Lendy Directors involved with “misappropriation of funds in excess of £6.5 million” court told

Two directors of the failed peer-to-peer fintech company Lendy Ltd have been hit with a world-wide-freezing injunction after the High Court heard evidence of “sham invoices” and “dishonest conduct”.

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Reporting by Daniel Cloake

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Defendants Liam John Brooke, 38, of Queens Crescent Portsmouth and Tim Alastair Gordon, 41, of Ryefields Park Chichester were founding directors of Lendy Ltd, a so-called peer-to-peer lending company which facilitated the crowd funding of loans by members of the public secured against property and other assets. 

The company was placed into administration in May 2019 following action taken by the FCA and Damian Webb, Phillip Rodney Sykes and Mark John Wilson of RSM Restructuring Advisory LLP were appointed as administrators.

During a private hearing held on June 2nd 2020 before The Honourable Mr Justice Zacaroli the court was satisfied “that this is an appropriate case to make the freezing order and proprietary injunction that are sought by the claimants” according to the approved Judgment.

At paragraph 2 of the Judgment the court ruled:
“That evidence demonstrates a good arguable case as to the misappropriation of funds in excess of £6.5 million by the first two defendants, by making payments for no proper purpose, purportedly justified by false invoices and at least two service level agreements created after the event. There is also a good arguable case, it seems to me, that these payments were made to offshore companies with whom the directors were connected.”

The court had been told that at the material times the alleged payments were made both Mr Gordon and Mr Brooke were shareholders of Lendy Ltd.   

Mr. Tony Beswetherick, counsel for the claimant Lendy Ltd, submitted as part of his duty of candour to the court, that it could be said that Mr Brooke and Mr Gordon would have had the capacity to approve the payments in any event.  This was described as the so-called ‘Duomatic principle’, after a case from 1969.

The judgment considered however that “the evidence suggests…the payments were accounted for as legitimate expenses for tax purposes…thus reducing the amount of corporation tax paid by the companies.“

The judge explained that the Duomatic “principle does not apply where the purpose of the misappropriation was to commit an unlawful act which would have been beyond the capacity of the company, such as defrauding the Revenue”.

Explaining that “There is clear evidence of assets within this jurisdiction, namely, the real properties I will come on to describe in a moment, alleged to have been acquired with the proceeds of the misappropriated funds” and that there was “at least some evidence — notably, the use of offshore companies, offshore trusts and offshore accounts — of assets abroad.” Mr Justice Zacaroli judged the evidence to be “sufficient to justify the worldwide aspect of the freezing order.” That was granted against the first, third and forth defendants.

The first property identified was said to have been Branskesmere House, Queens Crescent Portsmouth, where it had been submitted that some £770k had been identified by the claimants as having been “channelled from the misappropriated funds to Mr. Brooke via a loan to Argo Private Finance Limited, one of the companies involved in the offshore structure”.

The second property identified was Ryefields Park, Chichester where the court had ruled “there is prima facie evidence that £1.2 million was received by the fourth defendant in order to purchase the property, via Conduit — another company involved in the offshore structure.” 

It is understood that Mr Tim Gordon and his wife Mrs Sara Bryce-Gordon operate a guest house at the address, with Ryefields Park having been listed on the Booking.com website since May 2019. The advertising boasts that visitors can enjoy a “luxurious guest room with four-poster bed and sumptuous bathroom“.

The judgment continued that “so far as the third property is concerned, 10 Alhambra Road, this was acquired by the third defendant with £240,000 transferred to it by the company, but which was initially provided to the company by Mr. Brooke. Despite requests for an explanation of the source of those funds, Mr. Brooke has so far not provided any. There is evidence of a sum of a similar amount being transferred into Mr. Brooke’s bank account, most of which came from Argo shortly prior to the acquisition. In the face of silence from Mr Brooke, this indicates at least an arguable case that the property was purchased with the proceeds of the misappropriated funds.”

It is understood the defendants deny any accusations of wrongdoing.

The judgment can be read on the the BAILII website: Lendy Ltd v Brooke & Ors [2020] EWHC 1475 (Ch) (02 June 2020)

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
Claim No: BL-2020-000856

BETWEEN:
(1) LENDY LTD (IN ADMINISTRATION)
-and-
(2) MARK JOHN WILSON
(3) PHILIP RODNEY SYKES
(4) DAMIAN WEBB
(IN THEIR CAPACITY AS JOINT ADMINISTRATORS OF LENDY LTD)
Claimants

-and-

(1) LIAM BROOKE
(2) TIM GORDON
(3) LP ALHAMBRA LIMITED
(4) RFP HOLDINGS LIMITED
Defendants

Mr. Tony Beswetherick and Mr. Patrick Dunn-Walsh (instructed by Pinsent Masons LLP) appeared for the Claimants.