Briggs: Agreement was not finalised
The High Court has ruled that a law firm and four of its former partners must repay money borrowed under loan agreements with a husband and his wife.
Chief Insolvency and Companies Court Judge Briggs said Linda and John Dilworth lent Yorkshire practice Wosskow Brown £500,000 between them in 2010, under loan agreements supported by personal guarantees from the partners.
The High Court heard that this made former partners Michael Wosskow, David Eric Brown, Ian David Brown and Sally Mallinson “primary obligors” if the law firm defaulted.
Ms Mallison resigned as a director in 2012 and told Legal Futures that she was not aware that she had not been released from her personal guarantee.
The purpose of the loans was to provide working capital to the firm, which last year was acquired by Pennine Law.
Wosskow Brown initially made monthly interest payments of £1,666.67 to Ms Dilworth and £2,500 to Mr Dilworth.
Judge Briggs said that, in December 2020, Ms Dilworth gave written notice under the agreement, asking for repayment “in tranches of not less than £25,000”.
This was not complied with and in April 2021 she demanded the whole sum borrowed from her of £200,000 plus interest. Her husband had already done this, demanding the payment of “all sums due” in July 2020.
The law firm and partners argued that the debt had been “discharged or partially discharged” by agreement in 2017 and as a result the guarantors bore “little or no liability”.
They said there had been a “long business relationship” between Mr Dilworth and Wosskow Brown and Mr Dilworth acted with his wife’s “actual authority”.
David Eric Brown said that, when Wosskow Brown was investigated by the Solicitors Regulation Authority (SRA) in 2017, he was “concerned that the integrity of the loans might be compromised”.
Also, the law firm’s personal injury department was “not as profitable as it used to be”.
The solicitor said Mr Dilworth agreed to ”safeguard his position” by converting £300,000 of the loans into preferential shares in a company called John Banner Centre Ltd.
According to Companies House, this company – which went into administration last summer – was the landlord of properties in Sheffield and Barnsley. Wosskow Brown was one of the tenants in the former and the only one in the latter. The law firm’s staff were employed and paid by the company too.
The defendants argued that, pursuant to the “alleged agreement”, Mr Dilworth received both the shares and dividend payments.
But Judge Briggs had “little hesitation in finding that there was no oral agreement reached in May or June 2017”.
Instead, “the correspondence sufficiently evinces a common intention that an agreement would not be concluded until a formal document containing all the terms had been signed by the parties”. This was not done.
The Dilworths had wanted “the protections they had bargained for” when obtaining the loans, specifically personal guarantees from the partners, a mechanism to trigger repayment of lump sums of capital, an obligation to pay interest on a standard rate and default rate, and an obligation to return all outstanding capital together with accrued interest on written notice following an event of default.
As a result the judge ruled that Mr and Ms Dilworth were “entitled to payments of the sums due” under their loans as against the law firm or the four partners under their guarantees, giving credit for any sums they had received.
In 2019, John Knight, a former director of Wosskow Brown, was struck off for forging documents. Ian Brown was fined £25,000 for supervision failures and David Brown £35,000 for allowing the firm’s client account to be used as a banking facility.
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