Milltom’s indebtedness. Directions were given in the Order for Sale Proceedings on 29 September 2023. An issue arose between the parties to these proceedings as to the value of the Property, but prior to the imposition of the moratorium on the entry of the Company into administration, the parties agreed upon a valuation of £205,000.

Mr Flitcroft made a witness statement in the Order for Sale Proceedings dated 26 September 2023 that dealt with the position in respect of 5 and 6 Gezzerts Rise. This referred to the fact that 6 Gezzerts Rise was occupied by a Mr Stephen and Mrs Joyce Mellor under a 10 year fixed term assured short hold tenancy at a low rent. It was contended that this severely diminished the value of 6 Gezzerts Rise on the open market. Mr Flitcroft alleged that Mr Fallows and Mr Martin had unsuccessfully attempted to evict the tenants through proceedings in the Blackpool County Court, by seeking to rely upon a subsequent one-year term tenancy, that Mr Flitcroft alleged was a sham.

In his witness statement, Mr Flitcroft further referred to the fact that he had been informed by Mr Craig that he had received professional valuations, valuing 5 Gezzerts Rise at £240,000, or £215,000 if subject to a restricted marketing period of 3 months, and 6 Gezzerts at £180,000, or £160,000 if subject to a restricted marketing period of three months, amounts which would be insufficient to discharge the liability of the Company to Milltom.

Further, on 26 September 2023, Joyce Mellor, one of the tenants of 6 Gezzerts Drive, made a witness statement stating that she and her husband had signed a tenancy agreement dated September 2017 granting a 10 year term at a rent of £495 per month. She further referred to having been taken to court in a failed attempt to have her and her husband removed from their home and said: “It was claimed there was a one year tenancy agreement. This is simply not correct, we have never signed anything other than the 10 year tenancy agreement, thankfully the Court ruled in our favour”.

During the course of the hearing, I was taken to a number of orders made by the Blackpool County Court in proceedings brought by Mr Martin against Stephen and Joyce Mellor. It would appear therefrom that the proceedings in question were struck out on 18 January 2023 because Mr Martin had failed to comply with an order dated 2 December 2022, and that attempts to have the order dated 18 January 2023 set aside were unsuccessful, as recorded in an order dated 21 March 2023, because the court determined that as Mr Craig had been validly appointed as LPA receiver, then “the Claimant has no standing to conduct the Claim.” There does not, therefore, appear to have been any determination as to the question of the validity of a subsequent tenancy for a term of one year on the merits.

5 Gezzerts Rise was sold by Mr Craig as LPA receiver to a third party on 17 November 2023 at a price of £279,950. 6 Gezzerts Rise was sold by Mr Craig as LPA receiver to Milltom on 1 December 2023 at a price of £185,000. Whilst 5 Gezzerts Rise was exposed to the market by being offered for sale, 6 Gezzerts Rise was not. Rather, reliance was placed by Mr Craig on a valuation dated 17 March 2023 provided to him by Lamb & Swift that had valued 6 Gezzerts Rise as referred to in paragraph 18 above at £180,000 (or £160,000 if marketing was limited to 3 months), and a notional £5,000 was added thereto.

Mr Flitcroft was asked under cross-examination as to whose idea it was that 6 Gezzerts Rise be sold to Milltom. Mr Flitcroft said that it was Mr Craig’s idea, and that Mr Craig had said that if Milltom took that property, then that would lessen the debt due to it.

The Order for Sale Proceedings were progressing towards a final hearing when, on 15 April 2024, Supahome, as the holder of a qualifying floating charge, appointed Mr Faik as administrator of the Company. The effect thereof was to impose the moratorium provided for by paragraph 43 of Schedule B1 IA 1986 upon the Order for Sale Proceedings.

On 1 May 2024, Milltom sought permission from Mr Faik to enforce the FCO, i.e. through the Order for Sale Proceedings. Mr Faik has consistently declined to give such permission, taking the position that he, as administrator of the Company should conduct the sale of the Property, and do so on the basis that entitlement to the proceeds of sale would be determined thereafter. I was referred to a number of letters from Mr Faik’s Solicitors, RHF Solicitors (“RHF”), in which Mr Faik’s position was set out. Thus, in a letter dated 16 July 2024, reference was made to the net proceeds of sale being held “until the position in respect of the priority and quantum of secured creditors’ claims is determined.” In an email dated 10 March 2025, reference was made to the net proceeds of sale of the Property being placed in an escrow account to be held pending the outcome of “our client’s determination of your client’s claim.” This latter wording is consistent with the wording used in the Faik Application where reference is made to the net proceeds being held so as to permit Mr Faik to “adjudicate on the sums still claimed to be owed to [Milltom].” However, potentially at least, it contrasts with wording used in paragraph 9 of Mr Faik’s witness statement dated 1 August 2025, where he makes the point that if he had been intending to disregard Milltom’s claim, then: “I would not have agreed to hold the proceeds of sale of the Property on trust pending resolution of the dispute (by agreement or by court order) as I offered in my solicitor’s letters of 16 June 2024 and 18 October 2024”. Mr Cochran, on behalf of Milltom, suggests that that is not how the position was expressed on behalf of Mr Faik in these letters.

Prior to the Company entering into administration, RHF had acted on behalf of the Company, including in defence of the Order for Sale Proceedings. Following his appointment, Mr Faik has continued to instruct RHF taking the view, he said, that there was benefit in continuing to instruct RHF given their knowledge of the background to the issues arising in the administration of the Company including the position vis-à-vis Milltom. In the course of his evidence, Mr Flitcroft expressed particular concern that RHF continued to act for Mr Faik. He said that he was worried that there was “something untoward” between RHF and Mr Faik, such that he did not trust them to deal fairly or objectively with the issue of the sale of the Property, and the application of the proceeds of sale thereof.

Having been appointed as administrator of the Company, Mr Faik produced proposals dated 6 June 2024. Included therein was a Statement of Affairs to which Mr Middleton, as a director of the Company, signed a Statement of Truth dated 28 May 2024. This Statement of Affairs referred to the Property as estimated to realise £205,000 but then referred to the proceeds being applied first in favour of Supahome in an amount of £64,544.06, with Milltom ranking thereafter in an amount of only £1. The Proposals also included an estimated outcome statement as of 6 June 2024 produced by Mr Faik which shows Supahome ranking first in an amount of £64,544.06, and the liability to Milltom as “uncertain”.

The question of the Company’s secured liabilities is further dealt with in Mr Faik’s Progress Report dated 1 May 2025 where Milltom’s security is referred to as being the FCO created on 21 March 2023. This is shown as ranking behind the charge granted to PF2L (subsequently assigned to Supahome). At paragraph 5.6 off this Progress Report, reference is made to Supahome claiming priority in respect of the whole of the amounts due to it, i.e. the amount secured by the charge initially granted to PF2L on 27 February 2023, and the amount secured by its own charge dated 26 July 2023, on the basis of an “all monies” provision in the charge dated 27 February 2023. Paragraph 5.7 of the Progress Report refers to Milltom registering the FCO dated 21 March 2023 against the title to the Property but makes no mention of the ICO. Paragraph 5.7 further states that the value of Milltom’s claim: “is disputed and was therefore ascribed a nominal value of £1.00 by the Director in the Statement of Affairs.”

Under cross examination Mr Flitcroft was critical of the way that Mr Faik had dealt with Milltom’s security and outstanding indebtedness in his Proposals and his Progress Reports, in particular in ascribing a value of only £1 thereto. Further, Mr Flitcroft pointed to Mr Faik not having taken into account Milltom’s ICO, to the fact that it was Mr Middleton’s company that had brought in Mr Faik as administrator through the appointment made by Supahome, and to the fact that Milltom had had a long-running dispute with RHF, who Mr Faik was now instructing. This formed the basis of his complaint that Mr Faik could not be trusted to act fairly or objectively.

In approximately July 2024, Mr Faik received an offer to purchase the Property from a third party, he says at a price of £205,000, the value agreed upon between the parties. Mr Faik complains that Mr Flitcroft thwarted the proposed sale of the property by actions that led to the proposed purchaser withdrawing their offer. The matters complained of are that Mr Flitcroft was unwilling to engage in the sales process and/or consent to the sale, declined to cause Milltom, as the developer of the Property, to provide documentation and/or certification required in order to conclude the sale, and engaged in concerted efforts to disrupt the sale by threatening the estate agent engaged by Mr Faik, and the prospective purchaser.

As evidence for the latter, reliance is placed by Mr Faik on a note provided by Susan Wolstenholme of Entwistle Green, Estate Agents, where she refers to her firm having been contacted some months ago by Mr Flitcroft “or associate builder” to say that “we didn’t have authority to sell”. Mr Flitcroft was cross-examined about this. He denied that it was him who had approached Entwistle Green in this way, but he did suggest that it could have been Milltom’s “lettings department” who phoned Entwistle Green.

By way of background, it is necessary to say something further about Mr Craig, the LPA receiver appointed by Milltom over 5 and 6 Gezzerts Rise on 23 February 2023. On 25 October 2018, Mr Craig’s licence to act as an insolvency practitioner was withdrawn by ICAEW. On 20 December 2022, the Pensions Ombudsman made a finding that Mr Craig was guilty of breach of trust and fraud in respect of a particular pension scheme, and he was ordered to contribute more than £10.7 million into the relevant pension scheme. On 7 July 2023, in the course of proceedings brought against Mr Craig by the ICAEW, his membership of the latter was suspended indefinitely.

None of the above prevented Mr Craig from lawfully acting as an LPA receiver. However, these matters are relied upon by Mr Faik as showing that Mr Craig is a man whose professional integrity cannot be trusted, or is at least seriously in doubt, and which adds to his concern in relation to the circumstances behind the sale of 6 Gezzerts Rise, and any involvement by Mr Craig in any future sale of the Property.

Under cross examination, Mr Flitcroft was asked about his relationship with Mr Craig in the light of Mr Craig’s past professional difficulties that I have identified. His response was that he had had no personal difficulties with Mr Craig in the past. As he put it: “Gordon has never done any harm to me.”

In the context of Mr Flitcroft having said in evidence that he was “well-placed” to conduct a sale of the Property, the question was raised in the course of submissions as to whether Mr Craig would have any involvement in the sale of the Property if conduct thereof were to be given to Milltom. In response, it was indicated that no decision had been made with regard to Mr Craig’s involvement in the sale process should Milltom be given conduct of it. However, it is fair to say that, in course of his cross-examination, Mr Flitcroft referred to his own experience of selling properties (some 27) in the Darwen area, and to the engagement of estate agents.

Milltom has, for the purposes of the Milltom Application, produced a “Statement of judgment debt” showing the amount said to be outstanding and due to Milltom as at 12 June 2025, taking into account the realisation of its security over 5 and 6 Gezzerts Rise, but after having made provision for legal costs and receivers fees, rent received prior to 6 December 2023, and further interest at a rate of 8% per annum on the outstanding balance. This statement shows £146,314.65 as due as of 12 June 2025, which is the amount that Milltom says is due to it subject to further accrued interest from and after 12 June 2025, when the Milltom Application was brought.

In response, Mr Faik initially produced a document headed “Adjudication Account”, which purported to show that Milltom had been overpaid. This was on the basis of giving credit to the Company against Milltom of an amount of £31,950 said to represent the sale of 5 Gezzerts Rise at an undervalue of that amount, and an amount of £100,000 said to represent a sale of 6 Gezzerts Rise at an undervalue of that amount. Further, this calculation gave no credit for continuing interest, or for the costs of sale including legal fees and LPA receiver’s remuneration. Mr Faik was asked about this under cross examination, and in particular the alleged undervalue of £31,950 in respect of 5 Gezzerts Rise which has not otherwise been advanced. He suggested that this may have related to a higher valuation that had been obtained at some point, but without being able to be specific.

As to the deduction of £100,000 from the sum due to Milltom on account of a sale of 6 Gezzerts Rise to Milltom at an undervalue, Mr Faik appeared to accept at one point under cross examination that he had no standing, as administrator of the Company, in respect of any challenge in respect of this sale, although ultimately, after an intervention from Mr Couser, he adopted the position that this was a matter upon which he was continuing to receive legal advice, and therefore could make no concession to this effect, at least at this stage.

More recently, Mr Faik has produced a revised version of his calculation as to the balance due to Milltom, effectively responding to Milltom’s own statement. This makes adjustments in relation to rate of interest on the debt outstanding from 8% to 5.75% per annum, caps LPA receiver’s fees at 5%, and reduces the legal costs of sale and enforcement that are sought to be brought into account by Milltom. It does not, however, make any provision for the sale of either 5 or 6 Gezzerts Rise at an undervalue. It shows a balance due to Milltom as of 25 July 2025 of £88,613.78.