Decision

Decision for Gregorys Transport Ltd

Published 24 May 2023

0.1 WESTERN TRAFFIC AREA

1. GREGORYS TRANSPORT LTD

1.1 OH2061955

1.2 AT A PUBLIC INQUIRY IN BRISTOL, 14 MARCH 2023

2. BACKGROUND

This is a new application for a standard international goods vehicle operator’s licence seeking to authorise the use of two vehicles and one trailer from an operating centre in New Milton, Hampshire. The sole director is Gregory Swartz. The nominated transport manager at application was George Macfarlane. Mr Swartz was, until 11 January 2023, also director of GMAKX Ltd (“GM”), which held a standard international licence authorising the use of six vehicles and six trailers which had been offered for surrender on 15 October 2022. Mr Swartz had also been the director of Samurai Solutions Limited which had been revoked at public inquiry in 2014.

GM had been referred to me following a maintenance investigation conducted by DVSA, triggered by the issue of a prohibition at annual test for a missing brake lining, disc scored. I had already made the decision to refuse surrender and call GM to public inquiry prior to this application being made. This application therefore appeared to be something of a contingency measure so I called it to a conjoined public inquiry to consider all statutory requirements.

The operator was represented through the application process by transport consultants Logico. I was notified ahead of the hearing that the applicant company would be represented at the hearing by Sam Jones of Counsel. I was also told that Mr Macfarlane no longer was proposed to be transport manager with the role instead to be taken by Mr Swartz.

A comprehensive bundle was supplied in advance along with written submissions on behalf of the applicant company and transport manager. The submissions told me that GM had been sold to Atherton Corporate Limited on 10 January 2023 and Mr Swartz had been removed as director, having been replaced by a Mr Neville Taylor. As part of that sale, Mr Swartz had been instructed to surrender the licence and dispose of the documents.

I was concerned by the apparent sale of what was a haulage business that was conditional upon the licence being surrendered. I undertook some background research in to Atherton Corporate and Mr Taylor. In relation to the latter, I found Mr Taylor, of 61 Bridge Street, Kington, Herefordshire or of Dunnock Road, Dunfermline, to be listed as a director at Companies House of something in the region of three hundred companies, ranging from drama schools, take away shops, electricians and now a haulage business. His date of birth varies between January, February, April, August and November 1967. On many companies, the accounts were showing as overdue or there were proposals to strike off or they had been compulsorily struck off.

I then turned to look at Atherton Corporate. An internet search took me to a website called National Company Rescue. It advertised that it was “cheaper & quicker than a CVA”. It said that “Ltd & LLP companies with unsecured liabilities of £10,000 or more can use this service instead of an Insolvency Practitioner”. There were testimonials from service users describing how the service prevented future reputational damage from the insolvency.

3. THE PUBLIC INQUIRY

Mr Gregory Swartz attended the public inquiry represented by Samuel Jones, barrister. Proceedings were recorded and a transcript can be provided if needed. In writing this decision, I have reviewed my notes and listened to the recording.

I opened by setting out the concerns that had arisen from the applicant’s written submissions. It was clear that they came as a surprise to both the applicant director and his advocate. I adjourned to allow Mr Jones to take instructions.

After a break of around fifteen minutes, Mr Jones told me that Mr Swartz had decided that he wanted to run one company not two. He received a cold-call from Atherton who offered to purchase GM. He spoke to them only. He never spoke to Mr Taylor and knew nothing of him. In terms of GM, there was a bounce-back loan of about £40 – 45,000. Mr Swartz did not know whether there was outstanding PAYE/NI but there was some outstanding VAT. All of the debt was declared to Atherton and was part of the sale of the company. Mr Jones had not come across such an arrangement previously and could not at that time assist me with how the arrangements worked. Mr Swartz was adamant that he had not sold the company to avoid debt or to avoid the company entering insolvency. He had wanted to sell the company and that was the best route he saw to do it. The sale was not a phoenix arrangement to avoid regulatory action.

Mr Swartz adopted Mr Jones’ summary of the arrangements and told me that he first became involved with Atherton in late September when he first contacted them. There was a lot of backwards and forwards getting history of the company. They did not want the transport licence and that’s why he had surrendered it. All dealings were telephone or email. He had become aware of them by a brochure through the door and found them also on the internet.

He had been operating two companies, GM and Gregorys, subcontracting work from Gregorys to GM. At year end, there were two lots of accounts and he thought it would be best just to bring it together. He himself was the only driver at the time. The company was ultimately sold to Neville Taylor. Mr Swartz had never met him and he had been shocked to find out from me that Mr Taylor was a director of hundreds of companies. Mr Swartz had no further involvement with GM following the sale.

At the time of the sale, GM’s financial health “wasn’t very good”. It owed money on the bounce-back loan and money to the taxman, the VAT”. It was approximately £40-45,000 on the bounce-back loan. He did not have the VAT or national insurance in his head. It was all disclosed to Atherton who were still willing to go ahead with the purchase. GM was not sold to avoid those debts. It was also not sold to avoid the issues arising from the DVSA intervention; discussions pre-dated that.

I asked how much had been paid. Mr Swartz told me that it was a “bit of a confidential deal but it landed up being I was paid £2,000 for the company and I had to pay my own legal fees to have it all go through”. The legal fees were £6,000. He sold GM not Gregorys because he was made an offer for that company. He didn’t know why they wanted to buy it. I asked why he had not sought simply to have Gregorys struck off the register which would have left him with a company with an operator’s licence. Mr Swartz told me that he was just looking at closing one company, the discussions with Atherton made it a “no brainer”. I put it plainly to Mr Swartz that it looked to me he had grasped an opportunity to write off a £45,000 debt whilst avoiding an insolvency procedure. Mr Swartz did not see the need for an insolvency process as the debts were still in the company when it was sold.

I turned to the maintenance issues of GM. Mr Swartz had conducted a full investigation into the brake pad that had led to the s-marked prohibition. He demonstrated that the vehicle had been prepared for MOT by the relevant franchised dealer. By reference to the manufacturer’s maintenance instructions, Mr Swartz demonstrated on the balance of probabilities that the technician had mis-measured the remaining pad depth causing the vehicle to be presented for test with a pad worn down to the metal. I was satisfied that the operator and transport manager could have done nothing more, having entrusted preparation to the main agent.

He had ceased using the listed operating centre at Totton during lockdown. The New Milton site had private rather than shared facilities. He thought it would be temporary but the situation had persisted longer than expected and he had overlooked making an application. It had then been overtaken by the application to surrender the licence.

I was satisfied that Mr Swartz could put in place proper arrangements to keep vehicles fit and serviceable. I also satisfied myself that there had been no illegal operation of goods vehicles by the applicant company following the application to surrender the GM licence.

I adjourned the hearing, allowing twenty-one days for further submissions and evidence on the apparent insolvency point. The relevant part of my adjournment decision is here:

“The second area is the motivation of the application to surrender the GMAKX licence which came shortly after the DVSA investigation. I am content that it was not to avoid the outcome of that intervention. Having heard from Mr Swartz, I understand that GMAKX had an outstanding bounce-back loan of £40-45,000 plus a VAT liability that it was not in a position to pay. Mr Swartz responded to a flyer received in September last year and that resulted in the sale of the limited company, without assets, to Atherton Corporate. The website indicates it is an alternative to an insolvency procedure that does not leave a trail at Companies House.

I refer the operator to paragraph 60 of the Senior Traffic Commissioner’s Statutory Guidance in relation to repute. Whilst that paragraph does not describe exactly the scenario here, it appears strongly analogous.

This matter crystallised from reading the operator’s submissions. It is the only matter preventing grant […]. I have allowed 21 days for further explanation and evidence.”

4. POST-HEARING SUBMISSIONS

Mr Jones provided further written submissions with supporting evidence. The main points arising are:

• “[Mr Swartz] accepts that GM Ltd was in a position where its liabilities exceeded its turnover and assets.”

• In August 2022, he received a leaflet from Atherton Corporate offering to facilitate the purchase of GM. Having made enquiries, Mr Swartz was informed of the following by email:

• The sale of GM was a legal alternative to a formal company liquidation,

• All unsecured debts and liabilities would transfer to the new directors and shareholders,

• The transaction would be carried out by solicitors registered in the UK,

• The process would “protect” any cash in the bank, assets and debtors list.

• At this time, GM had a bounce-back loan of between £40,000 and £50,000, some outstanding VAT and possibly some outstanding National Insurance.

• On 22 December 2022, Mr Swartz was informed by Mr Irvin of Atherton Corporate that the steps for selling GM would be:

• Fee agreement signed and returned,

• Solicitors are instructed to prepare documentation to facilitate the company sale,

• Around 3-7 days later, solicitors issue documents for signing,

• Client reviews documents and calls solicitor to go through signing process, returns documents,

• Atherton issue invoices for fees,

• When payment received, Atherton instruct solicitors to update Companies House with the changes

• The purchase price for all shares was £1

• Both Mr Swartz and Mr Taylor signed to confirm that they had been advised to seek independent legal advice but had declined to do so. Mr Swartz accepts that he undertook no due diligence.

• Both vehicles currently the property of Gregorys Transport were properly purchased by the company, one from GM in October 2021, the other from a non-connected third party in May 2022.

The supporting evidence bundle included the accounts for GM for the year to 31 March 2021. They raise further questions. The bounce-back loan of £50,000 is shown as having been received in the 2020/21 financial year. The turnover for the year to 31 March 2021 was £50,248.

GM made a loss of £27,911 in 2019/20 and a further loss of £41,373 in 2020/21. By 31 March 2021, it had net current liabilities of £110,966 and overall net liabilities of £160,966, the difference seeming to be the bounce-back loan. The company’s turnover increased from £50,248 in 2019/20 to £239,330 in the lockdown year yet the company received furlough payments of £13,371.

The solicitor who produced the sale documentation is based in Scotland. The sale documentation is subject to English law. Andrew Thomson, of Macgregor Thomson Ltd, appears to be a specialist in liquor licensing. He also appears to have provided advice through the documentation to both parties.

5. FINAL FINDINGS OF FACT

Prior to finalising this decision, I sent my preliminary findings to the applicant for final comment. Submissions were received from Logico on 28 April. I have taken them in to account in making these final findings of fact.

This application was not precipitated by the DVSA investigation. There is nothing remaining of concern in relation to the ability of the applicant company to put in place suitable arrangements for maintenance that could not be dealt with through undertakings which have been offered.

There has not been any illegal operation since the application to surrender the licence of GM in October 2022.

I note the submission that, if the director’s loan was discounted from, or recategorized in, the March 2021 accounts, GM would have been solvent. I prefer the accounts as signed by the director and published at Companies House rather than consider how they may have been presented differently. History cannot be remade. GM was in significant financial distress as early as March 2021. It traded whilst insolvent during 2022. The former appears from the published accounts and the latter is admitted in the further representations.

If the objective was simply to rationalise two businesses in to one, the most obvious route would have been to close the applicant company and to keep GM which was the holder of an operator’s licence. That appears now to be accepted by Mr Swartz.

I can find no motive for the sale of GM to Neville Taylor other than to avoid the outstanding liabilities which included in the order of a £45,000 bounce-back loan, £9,692 VAT and £397 PAYE. This motive is confirmed by Mr Swartz’ oral evidence when he described the decision to sell the debt-ridden GM as “a no brainer”.

Mr Swartz told me things at public inquiry that were not true. He told me that he was paid £2,000 for GM when the actual price paid was £1. Even in the heat of an inquiry, that is not something that I would expect a witness to get so badly wrong and I said at the time that I did not understand why anyone would pay for a company that had only debt but Mr Swartz maintained his position. I note he now changes that position in his final submissions and tells me that he was promised to be paid £2000 once the company was profitable. He told me at the hearing that the motivation for the sale was not to expunge the debt when there can be no other. There are other areas of his evidence where the true position appears to differ from that presented orally but they could have been due to a lack of preparation or genuine errors. I do not accept that to be the case in relation to the vast difference in the quantum of the sale and/or the facts surrounding it, nor the motivation. I find that Mr Swartz misled me.

I have concerns in relation to whether GM was entitled to a £50,000 bounce-back loan in the first place given its reported turnover in the year to March 2020. I am now told that he completed the application by telephone and a call-handler checked his bank account. However, the £50,000 paid must have relied upon a false statement by Mr Swartz, dramatically inflating his actual turnover. That was a false statement.

6. DETERMINATION

Mr Swartz is sole director of both GM and the applicant. The actions of each company are at one with his and I find it appropriate to pierce the veil of incorporation.

By disposing of the company, Mr Swartz has sought to avoid significant liabilities due to the public purse and to allow the tax-payer to pick up the pieces. I cannot determine whether the actions of Mr Swartz were illegal. I do not need to do so. By engaging in an un-regulated act to avoid insolvency proceedings, whether intentionally or recklessly, Mr Swartz has frustrated the statutory insolvency process, seeking to deny the opportunity for his actions as a director to be properly scrutinised and for creditors to achieve any return. In T/2010/83 PF Boomer t/a Carousel, the Transport Tribunal found that “The Traffic Commissioner’s trust in operators’ ethical business practices was essential to effective and compliant regulation”. If the sale was not illegal, it was certainly unethical.

Paragraph 60 of the Senior Traffic Commissioner’s statutory document No.1 on good repute assists. Whilst the applicant company has been incorporated for a number of years, the transfer to it of the transport operations causes it to be a phoenix, allowing the previous business to continue having passed its debt to the taxpayer.

In Aspey Trucks Ltd 2010 – 49, the Upper Tribunal comments on the difference between finding a loss of repute in an existing haulier and whether or not a new applicant to the industry met the standard to be of good repute:
“In a case such as this, the Deputy Traffic Commissioner was not looking at putting someone out of business. Rather, he was deciding whether or not to give his official seal of approval to a person seeking to join an industry where those licensed to operate on a Standard National or Standard International basis must, by virtue of S.13(3), prove upon entry to it that they are of good repute. In this respect, Traffic Commissioners are the gatekeepers to the industry - and the public, other operators, and customers and competitors alike, all expect that those permitted to join the industry will not blemish or undermine its good name, or abuse the privileges that it bestows. What does “Repute” mean if it does not refer to the reasonable opinions of other properly interested right-thinking people, be they members of the public or law-abiding participants in the industry?”

Mr Swartz misled me at the public inquiry. He gained a bounce-back loan to which he was not entitled. He has traded whilst insolvent. He has engaged in unethical business practices, seemingly over a number of years since securing the bounce-back loan.. He has sought to write-off a substantial debt to the taxpayer. The practical positives at paragraphs 22 and 23 above do nothing to offset these substantial negative features. The applicant has failed to establish its good repute. The application is refused.

Kevin Rooney

Traffic Commissioner

15 May 2023