[2025] EWHC 2294 (Ch)

Discussion and conclusions

I shall deal first with the role played by Mr Adamson in the salary/loan swap arrangement.

On the evidence which I have heard and read, I am satisfied that at the meeting on 20 December 2018 attended by the Respondent, Mr Botting, Mr Adamson, and Ms Bamforth, Mr Adamson raised the possibility of the Respondent’s director’s loan being excluded from the proposed CVA and of that director’s loan being repaid to the Respondent on a monthly basis at a rate consistent with the monthly salary he usually received in place of salary, as a means of saving the Company the additional PAYE and NIC liabilities which it would ordinarily have to pay on the Respondent’s salary. This finding is supported by Mr Botting’s note of the meeting of 20 December 2018, which I am satisfied was a contemporaneous note, written during the meeting itself, and the oral testimony of the Respondent and Mr Botting, which in this regard I accept.

Mr Botting gave evidence (which I accept) that he was struck by Mr Adamson’s suggestion of the salary/loan swap arrangement at the time. He said that Mr Adamson had not particularly impressed him up to that point, but that when Mr Adamson suggested the salary/loan swap arrangement, he thought: ‘oh you’ve shown some commercial nouse there’.

On the evidence which I have heard and read, I am further satisfied that in late February 2019, shortly after the Company’s entry into the CVA, Mr Adamson positively advised the Respondent (i) to draw only £10 in salary in March 2019 to trigger a tax rebate and (ii) thereafter to put in place the salary/loan swap arrangement, in order to save the Company the sums which would otherwise be payable by way of PAYE and NIC on the Respondent’s salary. I so find.

The Respondent’s oral evidence, which in this regard I accept, was that whilst the salary/loan arrangement was raised by Mr Adamson as a possibility at the 20 December 2018 meeting, by the time of the ‘post-mortem’ meeting held in late February 2019, Mr Adamson’s firm advice was that the salary/loan swap arrangement had to be put in place, in order to save the Company the additional PAYE/NIC which it would otherwise have to pay in respect of the Respondent’s salary if he remained on the payroll. In March 2019, the Company did not have sufficient funds to make a loan repayment to the Respondent, but in April 2019 the Company was better placed. The Respondent’s evidence, which I accept, is that it was ‘with Mr Adamson’s knowledge and [on] his advice’ that the sum of £20,000 was repaid to him in April 2019 in reduction of his director’s loan, in lieu of salary for March and April. Thereafter the remainder of the loan repayments were made in lieu of salary on the dates set out at [37] above.

Mr Botting gave supportive evidence in oral testimony, which again I accept. He said that whilst he could not recall the specific meeting in late February 2019 at which the advice was given, ‘we were following his [Mr Adamson’s] instructions’ and ‘we weren’t in the habit of doing things rogue. We took the advice of an insolvency expert.’

On the evidence I have heard and read, I am satisfied that it was in reliance on Mr Adamson’s advice that (i) the Respondent received a reduced salary payment of £10 in March 2019 and that (ii) the Respondent was taken off the payroll completely in April 2019, receiving, in place of salary, repayments of his director’s loan in monthly sums which were the rough equivalent of what had been his net monthly salary (in fact slightly less), in order to save the Company the PAYE and NIC that would otherwise have been payable on the Respondent’s salary.

By close of play at trial, it was common ground that the Respondent came off the Company’s payroll in April 2019 and thereafter did not receive a salary from the Company. In oral testimony Mr Kienlen accepted that under the terms of the CVA the Respondent was entitled to continue to draw his usual salary from February 2019 onwards and said that he had no idea why the Respondent had stopped doing so. He did accept, however, that the salary/loan swap arrangement would have saved sums otherwise payable by way of PAYE and NIC in respect of the Respondent’s salary.

On the evidence which I have heard and read, which included tax and NIC calculations helpfully prepared by Mr Botting using tax and NIC information taken from HMRC’s website for the year 2019/20, I am satisfied that the salary/loan swap arrangement saved the Company sums totalling approximately £55,000-£56,000 in PAYE/NIC that would otherwise have been payable in respect of the Respondent’s salary. Whilst this is slightly less than the sum of £80,000 estimated by the Respondent, it remains a significant saving.

On the evidence which I have heard and read I am also satisfied that the Respondent’s co-director (who was not owed any money by the Company by way of director’s loan) remained on the payroll and continued to be paid his salary at all material times, as did the Company’s other employees.

I am further satisfied that Mr Adamson was at all material times aware that the salary/loan swap arrangement had been put in place in accordance with his advice. The evidence of the Respondent and of Mr Botting, which I accept, was that they had regular meetings with Mr Adamson on a weekly/10 day basis in 2019 in which monthly management accounts, payroll, weekly cashflow forecasts and profit and loss forecasts were discussed. Mr Botting’s evidence, which I accept, was that Mr Adamson would often combine these meetings with a visit to Mr Tinkler in Carlisle, as the hotel they usually met at was close to the M6.

Mr Botting also gave evidence, which again I accept, that the loan repayments ‘would have been a separate item in the spreadsheets’ that were discussed with Mr Adamson, plain for all to see; as he put it in re-examination, ‘we hid nothing’. This accords with Mr Kienlen’s acceptance in oral testimony that the loan repayments were readily apparent in the Company’s books and records. It is also supported by the question asked at the meeting in June 2021 referred to at [48] above and [152] below. Ms Jo Smith was plainly able to identify from the Company’s books and records that from April 2019 onwards, the Respondent had received repayments of his loan and had come off the payroll, as this was the premise of her question.

The evidence of both Mr Botting and the Respondent was that at no point during the CVA did Mr Adamson ever suggest that the Respondent should stop taking repayments of his director’s loan and resume drawing his salary instead. I accept their evidence on this issue.

I further find that at the meeting which took place between Mr Adamson, Ms Jo Smith and the Respondent on 23 June 2021, it was Ms Jo Smith, and not Mr Adamson, who asked the Respondent why he had come off the payroll in April 2019 and had drawn monies in repayment of his loan account instead. I accept the Respondent’s evidence on this issue. I am satisfied that Mr Adamson would not have asked that question, as he already knew the answer. I am also satisfied that Mr Adamson’s note of the meeting of 23 June 2021 accurately records the Respondent’s explanation for having come off the payroll in April 2019 and having drawn monies in repayment of his loan account instead; namely, that it was on the advice of Mr Adamson. The Respondent’s evidence, which I accept, was that Mr Adamson did not challenge the Respondent’s explanation at the meeting. I would add that I was taken to no evidence to suggest that Mr Adamson challenged the Respondent’s explanation at the meeting. As will be recalled, Ms Smith declined to disclose her own notes of the meeting of 23 June 2021 on grounds of privilege: see paragraph 5 of Ms Smith’s letter of 2 July 2024 at [79] above. Quite how Ms Smith’s notes of that meeting could be covered in their entirety by privilege has never been explained. It should have been possible to disclose an appropriately redacted version at least, even if the notes contained comments.

I accept the Respondent’s evidence that at no time after that meeting of 23 June 2021 prior to Mr Adamson’s death in June 2022 did Mr Adamson, or anyone else from AW, or Ms Jo Smith (who was at the meeting of 23 June 2021), or anyone else from AW’s solicitors, ever raise with the Respondent, in correspondence or otherwise, any questions regarding the salary/loan swap arrangement put in place in April 2019 or intimate a claim against him in respect of that arrangement. Had there been any such follow-up or intimation of a claim, whether by correspondence or otherwise, at any time after the meeting of 23 June 2021 and prior to Mr Adamson’s death in June 2022, I would have been taken to evidence of it. I was taken to no such evidence.

Mr Botting gave evidence that he attended a zoom meeting with Mr Adamson and Ms Jo Smith in January 2022 to discuss some issues relating to the Company. His written evidence, which in this regard I accept, was that ‘[a] number of topics were raised by these two individuals but the repayment of Mr Howarth’s loan was not one of them’.

I find that it was only some months after Mr Adamson’s death in June 2022 that Mr Kienlen, by then sole administrator, acting by Ms Jo Smith, intimated a claim against the Respondent in respect of the Payments for the first time.

On behalf of the Applicant, Mr Arumugam argued that the only document relied upon by the Respondent as evidence of the advice he claimed to have received from Mr Adamson regarding the salary/loan swap arrangement was the meeting note of 20 December 2018. That is not entirely correct. The Respondent also relied upon Mr Adamson’s note of the meeting of 23 June 2021.

The paucity of documentation produced by the Respondent must also be considered in context. The Respondent has had no access to the Company’s server (including the Company’s email account) for the purposes of preparing his defence to these proceedings; access to the server was terminated in the spring of 2020. The Applicant and Mr Kienlen/AW have failed properly to seek out, preserve and/or disclose numerous other documents which would have been relevant to the issue of the advice received, including (i) the meeting notes and working papers of Mr Adamson and Ms Bamforth prepared on their respective laptops during the course of the CVA and (ii) Ms Jo Smith’s own notes of the meeting on 23 June 2021.

Mr Arumugam also argued that given the terms of the two engagement letters between the Company and AW dated 24 August 2018 and 27 September 2018 respectively, it was difficult to see how the Respondent could credibly suggest that he was relying on advice given to him in his personal capacity by AW. The clear evidence of both the Respondent and Mr Botting, however, which in this regard I accept, was that whatever the two engagement letters may have said, in reality Mr Adamson did not limit himself to advising the Company at the meetings which they attended with him, and proffered advice to the Respondent in his personal capacity as well.

Moreover in the context of these proceedings, little turns on this distinction in any event. Whether the advice to put in place the salary/loan swap arrangement is seen as advice to the Company or to the Respondent and the Company, I am satisfied that Mr Adamson gave that advice in late February 2019– and that it was on his advice that the salary/loan swap arrangement was put in place.

By his skeleton argument Mr Arumugam also argued that any advice given by Mr Adamson in December 2018 was ‘superseded’ by the time that the CVA proposal was made on 25 January 2019, on the grounds that the proposal ‘makes clear that R’s loan was excluded from the CVA’ (skeleton at [25b]).

This argument suffered from several challenges. The first is my finding that Mr Adamson unequivocally advised the Respondent in late February 2019, following the Company’s entry into CVA, to put in place the salary/loan swap arrangement.

The second is that Mr Arumugam’s argument rests on a narrow construction of what is meant by the ‘exclusion’ of the Respondent’s loan from the CVA. It was clear from questions put by Mr Arumugam during the course of cross examination and from his closing submissions that he construed the reference to ‘exclusion’ in paragraph 15.1 of the proposal as meaning either (i) that the Respondent’s director’s loan would not be repaid at all (ie waiver) or (ii) that the Respondent’s director’s loan would not be paid until competition of the CVA (ie deferment). A third (and in my judgment correct) meaning, however, applying the general principles of interpretation summarised in Arnold v Britton at [15], against the backdrop of s.5(2) IA 1986, is that the Respondent’s director’s loan was to remain unimpaired. As made clear in the case of New Look, it is perfectly possible for a CVA to treat different classes of creditors differently. In New Look itself, for example, Category A landlords (comprising two landlords of New Look’s distribution centre) were left completely unimpaired (save for minor, immaterial changes), on the ground that the directors considered the leases of the distribution centre to be critical to the Group’s continued operations.

At the meeting of 20 December 2018, when addressing ‘chambers and disbursements’ and the Respondent’s director’s loan, the language of inclusion and exclusion was employed in a way consistent with impairment and lack of impairment respectively. As will be recalled, Mr Botting’s notes of that meeting, which in this regard I am satisfied are accurate, record the following (with emphasis added):

‘Creditors to be included? Need to have good reason for non-inclusion

-All chambers and disbursements not to be included (when paid for by LAA/HMCTS)

-Mazars – general consensus is to include

*Trevor [the Respondent] can / can not be included depending upon argument

-included – [part] of bank covenant

-not included – paid instead of payroll’

In the definition section at paragraph 2.1 of the CVA proposal itself, the term ‘exclusion’ is employed in a way consistent with the ‘unimpaired’ construction. The term ‘Excluded Creditors’ in that section is defined as ‘an Unsecured Creditor, whose debt has arisen through their instruction by KTS and relates to professional fees for which payment has been requested from the Legal Services Commission’. Read in the context of paragraph 3.4, paragraph 8.1 and the proposal as a whole, against the backdrop of section 5 IA, it is clear that this provision in the definition section is identifying a class of creditors bound by the arrangement whose debts are left unimpaired by the arrangement.

Whilst I accept that the definition of ‘Excluded Creditors’ in the definition section at paragraph 2.1 of the proposal does not expressly include any further classes of creditors left unimpaired, as with many CVA proposals, the proposal is a far from perfect document. Paragraph 28.1, for example, leaves lessors of leasehold premises which the Company continues to occupy after approval of the arrangement ‘unimpaired’; it provides that all rent liabilities arising after approval of the arrangement are to be paid by the Company as and when they fall due, even though the obligation to pay rent derives from a lease or contract pre-dating the arrangement which would otherwise be caught by the full and final settlement provision contained in paragraph 12.1 of the proposal. In a perfectly drawn CVA proposal, these lessors would have formed another sub-category of ‘Excluded Creditors’ in the definition section. The failure to include the Respondent as a sub-category of ‘Excluded Creditors’ in the definition section is thus not of itself fatal to the construction of ‘excluded’ in paragraph 15 of the proposal as ‘unimpaired’.

I do not see the estimated outcome statement as inconsistent with the construction of ‘excluded’ in paragraph 15 as ‘unimpaired’. The ‘CVA’ column in the estimated outcome statement simply demonstrates what sums are to be paid out of the sums paid into the arrangement, and to whom. By note 8 to the estimated outcome statement, it is confirmed that the Respondent’s director’s loan was ‘excluded’ from the CVA, with a cross reference to paragraph 15 of the proposal. That is to say: the Respondent’s director’s loan was not to be paid out of the sums agreed to be paid into the arrangement.

This was a trading CVA; not all the Company’s turnover (or anticipated profits) were to be paid into the CVA, simply set monthly sums, together with any net recovery in the Proceedings. Paragraph 8.2.6 of the proposal expressly provided that ‘[a]ll other assets are to be excluded from the Arrangement as they are needed for the continued operation of the Company’. Paragraph 25 of the proposal confirmed that to facilitate continued trading, the Company would require supplies of goods and services throughout the period of the arrangement. It states that ‘[p]ayment for such goods and services will be made from the trading receipts of the Company in the ordinary course of its continued business’. Paragraph 26 goes on to provide that the conduct of the Company’s business ‘remains the Director’s responsibility’ and that ‘the Company shall be solely responsible for timely payment of all debts and liabilities incurred by the business’.

The fact that the Respondent’s director’s loan is included in the ‘liquidation’ column of the estimated outcome statement is not inconsistent with the construction of ‘excluded’ as used in paragraph 15 as ‘unimpaired’ either. The estimated outcome statement is premised on the Company immediately entering into liquidation and ceasing to trade in the event that the CVA is not approved; in that scenario, the Respondent’s director’s loan would have remained outstanding in full.

A further argument raised by Ms Hill in a statement filed on behalf of AW in the related Part 7 proceedings is that the repayment of the Respondent’s director’s loan account is inconsistent with the cashflow projections annexed to the proposal. Mr Botting’s evidence, however, which in this regard I accept, is that the cashflow projections in question were prepared in December 2018, ahead of the meeting on 20 December 2018 and ahead of finalisation of the proposal signed off in February 2019. He also made the point that as the loan repayments were in place of salary and were in broadly similar sums to the net salary that the Respondent would otherwise have been made over the relevant period, the salary/loan swap would not have adversely affected the cashflow forecast in any event. I would add that this is in any event a somewhat arid debate given that HMRC then insisted on modifications requiring significantly higher monthly contributions not envisaged at the time the cashflow projections were prepared.

Mr Arumugam also relied upon Mr Kienlen’s comment at paragraph 13 of his second witness statement, that:

‘I do not accept that Mr Adamson, who was an experienced insolvency practitioner and who eventually became the supervisor of the CVA, would have advised the Respondent or the Company at any stage to take any steps which contradicted statements made in the CVA proposal to creditors’.

Building on that, Mr Arumugam argued (at paragraph 25d of his skeleton) that it was ‘inherently extremely unlikely that an experienced IP would have advised the Company to take steps which violated his professional obligations as supervisor of the CVA’.

Even putting to one side the fact that Mr Kienlen’s comments at paragraph 13 of his second witness statement were little more than a bald statement of subjective opinion and of limited if any probative value, for the reasons explored above, I do not accept that the salary/loan swap arrangement which Mr Adamson advised the Respondent to put into effect did 'contradict' the CVA.

In my judgment, on a true construction of paragraph 15 of the proposal, applying the general principles of interpretation summarised in Arnold v Britton at [15] against the backdrop of section 5(2) IA, paragraph 15 of the proposal left the Respondent as an ‘unimpaired’ creditor.

I would add that even if I am wrong in that construction, in considering (at Mr Arumugam’s invitation) ‘inherent likelihoods’ of what Mr Adamson would or would not have been prepared to advise or do in the context of this CVA as an experienced insolvency practitioner, the court must consider how Mr Adamson himself would have construed paragraph 15 of the proposal. That paragraph is not a standard ‘template’ provision. In my judgment, considered against the backdrop of the language employed at the meeting on 20 December 2018 (see [163] above), it is in my judgment more likely than not that Mr Adamson himself considered that paragraph 15 of the proposal left the Respondent an unimpaired creditor and therefore free without breaching the terms of the arrangement to engage in a salary/loan swap in order to save the Company PAYE and NIC. This makes sense of the stated purpose of the proposed exclusion referred to in paragraph 15 (with emphasis added) – ‘to assist with costs savings to the Company’; in context the obvious ‘costs’ savings are the PAYE and NIC that would otherwise be payable on the Respondent’s salary. This in turn feeds into the inherent likelihood of Mr Adamson advising the Respondent to put the salary/loan swap arrangement in place.

No alternative explanation was put forward as to why the Respondent would suddenly stop taking monthly salary and instead receive repayments of his director’s loan in sums roughly equivalent to (in fact slightly less than) his net monthly salary, if not pursuant to the advice of Mr Adamson.

Mr Arumugam invited the court to take account of the fact that Mr Adamson is now deceased and is unable to comment on the evidence of the Respondent and Mr Botting. I do take that into account. This is, however, something of a double-edged sword for the Applicant. Ms Bamforth attended many of the meetings in the run-up to and during the course of the CVA and was party to much of the email correspondence between AW and the Respondent/Mr Botting over that period and yet was not called as a witness by the Applicant. Even if Ms Bamforth had changed firms by the time of issue of these proceedings, it remained open to the Applicant to call her as a witness. Mr Adamson himself had ample opportunity to instigate proceedings (and file his own evidence therein) before his unfortunate death in June 2022 and did not do so, notwithstanding being lead Supervisor throughout the CVA in 2019 and thereafter lead administrator from 2 January 2020 to June 2022, for the first 18 months of the administration. A full year elapsed after the June 2021 meeting at which the salary/loan swap arrangement was expressly raised and Mr Adamson took no steps to intimate, still less instigate, a claim. Mr Adamson’s failure to take or intimate any action against the Respondent in respect of the Payments even after the June 2021 meeting is in my judgment entirely consistent with the evidence of both the Respondent and Mr Botting that the salary/loan swap arrangement was put in place on Mr Adamson’s advice.

Mr Arumugam also relied upon Mr Kienlen’s evidence to the effect that he (Mr Kienlen) had checked AW’s records and could not find any record of the advice having been given. As I have already concluded, however, Mr Kienlen has failed to conduct proper investigations in this case and lacks objectivity. For reasons already given, I have concluded that his evidence must be treated with caution: see [111]- [123] above. His claims in oral testimony that he had been ‘unable to find’ Mr Adamson’s notes and that there were not any meeting notes at his offices ([114] above) are particularly concerning, given AW’s own WIP entries confirming that Ms Ann Probert of AW located and sent to Ms Jo Smith ‘copies of Rob’s notes from various meetings’ relating to the Company on 4 October 2023, very shortly after Ms Smith’s receipt of Mr Botting’s attendance note of the meeting of 20 December 2020: see [72] and [74] above. Mr Kienlen (and through him the Applicant) could have disclosed a full set of the meeting notes taken by Mr Adamson and Ms Bamforth during the course of the CVA in AW’s possession or control but declined to do so, notwithstanding the heightened importance of such notes in light of Mr Adamson’s unfortunate sudden death. To adopt with gratitude a phrase employed by Arden LJ in Mumtaz, such documentation is in my judgment ‘conspicuous by its absence’.

I turn next to consider the ss 238 and 239 claims against the backdrop of the foregoing findings and conclusions.