Decision

Decision for BUILDSTOP LTD t/a MGN Builders Merchants

Published 17 December 2021

0.1 IN THE SOUTH EASTERN & METROPOLITAN TRAFFIC AREA

1. BUILDSTOP LTD t/a MGN Builders Merchants

1.1 OK2032199

1.2 GOODS VEHICLES (LICENSING OF OPERATORS) ACT 1995

2. TRAFFIC COMMISSIONER’S WRITTEN DECISION

3. Background

The Licence was granted on 8 July 2020 authorising the use of six vehicles. The application form did not declare links to any previous licences and did not disclose any actual or pending asset purchases. As the application seemed straightforward, it was granted under delegation by the Central Licensing Office in Leeds. The Operator failed to attend New Operator Seminars on the 29 September 2020, the 20 October 2020 and the 11 November 2020. The named proposed attendee each time was Mr Vitalii Morgun, who was described as “Transport Coordinator”. DVSA raised a formal compliance investigation due to the repeated non-attendance. DVSA telephoned the Operator on 9 December 2020. Mr Morgun answered and introduced himself as the Transport Coordinator. When the Examiner questioned why no vehicles were specified on the Licence, Mr Morgun confirmed vehicles were being operated: T777 MGN, P777MGN, L777 MGN and K777 MGN. They were all then added to the Licence on that same day at 13:10, as well as an additional vehicle - V777 MGN.

The sole Director Miss Santa Adomaviciute contacted DVSA on 15 December 2020 and confirmed Mr Morgun was employed by Buildstop to help set up the transport department, but the Yard Manager Gerhards Rekke would be taking over this role. This was confirmed by e mail on 16 December 2020. Statutory records and other documents had to be requested twice. The request is dated 18 December 2020, but only limited documentation was sent in. A full reply was chased on 18 January 2021. Only then was a proper response received, leading to concerns over the control of the Director. Accordingly, DVSA decided that a follow up in person investigation was necessary. Two Examiners visited the Operator unannounced on 1 February 2021. The first contact was with Mr Rekke. The driver of L777 MGN stated he had worked for the company for two years and Vitalii Morgun was the “boss”. He did not know who “Santa” was. It is DVSA’s evidence that Mr Rekke confirmed Mr Morgun was the “boss”, but Miss Adomaviciute owned the business, and no one had contact details for her.

An email was received from Miss Adomaviciute dated 2 February 2021. She attached hire contracts with MV Commercials. She confirmed “I am attaching a sale agreement confirmation that Buildstop Ltd bought MGN assets including MGN trading name and number plates (which were later put on the trucks which we hire from MV Commercials) from the administrators. Buildstop Ltd wanted to get the benefit of using the established brand name when it started trading. Buildstop paid for this in full and has all rights of using MGN trading name! Last year was a year of opportunities as because of the lockdowns. COVID, Brexit and many other factors a lot of businesses were failing and me and my family decided to buy MGN. There are hundreds like this on the market at the moment.”

An appointment for Miss Adomaviciute and Mr Rekke to attend the Examiners’ office was made for 10 February 2021. DVSA state that the meeting highlighted Miss Adomaviciute’s lack of understanding regarding the Operator’s Licence. She was under the impression Mr Rekke could run the transport for her and confirmed VOL was being accessed by Mr Rekke using her log in details and making changes with her authority. This is a breach of the self-service user terms, which require everyone to have their own log in.

Once the investigation concluded a Maintenance Investigation Visit Report was completed and the outcome is marked ‘unsatisfactory’. The following unchallenged shortcomings were found: -

• It was thought the operator were using the incorrect operating centre. This has been amended on the licence records and was due to an “administrative error”.

• The maintenance records, a mixture of electronic and paper formats, failed to meet the latest requirements.

• PMI sheets missing and no first time use checks supplied for any vehicles.

• Inconsistencies in tyre tread depth records and brake lining wear figures.

• Brake efficiency not assessed at every PMI or fully laden when they were.

• Evidence of defects found at PMI with no record of repair.

• Planner shows no vehicle details or evidence of when PMIs/MOT or tachograph calibrations are due.

• No evidence of Vehicle Off Road (VOR) system.

• Driver walk around check times recorded on the tacho show many are being done in under 5 minutes.

• No gate checks or audit of driver checks carried out. DDR book should be checked, and results recorded.

• Driver detectable defects found at PMI and fleet check.

• No evidence of system to monitor adblue usage.

• No evidence supplied of effective wheel security systems or any tyre checks or wheel re-torque being carried out.

• No evidence supplied for any driver training.

• An immediate prohibition issued on fleet check to vehicle registration R777 MGN; offside rear lamp unit found to be insecure and detachment imminent.

• The yard supervisor is accessing VOL with the directors log in.

• Vehicles used more than 28 days without being specified on the licence.

• Operator failed to attend three new operator seminars.

A full and detailed response was received from the Miss Adomaviciute. Miss Adomaviciute noted “my background is not transport so we have employed a transport consultant from Leafes Logistics to undertake a full compliance audit and guide us on what we need to have in place”. The audit was completed on 22 February 2021 and the Operator confirmed the following changes as a result: -

• Director and Mr Rekke booked on an OLAT course in March.

• Mr Rekke attended a one day Transport manager CPC refresher course on 22/03/21.

• Gate checks implemented.

• All drivers will receive toolbox talks.

• Tyre & retorque policy will be formalised in line with DVSA recommendations & drivers briefed.

• Measured pump fitted to monitor Ad blue usage.

• Laden brake tests every 12 weeks.

• Driver CPC training plan will be “rolled out shortly”

• PMIs reduced from 12 weekly to 6 weekly.

Companies House checks noted that Buildstop Ltd was incorporated on 3 February 2020 but was previously known as Essexbuild Group Ltd until 2 April 2020. The persons with significant control were Miss Adomaviciute, Dmitrijs Sakelis and Mr Morgun from 3 February 2020 until 2 April 2020. Miss Adomaviciute has always been the sole Director and remains the person with significant control.

Mr Sakelis and Mr Morgun have the following Licence history: -

a. OK1138423 M G N MGN Builders Merchants Limited this restricted licence was granted on 12 May 2015 authorised for 8v. The licence was surrendered on 14 January 2021. The company went into liquidation.

b. OK2006537 M G N Skip Hire Ltd granted on 15 November 2017 authorised for 6v. A check on Companies House confirmed the company status as Active – Propose to Strike Off. Mr Morgun resigned as a director on 1 September 2020 and Mr Sakelis resigned on 26 November 2020. There were currently no directors listed on Companies House but they were still listed on VOL. Without nominated directors, the company cannot hold a goods vehicle operator’s licence because direction is needed to ensure the Licence conditions and undertakings are met. Traffic Commissioners cannot take action against shareholders only the Company and any directors.

The above evidence and information were referred me. I decided to call the Operator to a Public inquiry and requested Mr Morgun attends as a possible de facto/shadow director. In relation to MGN Skip Hire Limited, a Propose to Revoke letter was sent to the Operator on 2 June 2021. The Licence was revoked on 18 July 2021 as there was no response.

4. Hearing

The Hearing commenced and concluded on Tuesday 3 August 2021. The sole Director, Mrs Santa Morgun (formerly Miss Adomaviciute) and Mr Rekke (Directors) attended for the Company and they were represented by solicitor, Miss Laura Newton. Mr Morgun also attended as requested. DVSA Vehicle Examiner Mr Perry Mitchell gave evidence via Microsoft Teams. At the conclusion I gave a period for written representations before undertaking a written decision. The complexities of the way the evidence evolved, and other work commitments have regrettably delayed the issue of this decision beyond the Senior Traffic Commissioner’s guidance but with his knowledge.

5. Documents/Evidence

Prior to completing this Written Decision I have considered the following: - * Public Inquiry Brief;

• Witness Statements from Miss Adomaviciute, Mr Rekke and Mr Morgun and Operator’s documents lodged in advance of the Hearing;

• Operator’s Compliance Audits February 2021, March 2021 and July 2021;

• Report from VE Mitchell in relation to the pre-hearing records produced;

• My handwritten contemporaneous notes taken during the day and my notes of the evidence from listening to the evidence recordings post hearing;

• Written Closing Submissions and attachments received from Ms Newton on 10 August 2021;

• South Bucks District Council and another V Porter(FC) (2004) UKHL33, English v Emery Reimbold & Strick Ltd [2002 EWCA Civ 605 and Bradley Fold Travel Limited & Peter Wright v Secretary of State for Transport [2010] EWCA Civ 695 in relation to written decisions generally;

• Upper Tribunal Decisions and other guidance I consider relevant to this determination as listed elsewhere in this Decision; and

• The Senior Traffic Commissioner’s Statutory Guidance and Statutory Directions (‘SGSD) current versions.

6. Issues

Buildstop Ltd was incorporated in February 2020 under the name Essexbuild Group Ltd. The proposed Director was Miss Adomaviciute and the shareholders were Miss Adomaviciute, Vitalii Morgun and Dmitrijs Sakelis. The Company was used to affect a prepack sale of the assets of MGN Builders Merchants Ltd. When the application was lodged in Leeds in April 2020, no trading name was given and there was no declaration of the asset purchase. Although the asset sale had not concluded, there was an asset sale on the immediate radar and this prepack should have been disclosed. The Operator accepts that the trading name and asset sale should have been disclosed. The evidence around how they came not to be disclosed potentially goes to fitness to hold a Licence. If the links to MGN Builders Merchants Ltd and MGN Skip Hire Ltd had been disclosed, then the Licence could not have been granted under delegation. This is because a check would have been made of MGN Builders Merchants Ltd under the Operating Instructions. The fact it had entered a CVA in 2019 without notifying my office would have led to further inquiries.

The Operator does not challenge the written or oral evidence of DVSA, save Mr Rekke denies he described Mr Morgun as the “boss” on 1 February 2021. The Operator and Mr Morgun deny that Mr Morgun has at any time been a “de facto” or “shadow” director. Mr Morgun was made bankrupt on 11 February 2021. Prior to that date so far as I am aware there was no legal impairment to Mr Morgun being a company director but there may have been practical ones such as (i) whether the asset sale to Buildstop Ltd would have proceeded; or (ii) Buildstop’s ability to raise commercial finance due to MGN/Mr Morgun’s history. As stated previously it may have impacted the grant of this Licence, whether at all or the timing of it. The Operator denies any “fronting” for Mr Morgun/Mr Sakelis/MGN (see below for the definition of “fronting”).

7. Consideration of findings

7.1 Approach

From March 2020 Operators have been challenged, along with the rest of the nation, on coping with the unique circumstances of Covid-19. On 17 March 2020, a full week before the national lockdown the Senior Traffic Commissioner issued an emergency SGSD setting out detailed legal and practical advice for Commissioners, Operators, Transport Managers and those who support them. It includes the following:

What is physically possible may change during the course of the outbreak, but the Office of the Traffic Commissioner has issued additional guidance to operators throughout the course of the restrictions to date: https://www.gov.uk/government/publications/advice-heavy-goods-and-public-service-vehicle-operators-covid-19 The Senior Traffic Commissioners directs that this must now form part of the decision-making process. In considering the positive and negative aspects of an operator’s approach during the lockdown and subsequent restrictions, traffic commissioners may also have regard to:

• the employment of effective management based on sound risk analysis for instance in the management of maintenance;

• a risk-based approach to the testing of vehicles in prioritising the inspection of older and/or historically problematic vehicles in the transition back to business as usual…

These should be supported by evidence.

There is clear and consistent case law from the Upper Tribunal that a Traffic Commissioner is entitled to treat the conduct of a sole director effectively as the conduct of the Limited Company and good repute or fitness is determined accordingly. Such an approach has received approval from the appellate tribunal on several occasions, such as 2013/008 Vision Travel International Limited and T2013/61 Alan Michael Knight. Miss Adomaviciute was the sole director up until Mr Rekke was added as a director on 20 July 2021, just before the Public Inquiry. As well as the operator licensing obligations, a company director must exercise his or her statutory duties of demonstrating independent judgement, skill, care and diligence, as per sections 173 and 174 Companies Act 2006).

‘Fronting’ was helpfully defined in the case of 2012/071 Silvertree Transport Limited, where the Upper Tribunal stated: ‘.. ‘fronting’ occurs when appearances suggest that a vehicle, (or fleet), is being operated by the holder of an operator’s licence when the reality is that it is being operated by an entity, (i.e. an individual, partnership or company), which does not hold an operator’s licence and the manner in which the vehicle is being operated requires, if the operation is to be lawful, that the real operator holds an operator’s licence.

I have referred to the sole Director as Miss Adomaviciute rather than Mrs Morgun, as that is how she features in the reports, and it is how she signed her witness statement. I have not set out all the evidence as it is a matter of record in the papers and by way of transcript. I have referred to material evidence relevant to my findings.

8. Evidence – DVSA

The evidence prior to the Public Inquiry call in letter is set out in the background section above. DVSA undertook a more recent check on maintenance compliance to assist the Inquiry. That visit took place on 2 August 2021. The full details are set out in the maintenance investigation visit report dated the same day. The Vehicle Examiner sent the update contemporaneously to my office, the Operator’s solicitor and her clients. The report lists ongoing unsatisfactory arrangements in relation to inspection/maintenance records, driver defect reporting and uncertainty of who is responsible for the transport operations. The situation around measured brake efficiency was at best confusing. By way of example, road tests are indicated but percentage figures are given. Tyre management is still ineffective on the PMI forms with important data missing, such as tyre pressures and codes. The Vehicle Examiner noted that driver detectable defects are still being found on preventative maintenance inspection sheets with no corresponding driver defect report. Annotations on PMI sheets suggest that drivers are spoken to but there is no audit trail.

Although the MOT history is reasonable, vehicle V777MGN failed its MOT on 18 June 2021 for obvious driver reportable items such as markers and reflectors and washers and wipers. The Examiner is particularly concerned around the purported auditing of PMI sheets. The Examiner’s concluded that his findings were not indicative or proper auditing. Further the audit date is before the PMI is even signed off by the technician/foreman. Although the Vehicle Examiner acknowledges that improvements have been made, he remains concerned at the basic failings as summarised on page 8 of the updated MIVR report:

Improvements have been made in many areas with systems and procedures being implemented. But shortcomings found highlight concerns with the driver walk around checks and maintenance inspection systems. Inspection sheets have consistently been filled out incorrectly and are missing required data. The consultant advised that specific tyre data was required at PMI - See maintenance bundle, but no data has been recorded or supplied to me. The inspection sheets have clearly been audited but basic mistakes have been missed and not addressed.

The recording of the type and condition of the brake efficiency test is very important to maintain compliance but the tests have consistently been recoded incorrectly - No action has been taken by the responsible person.

P777MGN PMI dated 17/07/2021 has a roller brake test recorded. The figures recorded are IM71 50%, IM72 25% and IM73 16%, all have been marked as ‘Locked’. No print out has been supplied, but these are the minimum figures required to pass at MOT. This should have been confirmed with the maintenance provider, a print out should have been supplied and another brake test arranged.

In response to my questions, the Vehicle Examiner confirmed that the Operator presented an overall impression throughout his investigations that there was no link between Buildstop and MGN other than the asset purchase (which was disclosed in February 2021). However, he always suspected that the entities were not as separate as they wanted him to believe. At page 59 of the bundle is the email from Miss Adomaviciute to the Vehicle Examiner and his colleague dated 2/2/21 including: “Also your colleague was asking my staff a lot of questions about MGN. To make this clear. I am attaching a sale agreement confirming that BuildStop LTD bought MGN assets including MGN Trading Name and number plates (which were later put on the trucks which we hire from MV Commercials) from the administrators. Buildstop LTD wanted to get the benefit of using the Established Brand Name when it started trading. BuildStop LTD paid for this in full and has full rights of using MGN Trading Name! Last year was a year of opportunities as because of the lockdowns, COVID, Brexit and many other factors a lot of business were failing and me and my family decided to buy MGN. There are hundreds of deals like this on the market at the moment. Please see example if the most recent one from this week following the link -> https://www.businessoffashion.com/articles/retail/asos-buys-topshop-sister-brands-in-295-million-deal”. The Examiner confirmed that this was one of the reasons he was led to believe no prior connection. The Public Inquiry was the first that the Vehicle Examiner knew of any personal connection between Miss Adomaviciute and Mr Morgun, even though they were married some months before his investigation visit.

9. Evidence - Operator

I received Witness Statements in advance from Miss Adomaviciute, Mr Morgun and Mr Rekke. These were adopted and expanded upon. Essentially, I am asked to accept that Miss Adomaviciute’s family gave her the money to buy the assets and she is genuinely the controlling mind of the company. In essence, she and her family are protecting that money. Mr Morgun is stated to not be or ever have been a director, whether de facto or shadow. Mr Morgun’s sole role now is in sourcing suppliers and materials using his previous contacts. Mr Rekke oversees the transport supported by a Transport Consultant and very recently more regular visits from a qualified Transport Manager. Miss Adomaviciute acknowledges that she has not been properly conversant with the requirements of Operator Licensing but that she had put steps in place, by way of example regular compliance audits, to assist.

10. Consideration and Findings

10.1 Preliminary

Miss Adomaviciute was born in Lithuania and came to the UK in 2012. She is a qualified beauty therapist, dental nurse, and beauty aesthetics practitioner with her own clinic. I accept that she is an intelligent person with a business background, albeit very different to the builder’s merchants. From observing Miss Adomaviciute and listening to her evidence I did not find her a credible or persuasive witness. I directed that she gave her evidence before Mr Morgun and Mr Rekke because I wanted to know exactly how much involvement she had in the business and what she knew personally. At the outset I explained to Miss Adomaviciute she needed to listen to the questions and take care with her answers. I needed to be clear what she did and what others did; what she knew and where she needed someone else to give the evidence. Instead, Miss Adomaviciute’s evidence on the roles of Mr Morgun and Mr Rekke and the transport management arrangements at different points in time was fluid throughout the hearing.

10.2 “Fronting” for Mr Morgun and links to credibility.

Miss Adomaviviute on the role of Mr Morgun: statements to DVSA and the Inquiry

In early questioning at the Inquiry, Miss Adomaviciute said that Mr Morgun had guided her “a little bit” when she first took over. He suggested that she contact Mr Rekke, who could then contact the previous MGN staff. The only people from MGN that she knew personally to speak to, was the HR executive and one other. The HR executive also helped contact some of the staff. She told the Inquiry that her husband was not ‘extremely’ involved, and his only role was in sales not transport and they would just speak in the evenings at home to help her understand the business. She said that Mr Rekke was the main help because he knew about the transport because he did all the transport before.

At this point, I raised the apparent difference between her oral evidence and what was said to DVSA previously. By way of example the e mail dated 16 December 2020 at page 58(a) of the Public Inquiry bundle where she states that Mr Morgun was helping to set up the transport department, but Mr Rekke would be taking over “shortly”. I asked Miss Adomavaciute directly which was it – only sales and an evening chat with Mr Morgun or was he working with and training Mr Rekke. She said it was ‘as she told me’ but added that she would take notes as they talked in the evening. She repeated that his role was sales. I asked her if that was the case what did she mean in her e mail to DVSA and again to tell me what he was doing. This time her answer was that Mr Morgun was actively involved across the business. As part of guiding her Mr Morgun was having meetings with Mr Rekke and the drivers. I pointed out we had gone from telling DVSA that Mr Morgun ‘set up the transport department’ to telling me ‘sales’ and evening chats to now including transport meetings with drivers. Miss Adomaviciute then said that he knew about everything and was helping about everything. I put on record at this point that this was not her original oral evidence and neither oral version sits comfortably alongside what she told DVSA in December 2020. At this point I allowed a break for the solicitor to take further instructions.

Miss Adomaviciute then sought to try and marry up her various versions to me by stating that she did not realise I needed details of their talks. The number of talks went from evenings only, to day time and evening. He was her husband and was never leaving the business after the transport was handed over to Mr Rekke (again contradicting where she told me originally that it was always Mr Rekke doing the transport). She and her husband had always talked about which trucks to buy, who should work in the office and in general about everything. He continued to be involved in sales, buying stock but also coming to meetings. Mr Morgun continued to be involved in the ‘big’ decisions around ‘picking’ vehicles, who to hire from etc. Miss Adomaviciute said that in the end the decision was always hers, but she would always ask Mr Morgun his recommendations.

In summary, DVSA were told Mr Morgun was involved in the transport operation as at 16/12/20 but would shortly hand over to Mr Rekke. On 3 August 2021 the evidence went from Mr Rekke doing all the transport from the start (mid May 2020 – see para 31 below) and Mr Morgun just sales and evening chats, to Mr Morgun being involved across the business and around all day. Miss Adomaviciute insists she has the final decision but where evidence evolves in a mellifluous way and DVSA are told something completely different there is a concern as to whether some or any of the evidence is genuine.

10.3 Completion of the GV79

This brings me to the application for an Operator Licence uploaded on 7 April 2020. Miss Adomaviciute told me that it she completed the online application form helped by Mr Rekke. On whether to declare the pending asset purchase, she confirmed that she had read each question and discussed them with Mr Rekke. She told me that she realised now she should have disclosed the MGN link but was silent when I asked when she realised. For context I pointed out that the company name was changed to Buildstop just 5 days before the application, they were heading for an agreement in principle for the MGN assets and the Licence was an integral step towards an effective takeover of MGN. I then read out the question on previously purchased assets in full. In those circumstances I suggested the transparent answer would be that it was in the process of purchasing MGN assets. In response Miss Adomaviciute said the purchase was ‘stock’ but I pointed out the draft contract is for an asset sale and that is what it always was. I asked again why she put “no”. I was told ‘It was a bad decision and that is it’. I asked if the bad decision might have been because she thought her husband should not be involved and put ‘no’ to hide the link. She did not respond. When I repeated the question, she said that she did not know.

In response to her solicitor’s fair attempts to assist the Inquiry, Miss Adomaviciute confirmed that she did understand the question. It was in her mind to disclose the MGN connection on the form but that she ‘just felt do it like this and write no’. When she submitted the form, she thought it was “okay”. I asked why she thought so and her response was Mr Rekke was helping and it felt okay to put that. She and Mr Rekke specifically discussed whether to tell my office of the MGN asset purchase. It was only after all this pressing that Miss Adomaviciute advised of contemporaneous discussions with Mr Morgun as well as Mr Rekke on the point. She told the Inquiry that in fact the three of them were sat together doing the form because she needed help. Regrettably, after the extended lunch break, the evidence changed again because the Operator was caught out.

Mr Rekke was not present at all for the GV79 completion in April 2020. He did not provide any advice on any of the questions. I raised the apparent conflict of evidence when Mr Rekke said his first involvement with Buildstop was mid May 2020. This is approximately 5 weeks after the application was submitted. In my judgement the most likely scenario is that the form was completed by Mr Morgun, possibly with Miss Adomaviciute present. As I write this decision any involvement by Miss Adomaviciute, other than her signature, is uncertain because of her fluid approach to the truth.

The evidential “swingometer” went from Mr Morgun helping a little bit to Mr Morgun being heavily involved at the time the original DVSA investigation commenced and from Mr Rekke being the one helping with the GV79 to him not being involved at all. In the written closing submissions, the Operator’s Solicitor suggests that as time went on during the hearing Miss Adomaviciute’s became more certain of events. I simply cannot accept that explanation considering the many changes in evidence since December 2020 set out above. I heard evidence that Miss Adomaviciute and Mr Morgun, rightly or wrongly, believed that Mr Morgun could not officially be involved/be a director. That is relevant to my considerations here because it provides a compelling reason to the uninformed to hide any connection to MGN and Mr Morgun. What is relevant is transparency. Many operators have failed over the years and the STC Statutory Documents set out copious amounts of useful information on how TCs may be able to help legitimate ‘phoenix’ companies achieve a timely Licence. Miss Adomaviciute and Mr Morgun did not read this or any other guidance. MGN went under owing over £2million with significant sums due to banks and financial institutions and HMRC. This would clearly have an impact on anything Mr Morgun did moving forward. The ill-informed Miss Adomaviciute and Mr Morgun are likely to have believed that Buildstop had good reason to try and hide this from DVSA and me. Had they been transparent in April 2020, adopting the STC Guidance and Directions, then it all may have been very different.

10.4 Mr Rekke and Statements to DVSA and the Inquiry

During Miss Adomaviciute’s evidence the DVSA account of the investigation which took place between 27 January 2021 and 10 February 2021 was not challenged, save that she thought Mr Rekke’s account of what he said to the Vehicle Examiner about who was the “boss” may be different. This should have been put to the Vehicle Examiner when giving his evidence and therefore Examiner Mitchell had to be recalled. The relevant part of the Examiner’s written report is found at page 121 of the Public Inquiry bundle. The Examiner re-confirmed his written evidence that when he and his colleague attended on 1 February 2021 one of the drivers told him that he had worked for the Operator for two years and Mr Morgun was the “boss”. The driver did not know who “Santa” was. The driver signed the Examiner’s pocketbook to confirm this. It is Examiner Mitchell’s evidence that they then went directly to Mr Rekke and he said that Mr Morgun was the “boss” but Miss Adomaviciute owned the business. The Operator’s Solicitor put it to the Vehicle Examiner that Mr Rekke said that Mr Morgun was someone he might go to if he had problems and questions. The Vehicle Examiner was clear, namely what is in his investigation report is taken directly from his pocketbook. He checked his pocket book again during the evidence, confirming the contemporaneous note of what was said. It was at this point that Mr Rekke also said he did not have contact details from Miss Adomaviciute and DVSA should wait for Mr Morgun to arrive. Mr Rekke told the Inquiry that he did have contact details for Miss Adomaviciute, but he just panicked.

All three Operator witnesses suggest that the driver was mistaken at that time. There has clearly been a gap in employment due to Covid/MGN closing. Miss Adomaviciute was not particularly visible in the business whereas Mr Morgun was around the office all day and Mr Rekke was at the Yard. On balance, particularly considering the other anomalies in evidence, I prefer the evidence of the Vehicle Examiner. Vehicle Examiner Mitchell’s approach was fair, measured and evidence based throughout. In my judgment the driver saw no discernible difference, including who the employer was. The contact details of Miss Adomaviciute were withheld because Mr Rekke realised that he may have made an error and was seeking a delay to enable Mr Morgun to help sort it out. It is relevant to my conclusion that it is after this exchange that Miss Adomaviciute sends her email dated 2 February 2021 at page 59 of the bundle; going to extreme lengths to disassociate herself from MGN and Mr Morgun other than as an arms-length transaction. It defies belief that she even went so far as to include a link of ASOS buying Top Shop as to the sorts of deals that were going on and she just happened to choose MGN.

10.5 Failure to specify any vehicles on the Operator Licence until after contact by DVSA.

The Licence was granted on 8 July 2020. No vehicles were specified until 9 December 2020, immediately after Mr Morgun picked up the telephone to DVSA as per paragraph 3 above. Every single vehicle in possession had a cherished plate, to include “MGN”. By failing to specify the vehicles the Operator was successfully hiding yet another link to MGN and the asset purchase. Miss Adomaviciute may not have known that the vehicles needed to be specified, but Mr Morgun and Mr Rekke most certainly did. Every day those vehicles were either going out on the road with no vehicle disc or a vehicle disc in the name of the wrong entity. In my judgment if this Operator had intended to operate transparently then the vehicles would have been specified within 28 days of the Licence being granted. By that time the asset purchase was complete and any financial arrangements novated (source: liquidators progress report to 31 May 2021).

10.6 Failure to add the trading name to VOL until after the call in letter was received.

The GV79 form has provision to add a trading name and the Operator had online access to make any changes. The Operator did not add the trading name of MGN Builders Merchants to VOL until 31 July 2021, just before the hearing.

10.7 Evidence in relation to Essexbuild Limited and the transformation to Buildstop Ltd

Miss Adomaviciute’s told the Inquiry that Mr Morgun set up Essexbuild to do some construction work to build a business separate from MGN and its financial worries. She only took over the business and became the Director when she needed a limited company to take over MGN. Due to the pandemic, the quickest way was to use Essexbuild. I checked this evidence with her more than once and the response did not change. I then referred to the documents publicly available on Companies House and the actual position as set out in paragraph 9 above, namely that the only ever proposed or actual Director from incorporation was Miss Adomaviciute and that originally Mr Morgun, Miss Adomaviciute and Mr Sakelis were shareholders. This only changed to Miss Adomaviciute alone with the transition to Buildstop.

At that point I gave a break for the Solicitor and Operator to review the Companies House documents and the direct contradiction with the oral evidence. Miss Adomaviciute asked that her husband deal with this aspect now. During his evidence later that day, Mr Morgun said that he had forgotten that he set it up that way, but he clearly recalled having a conversation with Miss Adomaviciute about it. Miss Adomaviciute may have forgotten, may never have known or recalled but conveyed her evidence to limit the timing of her involvement. There is only one truth but which it is remains unclear because of how the evidence evolved.

10.8 MGN Skip Hire Limited

Mr Morgun told the Inquiry that he thought both businesses would be closed at the same time and he had nothing to do with MGN Skip Hire Ltd after March 2020. Again, this was contradicted by records. Mr Morgun accessed the Vehicle Operator Licence system for MGN Skip Hire on 2 July 2020 and 9 July 2020. He was adding and removing vehicles, with discs being issued. Mr Morgun responded that he knew Miss Adomaviciute would need the cherished plates but that is not the point. The vehicles were on MGN Skip Hire Limited after March 2020, when he alleges any involvement ceased. The vehicles were removed by him online but then they were not added to Buildstop until 5 months later. Again, we have Mr Morgun in the background managing the transport side of the business and making decisions on what would or would not be disclosed to my office and DVSA. Mr Morgun resigned as a director of MGN Skip Hire Limited but failed to notify my office.

10.9 Connected parties

I asked Miss Adomaviciute and Mr Morgun whether their insolvency advisers knew of their relationship, namely at that time life partners and due to be married. Both said that they were aware but there is nothing in writing that they could point me to. I was told everything was done on the telephone because of the pandemic. I raised it with them (i) to see how much Miss Adomaviciute actually knew of what was going on in relation to taking over Buildstop; and (ii) as part of my assessment of overall credibility. On balance, I find that that Insolvency Practitioner did know because the asset purchase was done by way of a formal agreement which is generally what happens where there are connected or potential connected parties. It is surprising the connection is not noted in writing. Miss Adomaviciute certainly meets the definition of connected party under Schedule B1, paragraph 60A(3) of the Insolvency Act 1986. It was this line of questioning that led to the very adamant evidence that Miss Adomaviciute believed that Mr Morgun could not be a Director or be seen to be a Director. She was not able to tell me what gave her that belief, simply that that is what she knew and maybe that is what Mr Morgun told her. I accept that that may well have been her perception but that only adds to the indicators that this is in fact a front for Mr Morgun.

10.10 Conclusion on fronting and credibility.

if any of the individual headings above alone were the only indictor of fronting then I may have been persuaded that this was a limited company owned, controlled and directed by Miss Adomaviciute for the benefit of her family in Lithuania and her own family’s future. However, taking the evidence together, the only credible conclusion that deliberate and calculated steps have been taken since January 2020 to set up a phoenix for Mr Morgun and his business interests. Buildstop was set up in that way. The GV79 was completed in that way. Vehicles were not specified on the Licence with their cherished plates despite Mr Morgun and Mr Rekke knowing that this was a legal requirement having been involved in MGN Builders Merchants Ltd and MGN Skip Hire Ltd. Miss Adomaviciute went out of her way in her email in December 2020 to positively mislead DVSA as to the role of Mr Morgun and her connection to MGN previously. Mr Rekke lied to DVSA to enable Mr Morgun and Miss Adomaviciute more time to decide how to deal with an in-person investigation. If there was nothing to hide then there was no good reason to panic at all and simply hand over contact details for the director. The only positive indicator of transparency is naming Mr Morgun as the attendee for the New Operator Seminar as “Transport Coordinator”. However, he never attended and thereby preventing any further questioning as to his role or any checks on his history bearing in mind, he was not the Director.

Throughout the DVSA investigation it was suggested that Mr Morgun was engaged early doors to set up the transport operations and to hand it over to Mr Rekke. Miss Adomaviciute’s opening statement to the Inquiry was that Mr Rekke had always done the transport because he had done it previously for MGN as well. Considering that contradiction, Miss Adomaviciute’s evidence then became a tale of twists and turns trying to get everything to match up as best she could but failing. Any suggestion that as time went on, she had become more certain of her evidence is not accepted. Even after the lunch break, when it was said she was giving her final evidence having had her memory jogged, she did not admit that Mr Rekke had nothing to do with the GV79 form. In my judgment that failure is the nail in the coffin of her credibility. Mr Rekke gets credit for confirming that he was not involved in completing the GV79 in conflict with his fellow Director Miss Adomaviciute. That credit is limited bearing in mind he did not voluntarily give the evidence but did not lie when I pointed out the mismatch in timing between the completion of the form and him being contacted to re-join the new Company. Mr Rekke also deliberately lied to DVSA on how to contact Miss Adomaviciute. For these reasons, I do not accept the suggestion in the closing submissions that Mr Rekke is without adverse history.

As for Mr Mogun, he sought to persuade me that this is not fronting and he is not, nor has he been, a de facto or shadow director. However, he too was caught out. His pre prepared witness statement says at paragraph 12 that Essexbuild was originally set up for him and Mr Sakelis and subsequently transferred to Miss Adomaviciute. The witness statement says that he and Mr Sakelis stepped down as directors and his wife became the sole director. This statement was prepared over time for the purposes of the hearing and includes a statement of truth. At the start of his evidence Mr Morgun again confirmed the contents as true. It was not true, as shown by the Companies House records. Mr Morgun sought to change his evidence and said he had simply forgotten it was always set up that way and that Miss Adomaviciute had forgotten their conversation about it as well. Considering his other various acts of mischief (with and without Miss Adomaviciute), including not adding the vehicles to the Licence until DVSA called and not declaring MGN on the GV79, I simply do not trust Mr Morgun to tell me the truth about anything. On balance, it is more likely than not that he was a de facto and then a shadow director – certainly until the Operator received the call in papers. To that extent there has been “fronting” but as a joint enterprise between husband and wife to salvage something from both of their businesses arising in part from Covid.

What troubles me about this case is that it could have been so different. For decades Traffic Commissioners have, where appropriate, helped individuals salvage what they can from the ashes of a failed business. There is a statutory document dedicated to legal entities. Where Traffic Commissioner’s are properly put on notice that there is to be a takeover, of all or part, and that timing is of the essence, we have even arranged dedicated Managers in Leeds to help manage the process in a timely way. If Mr Morgun had notified the financial difficulties of MGN prior to the surrender and/or if they had disclosed her wish to salvage part of Mr Morgun’s business to provide for the family then there would have been green shoots for this to be done in a way that was lawful and acceptable. That would certainly have included protections around the involvement of Mr Morgun and transparency in terms of publications etc. However, it was a possibility. By virtue of the many deceptions, I now have three individuals involved in this Licence that I can no longer trust. It is bad enough that they lied and misled DVSA. However, they have also consistently misled OTC and tried to mislead me during a Public Inquiry. Mr Rekke to a lesser extend but he has still been a part of the unsatisfactory chronology above. I cannot accept on the available evidence that he would legitimately be a sole director even if Miss Adomaviciute stepped down.

11. Road Safety

11.1 Maintenance

The DVSA investigation found basic failings across the whole maintenance system as set out in paragraph 7 above. The vehicles were an accident waiting to happen. Assurances were provided in February 2021 to include the engagement of a Transport Consultant. As per paragraphs 20 to 21 above there remain some basic failings, albeit there are improvements in many areas. The purpose of a system is that if one part of it falls down another part of the system picks it up. If a system does not work, then it is no system at all. There remain concerns with the Preventative Maintenance Inspection system and the driver walkaround checks. An effective Preventative Maintenance Inspection system acts as an audit of driver walkarounds, but if the inspection system is ineffective then that important safeguard for walkaround checks is missing. Whilst the Operator has been having external audits (as to which see below), the DVSA unchallenged findings demonstrate the importance of Directors and de-factor/shadow Directors exercising quality monitoring and control. The most recent PMI records have more driver reportable items on than before. The closing submissions endeavour to provide further assurance.

Mr Rekke has been made a Director I am told to assist Miss Adomaviciute and lead the transport operations. However, he has been an integral part of the transport for some time and these ongoing failings are equally on his watch. It follows his appointment as a Director offers only limited assurance here too.

11.2 Drivers hours, Working Time Directive and driver management

I received vast swathes of policies, infringement reports and the audits referred to above. It also included evidence of driver training and Operator Licence Awareness Courses. This includes Mr Rekke attending a one day Transport Manager refresher on the 22 March 2021 and Miss Adomaviciute doing a two day Transport Manager CPC Refresher, although it is unclear how much she followed bearing in mind she does not have the actual qualification. There is also a certificate for a two day Transport Manager CPC Refresher in February 2021 for Mr Thorburn, the recently appointed external Transport Manager to assist. There is a contract confirming that the Transport Manager would present weekly updates on compliance to Miss Adomaviciute. This is said to be in addition to the Consultant’s involvement. This was too new to assess whether it would manifest itself in improvements moving forward.

Policies are only one part of a system and as identified under Maintenance they may also be wanting when considering the ongoing failures in other areas. I pointed out my disquiet about the audits at the hearing. There is no obvious weighting in any of the elements, unlike the DVSA approach. The March scoring was at odds with where the Operator was in the compliance scale - a suggested 75% on 23/2/21 (11 days after DVSA signed off the unsatisfactory MIVR) and 90% on 18 March 2021. The positives’ in the March audit included Mr Rekke doing gate checks and lots of driver training signed off moving forward. The effectiveness of these was not tested as at the March audit. Whilst little time was spent on drivers hours and WTD, at the hearing I said that this side should be reviewed considering those observations. This does not appear to have happened as the closing submissions state as a positive the ongoing use of the consultant and refers to an ‘effective regime relating to Tachograph analysis and hours’ monitoring…’. I give this limited weight in the absence of a review of this side of the business.

11.3 Current Position

As part of her written closing the Solicitor included a driver CPC certificate for Mr Rekke for a one day “Rules and Regulations” training on 8 August 2021. This was also attended by Miss Adomaviciute and the employed drivers. The title of the training is explained in paragraph 16 of the closing submissions as being driver walkaround checks but that training is normally only a half day. The appointment booking also attached refers to the training including Operator Licences, Road Traffic Act and the Highway Code and therefore some overarching principles also seem to have been covered. I am asked to consider the walk round training given by Mr Morgun after the DVSA investigation as a positive. I do not. Miss Adomiciute admitted she had no idea if Mr Morgun himself was competent to do the training.

The closing submissions also attach a laden roller brake test for T777MGN on 15 July 2021 and L777MGN on the 31 July 2021. Without wider explanation these do not appear to have been provided to the Vehicle Examiner at his visit on 2 August 2021. The SIPCAT dated 2/8/21 for T777MGN has a brake test dated 14/7/21 which was inadequate. I can only assume that the Operator was not in a position to produce the test dated 15 July 2021 2 weeks later. There is no linked PMI for the roller brake test for L777MGN (SIPCAT shows last PMI shown was 2/6/21). There are two brake tests conducted on 6 August 2021 and one conducted on 7 August 2021, i.e. after the Public Inquiry. I accept that these are decent passes. I will refer to the case of Arnold Transport later but note it here that more should have been done, and sooner, after the original investigation across the board. The Operator told the Inquiry that it had already put in place steps for the brake tests to have been done over a rolling period but that is simply not good enough. The ability of vehicles to stop when needed is non-negotiable. If something needs doing it needs doing straight away if safety critical.

The closing submissions also attach a laden roller brake test for T777MGN on 15 July 2021 and L777MGN on the 31 July 2021. Without wider explanation these do not appear to have been provided to the Vehicle Examiner at his visit on 2 August 2021. There are two brake tests conducted on 6 August 2021 and one conducted on 7 August 2021, i.e. after the Public Inquiry. I will refer to the case of Arnold Transport later but note it here that more should have been done, and sooner, after the original investigation. The Operator told the Inquiry that it had already put in place steps for the brake tests to have been done over a rolling period but that is simply not good enough. If something needs doing it needs doing straight away. The ability of vehicles and trailers to stop when needed is non-negotiable. As stated, I have received some further brake tests in relation to vehicles but nothing in relation to trailers. The advice at page 113 of the Public Inquiry bundle (page 3 of the MIVR from February 2021) was for all vehicles and trailers to have “a full metered brake test asap” and thereafter at least four fully laden roller brake tests throughout the year as a minimum. It follows that it is unclear whether the trailers have also had recent fully laden brake tests.

The closing submissions accept that there are areas that require improvement and at the point of the Inquiry ‘there is a tangible plan to put the remaining issues right’. I should therefore put the Operator at the ‘positive end of the scale’ in terms of Arnold Transport. This helpful Upper Tribunal case is not just about the timing of when things are done but the effectiveness of it. In terms of effectiveness, basic failings remained as of 6 August 2021 and therefore the improvements have been pedestrian and impugned safety. I accept that the engagement of an external Transport Manager should be a positive, but it happened too late to be assessed as at the hearing.

11.4 Fair Competition

MGN Builders went into liquidation and as of 31 May 2020 owed approximately £2.4million. After write offs and asset purchase this is still £1.2 million. The closing submissions are put on the basis Operator Licensing is not only about road safety but also ensuring a level playing field for MGN and Buildstop’s competitors. Mr Morgun failed to notify the Creditors Voluntary Arrangement in December 2019 in relation to MGN. He failed to notify any financial difficulties before offering the Licence for surrender in January 2020. Buildstop failed to declare the association. This undermines the principles of fair competition and transparency. I have been sent schedules of how much tax Buildstop has paid since the Licence was granted. I note that tax is apparently being paid and on time. However, I cannot lose sight of the competitive advantage gained over other builders’ merchants with ‘in scope’ vehicles through the way this now commercially viable business, which I am told needed an Operator Licence to succeed, has achieved that position (see paragraph 53 below).

12. Conclusions

I refer to the findings and balancing exercise under each heading above. These in turn are weighted here. As noted in paragraph 40 above, I accept that the “prepack” was legitimate. However, how Buildstop obtained its Licence was not. Further, once it was granted a Licence, DVSA and I have been misled and lied to. It is for this reasons that I am not persuaded by paragraph 32 of the closing submissions that revocation would be disproportionate and by the implicit suggestion this case ends up in the MODERATE category of Annex 4 SGSD 10. There may be cases where it is only necessary to set out the conduct in question to make it apparent that an operator ought to be put out of business, as per paragraph 44 and cited authorities SGSD No. 10. I have very much in mind the Upper Tribunal case of 2018/048 BKG Transport Ltd, Whiteparish Transport Ltd, Terry Gover, Tony Gover: “.no hesitation in finding that the TC’s determinations on the issue of loss of good repute and the inevitable revocation of the licences flowing from are not open to criticism, neither is the implicit rejection of the re-structuring proposals put forward by BKG. It is difficult to envisage any circumstances in which the good repute of company directors and transport managers will be retained once it is accepted that lies have been told to the TC (or indeed to DVSA enforcement officers). The regulatory position of transport operations is based upon trust and the premeditated fabrication of an account to avoid adverse findings involving directors and a transport manager so fundamentally undermines that trust that it is inevitable that a significant and serious regulatory response will result.” [Underlining is my emphasis]

This may be a Restricted Licence, but trust lies at the heart of operator licencing regardless of the type of Licence. Miss Adomaviciute lied and misled when in the comfort of her home/office. Miss Adomaviciute lied and misled at the hearing because she simply was unable to remember what she had said previously and then made a complete hash of trying to marry it up together. Mr Morgun has made deliberate decisions to facilitate/hide this fronting joint enterprise. Mr Rekke became complicit once he lied to DVSA; albeit, I accept that his deceit is far less than that of the others I refer to the chronology and findings (‘activities’ for the purposes of Section 13B) as set out at paragraphs 25 – 44 above. Based on that, I find that as at today trust has been completely undermined and is unlikely to be regained now or soon. It is for this reason that revocation is entirely proportionate and appropriate. Accordingly, I have reached the decision set out in paragraph 1 above.

I made it clear at the end of the hearing that for the purposes of closing submissions all matters are reserved. It follows that this includes disqualification, as per page 20 of the PI bundle. I only assume that the Solicitor appears to have made a positive decision not to address that aspect having been the advocate in 2019/072 Cavendish School of English Ltd (which does not appear to have been referred to the Tribunal by Counsel in the Tribunal in the recent case of 2021/025). Where disqualification is a live matter, advocates have a duty to assist the Tribunal.

I accept that without the whole fronting/credibility issue then this would not be a revocation case at first Public Inquiry. However, it would have sat in a category requiring serious regulatory action to ensure that the proposed plan would be effective – including a proper review of all the policies and systems and audit provision. In my judgement a short suspension would not have been disproportionate. Based on the closing submissions this would have no unintended outcomes. It is for this reason alone, that I have stepped back from disqualification of the Company and any of the named individuals. However, this does not mean that there is any guarantee of success with a new application. The burden of proof will be on the applying entity in whatever form it may take. The period to revocation should be addressed as a period of run off as well as a period of opportunity.

Miss Sarah Bell

Traffic Commissioner

03/12/21