EXECUTION ORDERED AFTER 'FRAUDSTER' PROCURES HIS OWN BANKRUPTCY.
I-DESIGN CONSTRUCTION LTD (1), MR PAUL ARCHER (2), MR JAMES HOOKER (3) & MRS CLARE ARCHER (4) -v- MR DAVID RENWICK (25th July 2023) Plymouth County Court (unreported)
In an exceptional order, the Plymouth County Court sitting in Torquay & Newton Abbot has exercised an extremely rare discretion to allow a judgement creditor to complete execution of a Charging Order over a judgement debtor’s property, subsequent to a bankruptcy order.
Equally rare but judged ‘just’ in light of the debtor’s conduct (which required police involvement), the court increased the Interim Charging Order to account for unpaid interim court orders, the cost of High Court Enforcement Officers and disapplied the Fixed Costs regime under CPR Part 45 which were subsequently increased from £110 - £5000.
This Case Report provides an analysis of the decision to allow the Judgement Creditor to complete execution despite the debtor’s bankruptcy pursuant to the Tagore principles. It will also address the issue of beneficial interests that typically arise in a 'sham-divorce' case. A separate report will discuss the Fixed Cost regime and the courts discretion to assess costs on the standard basis.
THE LAW
A Charging Order is a form of enforcement that operates as a private mortgage over a debtor’s property (usually land). The court provisionally grants an Interim Charging Order without notice to the debtor and then should there be an objection, a hearing is listed to decide if the Charging Order should be made Final/Absolute i.e. permanent.
As with all forms of enforcement/execution, should the debtor become bankrupt, s.346 Insolvency Act 1986 operates to prevent creditors retaining the benefit of that execution unless it has been completed. While there is no statutory definition as to what a ‘completed execution’ entails, case law indicates that an ‘Interim Charging Order’ cannot be considered complete. This means that the default position where a debtor becomes bankrupt prior to a Charging Order being made Final/Absolute, is the creditor should not be able to retain the benefit of the Charging Order against the Trustee in Bankruptcy (TIB).
However, s.346(6) Insolvency Act 1986 endowers the court with the power to make a Final Charging Order over a bankrupt’s estate. There is no legal test for the exercise of this discretion under statute and its use is exceptionally rare with the main (if not sole) reported case being:
Tagore Investments SA -v- Official Receiver [2008] EWHC 3495 (CH): The court made a Final Charging Order over a Fraudulent Bankrupt’s property. The debtor whom was a confidence trickster and had a history of providing dishonest information to the courts had secured his own bankruptcy without notice to his creditors just before the hearing to make the Charging Order absolute. There was also the issue of an allegedly sham-divorce taking place which involved the debtor trying to put the beneficial interest of the property into his wife’s name.
BACKGROUND
The main proceedings arose from a construction dispute that devolved into criminal harassment, multiple findings of dishonesty and a formal criminal caution.
I-Design Construction Ltd (IDC) was an alleged construction company operating throughout the southwest. It was owned and operated by the 2nd and 3rd Claimants while the 4th Claimant provided day-to-day management and bookkeeping services. The Defendant hired IDC to undertake a loft conversion at his only home. However, instead of performing any contractual work, the Claimants took £65’000 of the Defendant’s life savings, all his insulation and after receiving their final contractual payment, abandoned site leaving it in a state of collapse. Thereafter, the Claimants returned to demand more money from their elderly victims whom had been left without any working central heating or hot water during winter. The Defendant and his wife were then subjected to criminal harassment which necessitated police involvement and a warning.
The Defendant reported the Claimants to Trading Standards and in response the Claimants issued civil proceedings without notice on the dishonest basis that they were fully insured and/or had the capital to satisfy a judgement. In April 22 IDC’s claim was struck out for a wholescale failure to comply with court orders. In May 22 the 2nd Claimant received a further cost order from the Family Courts for using minors in bogus molestation claims (which he later alleged was the 4th Claimant). In June 22 IDC was refused relief from sanctions and in July 22 the company was ordered to pay £95’653.40 damages to its victims. Thereafter, in August 22 IDC’s directors were made joint and severally liable for the costs of the litigation pursuant to a forewarned Non-Party Costs Order.
The Defendant instructed High Court Enforcement Officers to collect on the interim-court costs and in September 22 IDC (which had only ever been used as a vehicle for covid loans that in turn had been pocketed by the directors) was put into liquidation for failing to pay the damages. In October 22 Mr Archer whom had now gone into hiding from Enforcement Officers was found to have given give further false information to the court bailiffs by pretending to have an IVA and ordered to pay further costs. Finally, in December 22 after failing to challenge the Defendant’s bill of costs Mr Archer was ordered to pay >£174’000 pursuant to a Default Costs Certificate (DCC) and a further £3000 before being removed by court security after he started kicking tables and chairs.
ENFORCEMENT, CHARGING ORDER & POLICE CAUTION
The Claimants were invited to put forward payment proposals. However, the 3rd Claimant refused to communicate and without any discernible assets capable of satisfying the debts, he was placed into bankruptcy. Meanwhile the 2nd Claimant with the support of the 4th just descended back to criminality.
From January 23 – March 23 Mr Archer set up various social media accounts which he used to launch trolling and doxing attacks against his creditors’ business interests. He impersonated employees of his creditors and abused people online, threatened his creditors’ suppliers and business associates with reputational damage if they continued to do business, hopelessly tried to spread false stories across the internet and with the assistance of the 4th Claimant engaged in petty but grotesque hate crimes. No payment proposals were forthcoming.
Consequently, the Defendant applied for a Charging Order over the 2nd & 4th Claimant’s property known as 166 Avenue Road which was their family home. The order was granted and served February 23 and in March 23 Mr Archer received a formal criminal caution for harassment & malicious communications of his creditors. He was then forced to take down his various sites. Finally, the Enforcement Officers got hold of him but reported that he had no other assets capable of satisfying the debt and lodged a Nulla Bona.
During this time and in breach of CPR r.73.10(2), the 4th Claimant had lodged an objection to the Charging Order but as usual, failed to serve a copy. The matter was then transferred to the Claimants’ (hereafter ‘Judgement Debtor’s’) home court and listed for a hearing to make the Charging Order absolute.
THE HEARING
The Defendant (now ‘Judgement Creditor’) served an updated ‘Statement of Amount Due’ to account for the 'Interim-Court Costs' the bailiffs had been unsuccessful in recovering together with ‘Enforcement Costs’ being the actual cost of their instruction together with that of process servers and an investigator whom had tracked Mr Archer down.
THE JUDGEMENT CREDITOR'S CASE
The Judgement Creditor relied upon the principles set out by the Court of Appeal in Petroleum Ltd -v- Bernard Kenny Ltd [1981] EWCA Civ 10 and Harman -v- Glencross [1986] Fam 81 and submitted that as no objection had been served and in breach of CPR r.73.10A neither the Judgement Debtor nor the 4th Claimant had served any evidence, it was simply in the interest of justice that the Charging Order be made absolute.
In consideration of the court's ‘equitable exercise’ of its discretion, there would no prejudice to other creditors as the Judgement Creditor held approximately 97% of the unsecured debt and regretfully, there was no real prospect of the Judgement Creditor otherwise recovering the money. While liquidators for IDC were pursuing both Archers for money they had embezzled (Mrs Archer indirectly through another entity hastily set up in her sole name), this money had not yet been traced and ranked in preference before the Judgement Creditor was >£88’894.19 owed to the HMRC and >£43’599.40 owed to their bank.
THE JUDGEMENT DEBTOR'S CASE
The Judgement Debtor objected to the Charging Order on 3 grounds. Firstly, he did not think it was fair that IDC’s case had been struck out. Secondly, he did not agree with the amount the court had ordered him to pay and thirdly, he was bankrupt. Allegedly, the same County Court of Torquay & Newton Abbot had made him bankrupt the day before the hearing.
DDJ Murphy unsurprisingly found the first 2 ‘unconvincing’ and as for the third, Mr Archer (whom had pretended to be bankrupt before) was not bankrupt. There had been only 2 judges sitting the day before (including himself) and they had not made Mr Archer bankrupt. Equally, the only document Mr Archer could produce in support of his bankruptcy was a snapshot of a reference number which on its own, meant absolutely nothing.
THE ALLEGED BENEFICIAL INTEREST
The court while noting the requirements of the CPR granted Mrs Archer an indulgence and heard her objections, the only material ones being:
The property had been her family home for 9 years and she had 2 dependent children.
She had a beneficial interest in the Property based on a 'contribution' but she could not remember what it was.
The court considered the 1st objection relevant only for the subsequent application for sale but it was not relevant as to whether or not a Charging Order should be placed over the property. The 2nd objection was “slightly more compelling” but the court was unable to assess whether Mrs Archer did in fact hold a beneficial interest due to her abrupt attack of amnesia on the issue. What coherent information it was able to extract, was that the couple were now allegedly divorced but her solicitor had missed a deadline (no law firm had ever gone on record) so she was unsure as to what was going on. Consequently, the court felt it must adjourn.
The Judgement Creditor objected to an adjournment as firstly, Mrs Archer had missed her opportunity to serve evidence in support of a beneficial interest. More importantly, should Mr Archer have in fact applied to make himself bankrupt, then the adjournment could cause an unjustifiable prejudice to the Judgement Creditor as he may lose his security if the bankruptcy order was granted during the adjournment.
THE INTERIM DECISION
In view of Mr Archers potential bankruptcy, DDJ Murphy ordered an adjournment but found in the interim as follows:
Pursuant to CPR r.73.3(4) the Judgement Creditor may apply for a single Charging Order in respect of more than one judgement order against the Judgement Debtor while CPR r.73.10(7) allowed a DJ at a hearing to modify the Charging Order. On that basis and considering all circumstances of the case, he would modify the Interim-Charging Order to include the Interim-Court Costs and the Enforcement Costs together with interest and VAT accrued.
In the event that Mr Archer did procure his own bankruptcy prior to the next hearing, the principles set out in Nationwide -v- Wright [2009] EWCA Civ 811 indicated that regardless, the court could make a Final Charging Order and with the Interim-Charging Order being left in place, the Judgement Creditor was secured.
Regretfully, Mr Archer started kicking chairs again while Mrs Archer just verbally abused the elderly Judgement Creditor under the misapprehension she had somehow 'won'. Court security attended and again, forcefully removed the pair from the court building.
THE BANKRUPTCY
The adjudicator's office subsequently made Mr Archer bankrupt on his own application which had been submitted the night prior to the last hearing. At the next hearing and in support as to why the court should make the Charging Order absolute, the Judgement Creditor relied upon the Tagore principles which established that:
The court has discretion to make a Final Charging Order despite the debtor becoming bankrupt pursuant to s.346(6) IA 1986. This was a principle extracted from Landau -v- Purvis Times, (12 August 1986). – Tagore para. 44
In Judging ‘fairness’, the extent to which and the reasons for enforcement of the judgement had been frustrated had to be considered - Tagore para. 45.
Emphasis had to be placed on post-judgement events – Tagore para. 46.
But, it was still open to the court to consider pre-judgement events to enable it to draw an inference as to the motivation behind post-judgement events that it might not otherwise be proper to draw as per re Buckingham International Plc B.C.C. 943 [1998] 2 WLUK 299
The jurisdiction under s.346(6) IA 1986 had to be exercised with great caution and only in exceptional circumstances – Tagore Para. 47
The burden as always, was the on the applicant – Tagore Para. 48.
In relation to the 2nd – 4th principle, the Judgement Creditor relied upon the Judgement Debtor’s previous admissions that he had been using a false address to avoid the court bailiffs, the liquidators findings that IDC had always had the money to pay the Interim-Court Costs but instead had hastily transferred it to a non-trading entity set up in Mrs Archer’s name (which was only being used as her piggy bank), the finding of HHJ Mitchell that the Claimants’ case had never had any prospect of success and the Judgement Debtor’s now stamp book collection of criminal warnings and cautions all of which arose from a dispute where a residential property had been left in a state of collapse.
As for whether the case could be considered ‘exceptional’, in addition to the potential loss of life that may have resulted, the Judgement Creditor relied up the material facts insofar as they were paralleled in Tagore:
There would be no material prejudice to the remaining unsecured creditors as Judgement Creditor had 97% of Mr Archer’s unsecured debt. In Tagore it was material that the creditor was owed 98% of the debt.
The application for a Charging Order had been made promptly and with notice i.e. within 3 weeks of the conclusion of proceedings.
There had been no notice of the bankruptcy petition. As in Tagore, Mr Archer had attempted to procure his own bankruptcy the day before the hearing for a Final Charging Order and in secret.
The Judgement awarded clearly demonstrated that Mr Archer was a Fraudster whom had not hesitated to lie, cheat and steal – The Judgement Creditor relied upon the fact that the Claimants had stolen from the Creditor, misappropriated money under the guise of performing construction works and unbelievably, Mr Archer had changed the Claimants’ story an impressive 7 contradictory times during the litigation before attempting to blackmail his creditors online with different stories.
Mr Archer had not hesitated to lie to the court as well – The Judgement Creditor relied upon previous findings/admissions that Mr Archer had lied to the court about lodging and serving a Part 20 Defence to avoid judgement in default, had repeatedly been found at literally every hearing to have lied about being served his papers, had been found to have presented bogus molestation claims against his creditors which involved minors, had been found to have lied to the county court bailiffs by pretending to have an IVA and there was the outstanding issue of Mr & Mrs Archers forged payment schedules.
It was highly unlikely that Mr Archer had Petitioned his Bankruptcy for the Benefit of his Creditors – As in this matter, Tagore involved a suspected ‘Sham-Divorce’ where the court had found that the debtor had:
Almost certainly calculated that to petition when he did, and in the circumstances in which he did, would disadvantage a creditor and would promote his and his family’s personal interest in an improper way. He probably calculated that his wife’s interest in asserting a half interest in the house would be assisted by the delays that would ensure before a Trustee in Bankruptcy got himself or herself geared up to consider it and, if appropriate challenge. A Trustee in Bankruptcy would be a less enthusiastic litigant than the Claimants. The house would be available to him and his family longer. Tagore is suspicious of the genuineness of the professed divorce petition. [the court could] express no concluded view of that but can quite understand why they would be suspicious about what turns out to be a rather convenient divorce petition.
Surprisingly, the Judgement Debtor did not dispute any of the Judgement Creditor's submissions but instead pleaded that it would be 'just' if only his interest in the property was charged.
The court explained that as Mr Archer was the sole legal owner of the property he was by extention, the sole beneficial owner as well, until proven otherwise. He accepted this and in agreement with the Judgement Creditor the court made a Final Charging Order over Mr Archer’s interest in his solely owned property.
THE BENEFICIAL INTEREST
As for Mrs Archer’s beneficial interest, in complete contradiction to her earlier pleadings it was now her case that:
She had not been in the Property for 9 years it had actually been 20 years (whoops). She had been married to Mr Archer when he purchased it in 2003 but regretfully, a fire had destroyed all bank, phone records, other bills and documents to support this increased residency.
She did not have 2 dependent children she actually had 3 dependent children and also a disabled mother as well whom was now living with them.
She had once landscaped the garden and paid approximately £8000 in home improvements.
The couple had been divorced since early 2023 but the reason she didn’t have a financial order or anything else to confirm her interest or even any independent evidence of a divorce was because her then solicitors had missed a deadline and retained the papers.
The couple had agreed in 2003 that in the event of separation she should have 100% of the beneficial interest but having thought about it, 70% would be fairer. There was no Deed or other contemporary evidence to support this.
She had been a vital part of Mr Archers’ various businesses which had all been 'family run' having undertaken the bookkeeping and other duties.
The Judgement Creditor submitted that whether or not Mrs Archer had a beneficial interest was irrelevant for today as it was not for the court to assess such at this time. The correct body for Mrs Archer to plead a beneficial interest to was the TIB while the extent of her interest would quantified when the property was inevitably sold. But on the face of it, Mrs Archer was unlikely to prove anything, save a de-minimis interest as:
Her evidence as to how long she had lived in the property was inconsistent. Throughout 2022 she had denied even being resident there. In June 2023 she had lived there for only 9 years however; by July 2023 she had now lived there for 20 years. The only thing more incredulous than this confusion was the suggestion that in the age of internet banking a very meticulous fire had destroyed all records of her residency.
She had 1 dependent child the other 2 being over 18 years of age all of whom had been used as weapons in the litigation.
There was no evidence of any home improvements. The payments for construction items evidenced in her bank statements had taken place when Mr Archer was self-employed and subject to an IVA (completed long prior to the proceedings). These items were likely purchased for his own work. As for doing the garden once, this embarrassing submission was itself evidence of how little she had ever lifted a finger in contribution to the property.
There was no evidence of a divorce or even a marriage. Indeed, the couple couldn’t even agree on when they had allegedly divorced. Mr Archer claimed it was mid-2022 and Mrs Archer early 2023.
The exact percentages of any beneficial interest are established when the property is sold at which point it would be material that:
There was no evidence of Mrs Archer contributing to the purchase price, deposit, conveyancing or other legal fees.
She had never contributed to the mortgage.
The couple had maintained separate bank accounts. And;
Paid their own proportions of council tax.
But of the greatest importance, Mrs Archer’s evidence before HHJ Mitchell when considering a Non-Party Costs Order had been that she had nothing to do with any of Mr Archer’s business but “might have once made a cup of tea”. She was now admitting that everything the Defendant had previously submitted in support of a Non-Party Costs Order against her was true. Simply put, her case was that as she had committed contempt of court before a Circuit Judge, she should have 70% of the property.
JUDGEMENT
DDJ Davy having considered both parties cases ruled as follows:
It was not for the court to make a finding as to whether or not Mrs Archer had a beneficial interest in the property at this stage. The correct body for these submissions to was indeed the TIB. However, on the facts presented, Mrs Archer had ‘quite a fight on [her] hands’ to prove this.
Being familiar with Tagore, considering the background as ‘exceptional’ and noting no disagreement from the Judgement Debtor, it was in the interest of justice that the court make the Interim Charging Order Absolute and increased it to £203’077.44 as per the court’s interim decision.
The outstanding matter was whether the fixed costs should be set aside which we deal with in a separate update.
COMMENT
The courts will only ever exercise their discretion to make Final Charging Order over a property that forms part of a bankrupt's estate in ‘exceptional circumstances’ which is to say, outside the normal course of events and when failure to do so would result in a grave injustice.
In this matter, the Claimants had defrauded their elderly victims and then attempted to extort further sums from them in life-threatening conditions. The civil proceedings were only ever used as a cover to prevent a criminal investigation by Trading Standards and while refusing to settle the matter or agree to ADR, they willingly drove up a £200’000 cost bill that could never otherwise be satisfied. Essentially, they sought to use their own impecuniosity as a weapon to extract concessions while using terror tactics in the hope that they could just scare their victims into submission.
The overriding principle is one of ‘fairness’ and the insolvency protections of bankruptcy exist to allow a debtor and their creditors to fairly distribute the assets while the bankrupt has a breathing space to get back on their feet. However, in situations where a debtor has deliberately run the risk of getting into substantial debt either through recklessness or dishonesty/fraud, to allow them them the protections of bankruptcy just to frustrate their creditors enforcement, would ill serve the principle of 'fairness.'
Had the courts refused to make the Charging Order absolute, then the Claimants would have successfully used their own impecuniosity and congenital dishonesty not only as a shield to protect their own assets but as a weapon against those they had defrauded. It was simply in the interest of justice that the court refuse to allow them to do so.
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