The High Court has found that a husband acted unlawfully after using company funds to pay £150k of personal expenses, and that he improperly paid his wife company money when he knew the firm was insolvent.
The pair may ultimately have to pay almost £500k after falling foul of strict costs rules.
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Reporting by Daniel Cloake
This two-day trial at the High Court concerned an application to recover sums of money, said to have been improperly paid from the funds of Caterham Capital Limited. The claim was brought by Joint Liquidators Mr Kevin Goldfarb and Mr Stephen John Hunt in March 2021.
It took almost 4 years for the matter to finally come before a judge after a series of set backs.
Caterham Capital Ltd was incorporated in June 2003 and was in the business of leasing and brokering shipping containers. It was wound up on 11th October 2017.
The two respondents to the application were Mr Carsten Birkebaek, 69, and Ms Rebecca Lodge Birkebaek, 58. Without intending any disrespect we will refer to the respondents by their first names to avoid confusion.
Carsten was at all material times the sole director and sole shareholder of the company. Rebecca married Carsten in July 2018, after the company had collapsed.
The liquidator alleged that both of them had benefitted from “large sums of money” improperly paid out by the company.
Carsten accepted that he had caused the company to pay out various portions of money including £135k towards his personal mortgage, £101k towards his personal credit cards, £56k in rent and £2,285 towards “online dating costs“.
David Williams, the barrister representing the Joint Liquidators, told the court that “quite simply these transactions, the overwhelming majority of them, are plainly personal in nature” which “cannot on any view be related to the company“.
All in all some £460,193, later reduced to £440k, was claimed against Carsten, but which included a sum of £21,158 claimed against both respondents on a joint and several basis.
Both respondents denied any accusations of wrong doing. In closing Carsten said the applicants had tried to paint him “consistently as an incompetent director with no moral boundaries…Nothing could be further from the truth“
Carsten contended that whilst the £440k had been used for personal expenses, he had more than reimbursed the company to the extent that he should now be considered a creditor of the now insolvent firm.
Mr Goldfarb had told the court in writing that Carsten “was not properly able to explain how [his calculations] worked or give any details.” Adding “I cannot find any paperwork or records to suggest that this ever happened. The Company’s bank statements suggest that nothing of the sort ever happened.”
With respect of the £21k it was said, all things considered, this reflected the balance owing by Rebecca to the company. She had contended that this amount should be reduced to reflect credits for rental payments of £1k/month for use of space within their rented home, along with other payments.
She was cross-examined by Mr Williams, who began by saying that “normally I would ask a witness to annunciate as best you can but as an opera singer I don’t think you’ll have any issue with that“. It was said that Rebecca had worked at the Royal Opera House and at the BBC.
She explained that the company had “nothing to do with me in the slightest“. Asked why there were no records of the financial arrangements between her and Carsten she said “we were living together, we weren’t really emailing each other“.
A careful tally, said to show the balance owing, had been lost between two house moves, the court was told.
Having been asked why she had not replied to legal correspondence she described letters from Knights PLC, the firm of solicitors on the record for the liquidators, as “extremely aggressive and unpleasant” adding she had “no legal obligation to respond to a legal letter“.
The litigation had been a “complete nightmare for us as a family over the last 10 years“. She described her husband as the most “upright, meticulous, stickler for things being done right” person she knows.
In his 140 minutes in the witness box Carsten denied any wrongdoing – “I ran the business in the best interest of the company and its shareholders and I will stand by that any day of the week“.
He did admit though that he “used the company account to pay personal expenses“. He said he did not in fact have a personal bank account at the time of these alleged payments.
Asked why there was “no evidence of an agreement” with his wife over the rental payments he asserted “I didn’t need anything other than a verbal agreement.”
Asked why did he didn’t mention the rental arrangement in an interview, held with the claimants legal team in 2017, he said “I found myself in a situation of total attack by the lawyers during the interview so maybe I didn’t say everything I should have said“. There were a “very very aggressive team of lawyers trying to make me probably bankrupt” he claimed.
Carsten could not point to any single aggressive line in the transcript instead citing “the overall tone.“
Mr Williams put to Carsten that he had “recklessly treated company funds as your own“. “I would disagree” came the response.
The lack of business records, statements and receipts were said to have been explained by their destruction following an acrimonious separation with his previous wife. It was said they had been kept in the home office at the former matrimonial home – “Revenge done well, if you like that sort of thing” was how Rebecca described the situation having told the court about the look of “devastation on [Carstens] face when he opened the office to find nothing there“.
The absence of personal credit card statements from Amex, firmly within the power of Carsten to obtain, was explained by a desire to avoid restarting the clock on Amex’s ability to recover outstanding debt.
A significant amount of the claim was effectively struck out by the judge in the first 30 minutes of the trial who relied upon the so-called Duomatic principle. As Carsten was the sole shareholder of Caterham Capital is was said he could have, and is assumed to have done so, approved the payments from the company.
His Honour Judge Hodge KC told the liquidators that they should therefore concentrate their efforts in identifying payments in the two years prior to the date of the winding up petition (23rd September 2016).
These payments, said to have been made unlawfully, were shown to the court:
In the course of oral evidence Mr Goldfarb accepted that each of the three columns should be reduced by some £19k to reflect credits not yet accounted for.
It was however the date in the second column – 1st July 2014 – which ended up being key to the whole case.
It transpired that the last set of accounts signed off by Caterham Capital, filed at Companies House, were for the year end 30th June 2014.
The judge found that it was simply not open for Carsten, who had signed off the accounts as sole director, to now assert that the value of the directors loan account, ie the amount the company owed him, was now not correct. It had shown a balance of negative £14,189.
The judge sought to clarify his view that “everything you’re seeking a credit for has already been taken into account in the company accounts“.
“I respectfully disagree” replied Carsten.
“I’m sure you do but I want to understand why you disagree” came the response.
Carsten said he wasn’t “going to try and configure a lie” relying on his upbringing which taught him “if you don’t know the answer don’t make it up, say you don’t know”. As to the discrepancies between what he said and what the accounts said we were told “there are lots of holes in the cheese, I’m sorry“.
As a result of the judge finding that Carsten couldn’t backtrack on the figure recorded in the 2014 accounts, this meant he couldn’t claim for any of the amounts which he says would have pushed him into the realm of being a creditor.
“In any case that comes before the court there are likely to be certain key documents of magnetic importance.” The judge clarified that in this case these did not just include the accounts, but also an exchange of emails between Carsten and his accountants NWN Blue Squared Ltd.
The first e-mail referred to was dated 30th June 2016 in which the accountant had informed Carsten that a CCJ had been enforced against the company for some £102,135.
Carsten responded stating: “I may want to liquidate CCL as the trading position means we will likely default on loans due soon. Is that something you can help me with? I want it shut down as quickly as possible.“
The accountant offered to introduce Carsten to a “friendly insolvency practitioner” and said the process would cost some £5k.
Carsten replied that “with much debt and a few ghosts from the past I feel it’s better to make a clean break. I can then start again as many others have done“.
Ultimately, the company was served a winding up petition by a creditor.
The judge said that given this email exchange he was “satisfied” that the dates of 30th June/1st July 2016 were therefore “the point of no return” for the company.
This was bad news for Rebecca who had received payments of £36,500 between 1st and 4th July 2016 “at a time when it was clear from the emails passing between [Carsten] and the accountant that the company was insolvent“. The judge added “this was a clear preference in favour of [Rebecca]“.
Extended discussions in court over the purported validity of the £1k monthly rent, which ultimately the judge found “difficult to accept“, didn’t actually matter because of the finding of the preference.
It must have been slightly frustrating for the joint liquidators as they had “always made clear that their claim against her is restricted to the sum in the application notice of £21,158.98” and “it was not now open for [them] to improve upon that” by claiming the whole of the £36,500.
I’m entirely satisfied that these payments were clearly motivated by a desire on the part of [Carsten], as the sole director of the company, to improve the position of [Rebecca] in the event of the inevitable liquidation of the company.
I’m satisfied [Carsten] desired to improve the position of [Rebecca] as against the position of the company’s other creditors.
It was only natural he wished to see his then girlfriend, later wife, paid in preference to the other creditors.
HHJ Hodge KC
Despite the judge finding in favour for Carsten with regards the motoring expenditure which “were made for the benefit of the company and therefore do not fall to be recovered“, and allowing for some smaller amounts which were deemed legitimate credits from other companies, he was hit with a hefty amount to repay – £149,663.04.
This included the £21,158.97 which falls to be repaid by both Rebecca and Carsten.
The story certainly doesn’t end there. We now turn to part 36.
Part 36 is “the most powerful single provision in the civil procedural rules“, and it deals with offers of settlement. This quote came from a very interesting article on the topic by David Allen Green.
The court was told that the joint liquidators had made an offer to settle the claim against both respondents in January 2022 for some £17k. The liquidators had “clearly done better” by obtaining £21k said HHJ Hodge KC who told them the “consequences” of “not accepting that offer” were that they would have to pay all of the claimants costs, with costs from the 18th February 2022 payable on the so-called indemnity basis.
Carsten likewise had failed to beat an offer to settle made on 26th September 2022 and so a similar consequences would apply, with indemnity costs running from the expiry of the offer in October 2022.
It was ordered that the respondents would have to pay interest on those costs, and the sums awarded, both at a rate of 5% above base rate, along with a lump sum of 10% of the amounts awarded.
It was explained that the exact amounts for costs would have to be decided by a specialist judge at a later date but in the interim period the court could order that “the absolute minimum” should be paid on account. Mr Williams submitted that 80-90% was an appropriate percentage. Ultimately £180k was ordered to be paid by Carsten, which included £30k to be paid by both him and his wife.
Rebecca addressed the court over video link after this decision had been made. Sounding almost in tears she asked for “as much time in possible” to meet the interim payment as she said some pensions would have to be liquidated.
The judge ordered that “both payments are to be made within 28 days of today” – so 17th February 2025.
A judgment amount of £149k, penalty sum of £15k, provisional costs of £235k, and a very rough mouseinthecourt calculation of interest, excluding base rate, of some £84k leads to an unreliable total of £483k.
HHJ Hodge KC remarked:
“The reality is the respondents could have compromised the claim against the two of them together in 2022 and they chose not to do so… It does seem to me there is a public interest in seeking to induce respondents to insolvency applications to compromise claims thereby saving costs and pressure on the courts“.
£483k is certainly some inducement.
The respondents indicated they would consider making an application to the Court of Appeal and were told they had 21 days in order to do so.
Case details
Case Number: CR-2016-006029
Before: His Honour Judge Hodge KC sitting as a Judge of the Chancery Division
Rolls Building
Trial: 16th, 17th January 2025. Courtroom 13 in person
Judgment hand down: 20th January 2025. Courtroom 13 hybrid hearing.
In The Matter Of Caterham Capital Limited (In Liquidation)
And In The Matter Of The Insolvency Act 1986
Between:
(1) Kevin Ashley Goldfarb
(2) Stephen John Hunt
(As Joint Liquidators Of Caterham Capital Limited (In Liquidation))
Applicants
— And —
(1) Carsten Birkebaek
(2) Rebecca Lodge Birkebaek
Respondents
The applicants were represented by David Williams, instructed by Knights PLC
The respondents appeared as litigants in person
Mouse in the Court 