Baljinder Chohan, founder of UK Property Fund Managers Ltd (UKPFM), has been disqualified from being a company director for 12 years for his involvement with a land-banking scheme operated by UKLI Ltd.
Hildyard J disqualified Chohan, who he said was the “principal directing mind” of UKLI, which was liquidated in 2008 owing more than £70m.
Five other directors of UKLI gave disqualification undertakings accepted by the Secetary of State for Business, Innovation and Skills in October last year.
Chohan, who was previously disqualified for four years in 2008 but given leave to continue as a director of UKLI, had denied that the land-banking schemes operated by UKLI constituted collective investment schemes (CIS) in contravention of the financial services legislation.
The judge said that UKLI’s business was substantial, with a sales force of some 60 to 80 people and approximately 5,000 plots sold on some 17 sites.
He said that the business involved the establishment and marketing to the public of schemes whereby small parcels of land forming part of a larger site, which UKLI either owned or over which it had options to purchase, would be sold to investors on the basis that they might receive planning permission, or be rezoned in area plans to make it more likely that planning permission would be granted, leading to a significant increase in value.
The case focused on the operation of UKLI’s “second scheme” between 15 March 2006 and 31 January 2008, during which time sales of plots amounted to more than £27m.
Following withdrawal of a prior scheme as a result of concerns expressed by the FSA, the second scheme was designed by solicitors firm Macfarlanes and Michael Blair QC with a view to it not being a CIS.
Chohan, who was not represented at trial, had claimed in an affidavit that he should not be criticised, let alone disqualified, for a scheme designed and modified on the advice of lawyers.
However, the judge said: “My conclusion is that the arrangements in question, in the manner in which they were in reality operated, and (in my view, almost inevitably in the real world), involved the collectivisation of the plots with the objective of investment profit from the site, all managed by UKLI. In my judgment, this is amply supported both by UKLI’s marketing brochures and presentations and by e-mails which suggest that those responsible for UKLI’s management understood that its business involved such collectivisation.”
He said that the Secretary of State’s case that the second scheme was a collective investment scheme, and that Mr Chohan was well aware of that and acted as if he were the company’s managing or predominant director was “well founded”.
He said that he had considered carefully the contention that Chohan and UKLI were entitled to rely on the fact that the second scheme was devised by experienced solicitors and counsel, but ruled that it “does not avail Mr Chohan”.
He continued: “In my judgment, the reality is that, whether or not the scheme could have been promoted and operated lawfully in practice as contrasted with theory, it was not so in fact.
“In any event, in my judgment, the technical distinctions relied on by the advisers to prevent collectivisation, by reserving management, ownership and control of each plot to the individual investor, and ensuring no suggestion of any collectivised management of any of the processes of applying for rezoning and ultimately disposing of the site and realising a profit, did not reflect the reality of the way the second scheme was promoted and in fact intended to be implemented. I do not feel able to conclude that the advisers were positively misled; but I have no doubt that the full picture was not presented to them.”
The judge also concluded that allegations that Chohan procured UKLI to make improper loans and dividends were are also made out.
Disqualifying him for 12 years, he said: “I consider that the conduct of Mr Chohan constituted a sufficient departure from the standards to be expected of him to make him unfit to be concerned in the management of a company.
Secretary of State for Business Innovation and Skills v Chohan and ors Chancery (Hildyard J) 26 March 2013
Mark Cunningham QC and Catherine Addy (instructed by Howes Percival LLP) for the Claimant
The Defendants did not appear and were not represented
