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06-04-2020 Written by admin Category: Criminal Defence

Company directors have a range of duties and responsibilities when it comes to representing and promoting their company. A recent court case serves as a useful reminder that directors must not act dishonestly and that, by turning a blind eye to dishonest conduct by a third party, a director may leave themselves open to a claim for fraudulent trading.

The case

The case in question is Pantiles Investments Ltd & Anor v Winckler [2019], heard in the High Court in England earlier this year. The liquidator of a company brought the claim for fraudulent trading with the intent to defraud creditors, as well as for breach of a director’s fiduciary duties.

Background

Pantiles Investments Ltd had been set up by Sabine Winckler to purchase a property owned and occupied by Peter Goldbart, a friend and employer of Ms Winckler. She was the sole shareholder and director. Pantiles purchased the property in February 2011 using a variety of loans, some of which came from parties and entities with connections to Mr Goldbart. He entered into a tenancy agreement with the company and lived in the property with his family.

In October 2011, Mr Goldbart was declared bankrupt. The property was then sold to a third party less than a year later for £899,000. Following a petition from HMRC, Pantiles was wound up in August 2015. The liquidator took the view that the company had been set up to defraud Mr Goldbart’s creditors and brought a claim against Ms Winckler for fraudulent trading under section 213 of the Insolvency Act 1986. This was on the basis that she was “knowingly a party to the carrying on of the business of [Pantiles] with the intent to defraud the creditors of Goldbart”.

What the court heard

Ms Winkler claimed that she was not knowingly a party and had been duped by Mr Goldbart. She said she had intended to purchase the property herself for retirement income but, having failed to obtain a mortgage, agreed to his suggestion that the company be set up for the purchase. She claimed to not know about Mr Goldbart’s impending bankruptcy, only discovering this after the transaction was completed. However, the court heard that Ms Winckler effectively acted on his instructions, including those not to cooperate with his trustee in bankruptcy. There was also no evidence that money had been received from one of the companies supposedly lending money for the purchase.

The court’s decision

It was held that the test for knowledge of fraudulent trading, set out in the case of Morris v Bank of India [2005], was satisfied. Within its requirements, the test states that:

  • knowledge can include “blind eye” knowledge i.e. “shutting one’s eyes to the obvious”

The court found that Ms Winckler’s explanations regarding the transaction were improbable and she was a knowing party to Mr Goldbart’s attempts to conceal his property and the proceeds of its sale from his creditors. As a result, she was guilty of fraudulent trading within the meaning of section 213 of the Act.

Contact our Fraud Defence Lawyers, Sheffield

If you have been accused of fraudulent trading, speak to one of our Fraud Defence Solicitors immediately by calling 0808 168 5813 or complete our online enquiry form.

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