‘Pyrrhic’ victory for liquidators of failed fine wine investment scheme

Liquidators for The Wine Enterprise Investment Scheme (TWEISL) have failed to recover losses of up to £8 million in a High Court case against the company’s auditors, who they claim didn’t expose the dishonesty of the company’s directors.

The UK High Court awarded TWEISL just over £101,000, plus interest in a judgment last week (27 March). The case had been brought by its joint-liquidators Finbarr O’Connell and Colin Hardman against the company’s former auditor, Crowe UK, who they claimed were professionally negligent when they audited the company between 2012 to 2018.

As reported by the International Comparative Legal Guides the case alleged that the former directors, Andrew della Casa and Rodney Birrell, had operated the business “dishonestly” and that “a competent auditor” should have identified the warning signs of the company directors and exposed their conduct “in time to prevent the loss of investors’ funds”.

Founded in 2011, TWEISL was a UK-based investment vehicle which offered provide capital growth through trading fine wine, primarily from Bordeaux. However, in 2020, it was placed it into voluntary liquidation , with a declaration of solvency stating that it held more than £4.5 million in cash. As reported in court documents, liquidators soon discovered that the company actually only had £6.50 in the bank, and they were unable to locate the company’s assets. New liquidators were later appointed who brought proceedings against Crowe for their failure to identify these problems at an earlier date.

Crowe accepted that they should have better investigated an off-shore company in Bermuda, Lilliput Holdings, which was shown on the company’s accounts as receiving and holding “substantial sums as cash or receivables”, an arrangement deputy judge Richard Spearman KC described as “a mirage” adding that “basic enquiries” would have revealed it to be “a fabrication”. It transpired that Lilliput, a company registered to Casa, did not even have a bank account, for example.

A statement of affairs posted to Companies House in January 2021 noted that Liliput held £4.515million, with £46k cash in the bank, however, according  legal website Law360 in January, only £28,000 was recovered before the case went ahead.

The ruling

Although Spearman accepted that Crowe had committed serious audit failings, he ruled that the company directors themselves were responsible for the wrongdoing, so reporting concerns to them would have achieved nothing.

The documents relied on by the directors were “concerted fabrications”, he said and their dishonesty was “overwhelmingly the most important cause”.

“Crowe failed to detect that dishonesty because it was perpetrated with sufficient skill and guile to deceive Crowe, just as others were deceived, such as investors, and, it would seem, financial journalists. To that extent, Crowe was also a victim of the fraud,” he was reported to have said. “I do not consider that there is any prospect that any of that cash would have been preserved or recovered by any steps taken by the shareholders.”

He rejected the claim that the missing funds could have been saved, arguing that by the time shareholders could have acted, it would already have been dissipated. However the position with wine stock was different, with an audit in 2016 showing that the company’s wine stock was near its peak and therefore still recoverable, the claimants said. The judge argued that “some of the wine might have been preserved, justifying a modest recoverable loss before further adjustments”, ICLG reported.

As a result, he awarded limited losses relating to just wine stock, amounting to just over £101,000, plus interest.

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