Education company directors sued over alleged hiding of VAT liability

Two directors of a group of Irish online education course companies are being sued in the High Court by a UK investment firm over the alleged hiding of a €450,000 VAT liability before the UK firm lent some €6.75 million to the group.

London-based Columbia Lake Partners Growth Lending (Luxco) SARL is suing James Egan and Adrian Murphy, directors of Dublin-based Shaw Education Group (SEG) plc.

Columbia lent the €6.75 million to SEG which was guaranteed by two subsidiaries of SEG.

In January 2019, Columbia issued a demand for payment of around €5.5 million. A week later SEG and two associated companies applied for High Court protection which was granted.

In April 2019, a survival scheme for the group was approved by the court. Under its terms Columbia was paid just €1.2 million which meant Columbia suffered a significant loss.

In what Mr Justice Brian O'Moore described on Friday as "an unusual case", Columbia then sued Mr Egan and Mr Murphy alleging that it had learned that in December 2018 that one of the subsidiary companies, Shaw Academy Ltd, had a VAT liability of €450,000 which it says was hidden from Columbia by the two directors.

The directors, it says, represented that the subsidiary had no VAT liability. Had they not done so, Columbia says it would not have entered the loan agreements in the first place or would have provided funds on different terms.

It would also not have exercised forbearance over the debt or have failed to take steps to recoup the funds, it says.

Defence

In a full defence, the directors deny much of the claim. They also plead the Columbia action is, among other things, an abuse of process and an attempt to circumvent the consequences of the April 2019 survival scheme and writing down of the debt.

Columbia, as part of the pre-trial process, applied to the court for discovery of certain documents related to alleged hidden VAT liability. Following discussions between the parties, a number of matters were agreed before the matter went to hearing.

On Friday, Mr Justice O’Moore gave directions in relation to a number of outstanding matters and ordered discovery of certain documents by the defendants. The main action has yet to be heard.