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Fraud Case Liquidators Face Enormous Task

The enormity of the task facing liquidators in seeking to unravel the complex affairs of a nationwide business that once turned over £120 million-a-year has been revealed in the context of a hotly disputed £50 million damages claim against two of its former directors.

Liquidators claim, amongst other things, that the company failed to pay about £45 million in tax over a three-year period and are pursuing the two directors, who are accused of fraudulent trading and trading whilst insolvent. They firmly deny those claims, insisting that there was no fraud and that any underpayment of tax was the responsibility of the group finance director.

The number of documents generated by the case was truly vast and the matter had been bedevilled by delays in disclosure of evidence.  The liquidators had been warned by the Companies Court that, unless disclosure was satisfactorily achieved by a given date, their claim against the directors would be automatically struck out.

The liquidators’ legal team had embarked on a massive disclosure exercise, involving eight fee earners who examined the contents of hundreds of boxes of material relating to the company’s affairs. Thousands of documents had been listed and digitally scanned before being up-loaded onto an online e-disclosure platform which was available to all the parties.

Nevertheless, the directors argued that the disclosure exercise had been seriously flawed; that numerous potentially relevant documents were missing from the list and irrelevant documents included. It was submitted that the liquidators were thus in breach of the Court’s strict directions and that their claim stood struck out.

Dismissing those arguments, however, the Court found that, despite imperfections in the exercise, the liquidators’ lawyers had carried out a ‘reasonable search’ for relevant material which had been disclosed in an appropriate format. Claims that the list of documents was of no practical utility were seriously exaggerated.

In a case involving such grave allegations, an extensive disclosure exercise was proportionate and the liquidators had plainly approached their disclosure obligations in good faith. Although certain classes of relevant material had been missed from the list of documents, it had been served within the deadline set by the Court and the disclosure order had been complied with.