PAG Management Services has been wound-up, after the High Court found it operated a rates mitigation scheme for clients that “relied on an abuse of insolvency legislation” and earnt it millions of pounds in fees.
The Court first ordered the winding up of PAG Management Services in October 2015, but the order was suspended pending an appeal lodged by PAG Management Services. The appeal was formally dismissed on 15 November 2016 at the company’s request.
PAG Management Services was incorporated in 2011 and is headquartered at Alliance House in Trafford Park. Jonathan Mather is the only director of PAG Management Services. The sole shareholder of PAG Management Services is PAG Ventures. The directors and shareholders of PAG Ventures are David Russell, chief executive of Property Alliance Group, and fellow Alliance directors Ella Magill, Ewan Wyse, and Ian Hunter.
The mitigation scheme operated by PAG Management Services involved forming and controlling several special purpose vehicles, which then took leases on empty commercial properties at a nominal rent. Each lease contained a clause that enabled the owner to terminate the lease on seven days’ notice.
Immediately after signing the lease, the SPV would be put into members’ voluntary liquidation. Properties held by companies in liquidation or administration are exempt from business rates.
A statement from the Insolvency Service said PAG Management Services generated “substantial income” by charging the owners of the empty commercial properties a percentage of the business rates saved while the property remained in the scheme.
The Insolvency Service’s investigation found that, during the 18-month period to March 2013, PAG Management Services assisted property owners in avoiding £6.4m in business rates, generating a fee income of £1.8m.
During the trial of the winding up petition, it emerged that the scheme continued to expand beyond 2013, and by March 2015 the business rates being avoided by use of the scheme were estimated to be in the region of £12m a year.
After a full trial of the winding up petition, the Court found the true objective of the voluntary liquidations engineered by PAG Management Services was to act as a shelter for the leases that were created so the company could earn fees as a result, and that “this was a misuse of the insolvency legislation”.
In his judgement, the Vice Chancellor Mr Justice Norris held that: “There is a clear public interest in ensuring that the purpose of liquidations is not subverted, as I consider it is by treating a company in liquidation as a shelter and seeking to prolong its continuation as such. This misuse of the insolvency legislation demonstrates a lack of commercial probity. In its own way it also subverts the proper functioning of the law and procedures of bankruptcy.”
A PAG Management Services spokesman said: “We withdrew our appeal after reaching an agreement with the Secretary of State. The basis for withdrawing the appeal was that the scheme in question had not been marketed since early 2014 and no longer operates.
“In withdrawing the appeal, PAG Management Services made it clear it did not accept the judge’s decision as to the basis for ordering the winding up of the company.
“The Secretary of State did not dispute this. The Judge himself accepted that his decision was based on his view of the purpose of the insolvency legislation and not on any binding legal precedent or statutory provision.
“He also accepted that business rates schemes are not by their nature contrary to the public interest nor inherently objectionable. Leave to appeal was granted on that basis. The appeal was therefore withdrawn for pragmatic reasons. PAG Management Services has paid all costs due to the Secretary of State.”
Two associated companies complicit in the operation of the scheme, Ashburton Solutions and Beacon Property Solutions, were wound-up in the public interest in October 2015. Both companies were registered to The Manor House, 260 Ecclesall Road South, Sheffield. On Companies House, Nicholas Muff is listed as the sole director for both companies.
Following the effect of the winding up order in relation to PAG Management Services, the Official Receiver has been appointed as liquidator of all three companies.
Property Alliance Group is not affected by the winding up of PAG Management Services. Property Alliance Group declined to comment.