A landmark legal decision has saved the new owners of a pop-up hotel firm from ruinous fines in a fatal health and safety case.
The new managers rescued the business from insolvency after it had gone through a Company Voluntary Arrangement, keeping it alive as a going concern.
The firm was already under investigation for the onsite fatality, and after the takeover, the Health and Safety Executive brought a corporate manslaughter case against the company.
With their business facing a potentially huge fine, the new owners called in property and construction legal specialists Cardium Law, who successfully argued that a fine could not be enforced as the HSE had not made a claim during the CVA process.
The fatal accident happened when the firm was adapting a barn to use as a dining room for guests alongside shipping containers converted into temporary hotel rooms.
Discovering a sub-contractor on the roof of the leaking building without the proper safety equipment, site managers ordered him to get down, but he scaled the barn again on more than one occasion and died when he plunged through a skylight.
Being forced to abort the project created a cashflow crisis for the firm’s then owners. Liquidators came in and recommended a CVA.
Typically, under a CVA, the insolvent company agrees a schedule of repayments to creditors, but in this case, the main creditor waived its right to repayment in return for ownership of the business, which it swiftly sold on to the current owners, now Cardium Law’s clients.
The sale appeared to be a success for all concerned, but then came the HSE’s corporate manslaughter case.
Cardium’s team reckoned they had a reasonable argument in the criminal case that the worker who died had ignored safety instructions. But because the HSE case was filed against the Company under the management of its new owners as well as against the former directors, it meant if a jury wanted to convict the former owners, they would need to convict the company as well, leading to fines it probably couldn’t afford.
So the Cardium team looked for another way to protect the client company from another insolvency. They launched a parallel civil case to argue that any fines levied by the criminal court were unenforceable because the CVA process discharged all the company’s liabilities.
Crucially, the HSE had been informed of the CVA process but did not make any claim as a creditor.
Cardium won the civil case, which meant that even if the company was found guilty of corporate manslaughter, it would not have to pay the resulting fines.
As things turned out in the Crown Court, Cardium and Mark Watson KC of Six Pump Court persuaded the prosecution to drop the corporate manslaughter charges based on no case to answer.
Instead, the trial focused on a technical HSE infraction of failing to prevent the contractor climbing onto the barn roof on the first occasion. That incurred a £140,000 fine, nowhere near the millions that would be levied for a guilty corporate manslaughter verdict, but even this was not collectible because of the civil case ruling.
The civil case has established a new law.
Cardium Director Chris MacQueen explains: “If someone is looking at buying a business that has been through a CVA and discovers that the target acquisition is under investigation for HSE or other infractions, it means the company and its new owners are safeguarded from fines relating to events before the CVA where a prosecution isn’t already underway.”