Deputy ICC Judge Paul Greenwood granted a bankruptcy petition against two borrowers who obtained a £1.89m crowd-funded loan from P2P firm Assetz Capital.
The borrowers were said to have been “knowing parties to a mortgage fraud exercised on the Assetz companies, which were innocent victims of that wrong“.
An application for disclosure of the lenders details was dismissed as “no more than a fishing expedition“
An interlocutory hearing in this matter was covered by the mouseinthecourt back in November 2020.
The following write-up is derived from paragraphs, replicated almost verbatim, from within the Judgment of DICCJ Greenwood handed down purportedly in public on July 7th 2021.
The court was asked to consider two bankruptcy petitions, both presented on 14 November 2019 by Assetz SME Capital Limited, a so-called peer-to-peer lending company. The petitions were against Ms Jean Shrimpton and Mr Steven James Budd, both of Loughton, Essex. The hearing took place fully remotely on 18 June 2021. The Petitioner was represented by Mr John Vickery of Counsel, the Respondents by Mr Richard Devereaux-Cooke of Counsel.
By a written loan agreement dated 25 March 2014, Ms Shrimpton and Mr Budd borrowed £1.89 million secured against a property known as Crystal Brook with the loan attracting an interest rate of 1.75%/month.
The loan had been collectively crowd funded by a large number of members of the public (“Lending Syndicate Members“) and the transaction was facilitated by Assetz SME Capital Limited (“the Petitioner”) with a separate company, Assetz Capital Trust Company Limited (“TrustCo”) representing the Lending Syndicate Members in dealing with the security for the Loan.
The loan defaulted and on 23 April 2015 fixed charge receivers were appointed over the charged property. However, it having transpired that Crystal Brook was occupied by the borrowers and their daughter as their principal home, the TrustCo began proceedings against them for possession and monetary judgment.
In opposition, the Respondents challenged the enforceability of the Loan Agreement on the basis that neither the TrustCo nor indeed the Petitioner was authorised to enter into regulated mortgage contracts. They relied on the provisions of section 26 of the Financial Services & Markets Act 2000, the effect of which is to render such agreements unenforceable except insofar as permitted by the provisions of section 28 of that Act, by which the court, if satisfied that it would be just and equitable in the circumstances of the case, may nonetheless allow enforcement.
The trial of that claim was heard by HHJ Maloney QC at Cambridge County Court, and he gave his Judgment on 28 April 2017 finding in favour of the TrustCo. He ordered the Respondents to deliver up possession of the property by 26 May 2017, and ordered them to pay the sum of £3,711,079.74 plus contractual interest at the daily rate of £1,864.11 down to the date of payment.
In the Judgment of HHJ Maloney QC, amongst other things, the Judge found as a fact that false representations had been made to the Petitioner and TrustCo that the Respondents were residing at Rookery Cottage, not Crystal Brook, and that therefore the loan was procured on a false basis. He found that those misrepresentations were made by various intermediaries, including one Mr Daniel Esquilant, a broker, with whom he said the Respondents had for some years been engaged in a series of property transactions.
The Judge also found, having heard oral evidence and considered what he described as the very full files of documentation covering the transaction, that neither the Petitioner nor the TrustCo had actual knowledge or were on notice that the Respondents were residing at Crystal Brook. He found that they were not negligent in failing to discover that fact. At paragraph 7 of his Judgment, he found that on the contrary, at all material times, they believed that the Respondents were living at Rookery Cottage, and that the agreement was not a regulated mortgage contract. He found their belief to have been reasonable.
On the other hand, in respect of the Respondents themselves, the Judge found, on the balance of probabilities, that both were knowingly party to the misrepresentations made to the Petitioner and Trustco, and that their purpose in participating in those misrepresentations was to obtain refinancing that they might not otherwise have been able to obtain, this being what he described as “a classic example of one type of mortgage fraud”.
He rejected the Respondents’ case that they were themselves the victims of brokers who were looking to make high fees by arranging the refinancing and rejected their case (or at any rate refused to find) that it was probable that Mr Esquilant, their broker, had forged their signatures on initial loan applications and correspondence.
In light of that, HHJ Maloney QC exercised the court’s discretion under section 28(3) of the 2000 Act, and what he described as the checklist set out in the case of ‘Re Helden v Strathmore Ltd [2011]’ and concluded that it was just and equitable in all the circumstances to allow the loan agreement and charge on Crystal Brook to be enforced in full according to their terms. Amongst other things, he noted that no criticism had been made of the actual terms of the loan as being unconscionable or excessive, and that in fact it merely replaced existing similar financing as to which the Respondents had no complaint.
Possession of the property was secured on 8 September 2017, and it was eventually sold, on 17 May 2018. The gross receipts of sale were £1,503,214.61. By that stage, some three and half years after the agreed Repayment Date, significant costs had been incurred, as well as additional interest, including Default Interest. The sum realised by the receivers, even the gross sum, was not enough to repay the principal amount originally borrowed, which on any view must be repaid.
Joining the Lenders?
The Respondents made an application dated 12 March 2020, by which they sought disclosure of the names of all those Lending Syndicate Members for whom they say the Petitioner acted as agent in making the Loan Agreement.
On 16 November 2020, ICCJ Barber ordered the Respondents’ application to be adjourned generally, with liberty to restore on not less than 3 business days’ notice.
Although Mr Devereaux-Cooke submitted that it would be wrong to proceed to determine the Petitions in the Petitioner’s favour without allowing the Respondents the opportunity to advance their disclosure application, he accepted that no steps had been taken to restore it, and that it was not before the court at the hearing on 18 June 2021. Nonetheless, he suggested that it was part, as he put it, of the context, or the matrix.
First, and principally – as perhaps had been alluded to in the application to set aside the Statutory Demands – that the Petitioner was not or at least was not the only correct creditor, because it acts as the agent of the Lending Syndicate Members, and that any debt is a debt to them, not the Petitioner agent.
Secondly, that the Court should look at the circumstances surrounding the making of the Loan Agreement, and in which the debt arose in the first place, noting that the Loan was procured by the Respondents’ agents on a false basis, that it was unlawful and that there were suspicious circumstances surrounding the application process. This second point was, said to be connected to the outstanding disclosure application, because it is said, that the Respondents do not understand “the knowledge which can be attributed to those lending members in respect of the loan monies advanced to the Respondents”, or whether they “provided informed consent to the loan administration process”, given that for example, it resulted in an unlawful regulated mortgage.
At the hearing on 18 June, as to the first of their stated grounds, Mr Devereaux-Cooke accepted that either the Petitioner or TrustCo would have standing to petition, and that on any view TrustCo could, if necessary, as a judgment creditor, apply to be substituted under rule 10.27 of the Insolvency Rules, meaning that there was no real point in the argument about standing, which would, at most, lead to nothing more than a short delay.
Plainly, it would be undesirable, and somewhat surprising, if enforcement action could only be taken in this case by the Lending Syndicate Members, of whom it’s understood there to be several hundred.
Insofar as the point was maintained, there was nothing in the cases of either Lederer & Another v Allsop LLP & Others [2018] EWHC 1425, a decision of Zacaroli J, or of Milne v Open Access Finance Ltd [2020] EWHC 1420, a decision of Fancourt J., which undermines these fundamental principles or the courts conclusion. Those cases, which in any event turned on different contractual arrangements, were concerned with rights and claims alleged by borrowers against alleged principals, not the right of an agent to sue in its own name.
In the circumstances, although there was some discussion in the parties’ written arguments, about the Petitioner’s entitlement to seek payment, in its own right and capacity, of the Exit Fee under Clause 7.2 of the Loan Agreement, and possibly of the Interest Rate Margin to which it is entitled by its own separate agreement with the Lending Syndicate Members, in my judgment it is unnecessary to resolve those arguments in the Petitioner’s favour, for the reasons that I have given: on a proper construction of the Loan Agreement, the Petitioner is contractually entitled to claim the whole sum due from the Petitioner. It was accepted that the Petitioner has not only a legal right to proceed against the Respondents, but that it also has an independent economic interest in doing so, which is not surprising given that it would not otherwise stand to profit from its role.
Turning to the second of the Respondents’ stated grounds of opposition, the argument advanced at the hearing was that on the authority of Lederer & Another v Allsop LLP & Others [2018] EWHC 1425, and of Milne v Open Access Finance Ltd [2020] EWHC 1420, the Respondents would be entitled, or are at least arguably entitled, to disclosure of the identities of the Lending Syndicate Members, as was ordered in those cases, which also concerned peer to peer lending arrangements; and, that the Petitions should therefore be adjourned, to allow for the Respondents’ application to be restored, argued and determined, in order, that they might then begin in some way to investigate, as explained above, the state of the Lending Syndicate Members’ knowledge and their consent to the Petitioner’s and presumably TrustCo’s conduct of the arrangements, and of the prosecution and continuation of these Petitions.
DICCJ Greenwood accepted, and said he would have accepted even without reference to Lederer and Milne, that there is in principle jurisdiction to order disclosure of the Lending Syndicate Members’ names, the insurmountable problems for the Respondents in this context are that:
First, the Loan Agreement was made in 2014, and the Loan ought to have been repaid in 2014; the trial before HHJ Maloney took place in April 2017 and Crystal Brook was sold in 2018; it is now 2021, and having made a disclosure application in March 2020, the Respondents have done nothing at all since the order of Zacaroli J to pursue or restore it; it is now far too late to seek an adjournment of these Petitions in order to do so;
Secondly, and fundamentally, as submitted by Mr Vickery, in order to justify a disclosure order the Respondents would in any event have to establish some good reason, would have to suggest or formulate some sort of complaint or claim that they wished to pursue against the Lending syndicate Members, as did the applicants in Lederer and Milne; but they have entirely failed to do so, as indeed they failed to do so in the proceedings ultimately heard by HHJ Maloney notwithstanding the substantial disclosure that they received in the course of those proceedings;
Thirdly, in Lederer, the claimant borrowers asserted that the lenders had wrongly, in repudiatory breach, failed to comply with their obligations to lend money, and they wished to identify the proper defendants to that claim; in Milne, the claimant borrowers sought damages for misrepresentation about interest rates and security, and sought delivery up of securities, damages and restitution; in this case, by contrast, no complaint has been articulated, or was successfully articulated at the trial before HHJ Maloney – on the contrary, the Respondents in this case accept that they borrowed and received the monies on the terms of the Loan Agreement, but have not fully repaid them, or any interest at all, since default.
Essentially, it is not enough for the Respondents to suggest that they might, by discovering the identities of the Lending Syndicate Members somehow come to discover some as yet unknown complaint which they might wish to pursue. That is no more than a fishing expedition, for which Lederer is certainly not authority, and it comes nowhere near satisfying the court that there is a genuine triable issue in respect of the debt claimed or providing grounds on which to adjourn Petitions presented in November 2019 for what would be a lengthy, indefinite period.
Moreover, when assessing the Respondents’ alleged reasons for wishing to investigate the position, set out in Mr Budd’s Witness Statement, I remind myself of the findings of fact made by HHJ Maloney set out above – in essence, that the Respondents, from whom he heard oral evidence, were themselves knowing parties to a mortgage fraud exercised on the Assetz companies, which were innocent victims of that wrong; insofar as there were suspicious circumstances surrounding the application for the Loan, and “sharp practice” in obtaining it, as referred to in the Respondents’ notice of opposition, the Judge found that the Respondents themselves were parties to it; it is very difficult in those circumstances to imagine what variety of complaint or claim might now be raised by the Respondents against the Lending Syndicate Members, and in any event how their proposed investigations might affect the rights of the Petitioner under the Loan Agreement, to recover a debt, in a sum which is currently undisputed, and fixed by a reference to an unsatisfied judgment.
There is no reason at all to believe that the Petitioner is doing anything more than one would expect of an unpaid commercial lender, taking whatever steps are required to enforce its rights.
On the contrary, it is common ground in this case that the Respondents own at least one valuable property, being Rookery Cottage, which the trustee in bankruptcy would be in a position to realise for the Respondents’ creditors. In addition, the appointment of a trustee would enable enquiries to be made and possible claims to be investigated, for example, against Mr Esquilant once more accused by the Respondents of fraud, and possibly others.
In all the circumstances, I will make bankruptcy orders as sought by the Petitions against Mr Budd and Ms Shrimpton.
Open Justice
By way of footnote – I observed the substantive hearing remotely on 18th June reporting at the time:
”The debtors were challenging Assetz’s standing to bring the application. Heavy references made to the [Lederer Loan] and the [Milne v Open Access Finance] litigation. The court reserved judgment until ‘the week after next’ (ie w/c 28/6)”
Unfortunately the handing down of the judgment was not publicly listed. Contacting the court with reference to the decision of Lloyd Jones LJ who stated in Yalland & Ors v Secretary of State for Exiting the European Union [2017] EWHC 629:
The requirement that justice should be administered openly and in public is a fundamental tenet of our legal system. The administration of justice must be open to public scrutiny. This principle is inextricably linked with that of freedom of speech and in particular the freedom of the press and other media to report court proceedings
Lord Justice Lloyd Jones
I was given the following explanation:
Due to an over-sight of a court clerk, the matter had not been listed on CE file (the court’s electronic filing system) nor added to the daily list and the listing officer was not notified of the hand down date or that the Deputy Judge had agreed to sit. Unfortunately, this meant there was no record of this case having been heard on 7 July when the oral hand down took place. This matter should have been listed and published on gov.uk but due to this over-sight this was not done. This has highlighted a serious training issue which will be addressed as a priority to ensure it does not happen again.
It was not a deliberate act for this case not to be published.
I spoke to Deputy ICC Judge Greenwood on 14th September who has advised me that he can provide a full written copy of the judgment on or by 21st September 2021. As soon as this is ready I will send you a PDF copy by e-mail. This will include all the information that was handed down in court should you have been able to attend.
I would like to apologise that the high standards you should have expected were not met on this occasion.
IN THE HIGH COURT OF JUSTICE BR-2019-001306 & BR-2019-001307
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Rolls Building
Before:
DEPUTY INSOLVENCY AND COMPANIES COURT JUDGE GREENWOOD
IN THE MATTER OF JEAN SHRIMPTON
AND IN THE MATTER OF STEVEN JAMES BUDD
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
BETWEEN:
ASSETZ SME CAPITAL LIMITED
Petitioner
-and-
(1) JEAN SHRIMPTON
(2) STEVEN JAMES BUDD
Respondents
Mouse in the Court 
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