Sinclair Investments Essay

Date: 29/03/2011
Before :

THE MASTER OF THE ROLLS

LORD JUSTICE RICHARDS and LORD JUSTICE HUGHES
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Between :

| |Sinclair Investments (UK) Ltd |Appellant |
| |- and - | |
| |Versailles Trade Finance Limited (in administrative receivership) | |
| |Versailles Group Plc (in administrative receivership) | |
| |National
The funds advanced by traders to TPL were duly passed to VTFL, but they were not used for the purchase of goods or in genuine factoring transactions. Instead, the funds were (i) used to pay purported profits to traders, initially at a rate of around 16% per annum, (ii) stolen by Mr Clough, or (iii) circulated round a number of other companies also controlled by Mr Cushnie and/or Mr Clough. The purpose of this circulation of funds, referred to as “cross-firing”, was to inflate VTFL’s apparent turnover and to mask the absence of any genuine business.

9. The scale of the cross-firing was enormous, amounting in all to about £500m-worth. In his earlier judgment, Rimer J explained that there was only one legitimate trade and that made a loss. He concluded that, as none of the traders’ advances to TPL was ever used in any factoring transactions, all their advances remained held by TPL on trust for them, and that the management agreement entitled VTFL to transact business in TPL's name, and did not entitle VTFL to use TPL's funds for its own
From some time in 2000 the administrative receivers were in negotiation with Mr Cushnie, and in January 2001, they made a distribution to the banks from the moey they received from him. On 26 February 2001, they entered into a settlement agreement with Mr Cushnie. This purported to settle claims that VGP and VTFL had against him, namely (i) a claim by VGP for some £2.7 million for repayment of dividends paid on the false basis that VGP had distributable profits enabling the dividends to be paid; and (ii) a claim by VTFL for breach of his duties as a director. Neither dishonesty nor a proprietary claim was alleged in the settlement agreement. The administrative receivers entered into subsequent settlement agreements with Mr Cushnie in 2002 and