Howarth: Should not have faced proceedings, says judge
The man who founded now-defunct Stobart Barristers and then bought two well-known criminal law firms, has been cleared of any wrongdoing around his business’s insolvency.
Insolvency and Companies Court Judge Barber found that Trevor Howarth “has at all material times acted responsibly and with integrity” as a director of now-defunct alternative business structure One Legal.
“He very properly sought and acted on the advice of a specialist firm of insolvency practitioners for several months prior to placing the company into a CVA [company voluntary arrangement].”
The claim was brought on assignment by Manolete Partners, the insolvency litigation funder, over payments totalling £101,000 made to Mr Howard by One Legal, of which he was one of two directors.
Manolete argued that this comprised preferential payments and transactions at an undervalue contrary to the Insolvency Act 1986.
The payments were made in 2019 during the course of a trading CVA which the company was in between February and December 2019.
The CVA was supervised by Robert Adamson and Mike Kienlen of Armstrong Watson.
Mr Howarth’s case was that, at the time of the CVA, One Legal owed him £97,445 on his director’s loan account, plus ongoing contractual interest at 8% per annum.
Under the terms of the trading CVA, he and the staff were entitled to continue receiving their pre-CVA salaries, £200,000 in his case.
But, in April 2019, on the advice of Mr Adamson, he came off One Legal’s payroll, ceased to be paid salary, and received payments in reduction of his director’s loan instead. This saved the company the PAYE and National Insurance contributions that would otherwise be payable (called the ‘salary/loan swap arrangement’).
The High Court heard that, after One Legal acquired London law firm Kaim Todner in 2016, “numerous undisclosed liabilities were discovered” and it had to pay out more than £600,000 on these. Further, the law firm’s work in progress had been “significantly overstated”.
These factors caused One Legal “serious financial issues”, leading Mr Howarth to loan it £75,000. In 2017, former Stobart chief executive Andrew Tinkler invested £2.9m in the business, via Mr Howarth.
Despite this, by 2018, One Legal had serious cash flow difficulties and owed money to HM Revenue & Customs. Mr Tinkler introduced Mr Howarth to Armstrong Watson and in 2019 it entered into the CVA owing creditors £3.8m.
On 3 January 2020, One Legal entered administration via directors’ appointment.
The judge held that the salary/loan swap arrangement was entered into on Mr Adamson’s advice – this saved One Legal around £55,000 in tax on his salary.
At no point before Mr Adamson’s death in June 2022 did anyone from Armstrong Watson raise questions about the arrangement or intimate a claim against Mr Howarth.
“I am satisfied that the company, acting by [Mr Howarth], made all the payments in good faith, for the purpose of carrying on its business and with reasonable grounds at the time for believing that the transactions would benefit the company.”
The judge said the preference claim had not shown there was actually any preference.
“[Manolete] has failed to establish that the company did anything or suffered anything to be done which had the effect of putting [Mr Howarth] into a position which, in the event of the company going into insolvent liquidation, would be better than the position he would have been in if that thing had not been done.”
She concluded: “[Mr Howarth] has at all material times acted responsibly and with integrity as a director of the company. He very properly sought and acted on the advice of a specialist firm of insolvency practitioners for several months prior to placing the company into CVA, a process which involved a detailed review of the company’s finances.
“He was utterly transparent in his dealings with Mr Adamson throughout the course of the CVA and reasonably relied on Mr Adamson’s advice when putting in place the salary/loan swap arrangement, motivated only by a wish to save the company the PAYE and NIC that would otherwise have been payable on his salary.
“In doing so he genuinely believed that he was acting in the company’s best interests. It is highly regrettable that he has been put through the stress of these proceedings.”
In July, the Solicitors Regulation Authority (SRA) disqualified Mr Howarth from running a law firm in future after finding that he misused disbursement money from the Legal Aid Agency.
The ruling cast some more light on this, saying that before the CVA was terminated, Mr Adamson asked Mr Howarth to transfer the £77,000 in cash that One Legal held to Armstrong Watson.
Mr Howarth claimed that he sought and received confirmation that this would be ring-fenced to pay any legal aid disbursements. However, he said he later discovered that the money had instead been used to pay Armstrong Watson’s fees.
This caused the SRA to open the investigation and ultimately the ban. Mr Howarth told the court that “as sole breadwinner for his family, this development has had devastating consequences for him”.
Judge Barber noted that there is now also a separate claim brought by Mr Howarth against Armstrong Watson, but she did not set out the details.
Leave a Comment