PPE Medpro: recovering £122 million — civil and insolvency routes

We review the key levers and legal challenges of: (1) personal claims against individuals (Baroness Mone, and Douglas Barrowman) via misrepresentation and deceit; (2) the difficulty of piercing the corporate veil; and (3) the scope for recovery under the Insolvency Act 1986 (especially preference and misfeasance) now that PPE Medpro is in administration.

Background

In the early weeks of the COVID-19 pandemic the Department of Health and Social Care (DHSC) established a parallel procurement channel — a “High Priority” or “VIP” lane — to expedite potential suppliers referred by MPs, peers, ministers and other senior figures when normal competitive tendering was suspended because of urgent need.

PPE Medpro was incorporated on 12 May 2020 and quickly secured major government contracts: an initial face-mask contract in mid-June and, two weeks later, a £122 million surgical-gowns contract. PPE Medpro was one of the firms referred into the High Priority/VIP lane by Baroness Michelle Mone, a member of the House of Lords. Baroness Mone identified Medpro as a potential supplier on 7 May 2020 and emailed the government to highlight the opportunity on 8 May 2020 — five days before the company was formally incorporated. In those communications she referred to being able to source supplies through “my team in Hong Kong”.

However, once supplied into the UK, the gowns were rejected on arrival for failing to satisfy sterilisation protocols and lacking valid “notified body” certification (CE mark requirements). The gowns went unused.

It was later revealed that the ultimate beneficial owner of PPE Medpro was Douglas Barrowman, Baroness Mone's husband and businessman based in the Isle of Man. Media and parliamentary reporting suggest that Barrowman and Mone profited heavily from the PPE business: e.g. ~£65m to Barrowman, ~£29m transferred to a trust benefiting Mone and children.

The Secretary of State for Health subsequently sued PPE Medpro for breach of contract. In a High Court judgment handed down on 1 October, Mrs Justice Cockerill held that PPE Medpro had breached the contract and ordered repayment of the £122 million contract price. However, crucially, PPE Medpro entered formal insolvency, and administrators were appointed immediately before the judgment, leaving the question open as to how recovery would be made against a company that apparently no longer has any assets.

The government must navigate insolvency, limited liability, and the challenge of going after beneficial owners or controllers in order to recover its damages award.

Routes to recovery

1. Personal claims

It is noteworthy that no direct personal claims against Baroness Mone or Mr Barrowman were pursued by the government, such as for fraudulent misrepresentation or deceit. This could have provided a more direct route to recovery and exerted greater public and reputational pressure. The likely answer is that such claims may have been difficult to establish (or non-existent), and the breach of contract claim against PPE Medpro was a more straightforward and secure route to obtaining a judgment.

Fraudulent misrepresentation requires that a false representation was made, that the defendant knew it was false (or was reckless as to its truth), that it was intended to be relied upon, and that the claimant did in fact rely and suffer loss. That standard is demanding, and the government would have had to establish that a representation had been made by either Mr Barrowman and/or Baroness Mone and that either of them had knowingly or recklessly misrepresented quality, sterility, or certification details in order to induce the contract. No such representation appears to have been made and at trial, PPE Medpro consistently defended that the gowns were manufactured and sterilised properly, that DHSC accepted or approved processes, and that contamination might have occurred post-delivery.

Notwithstanding the above, the National Crime Agency is investigating Mone and Barrowman on suspicion of criminality, but no charges have yet been brought, although the couple agreed to a freezing order over their assets up to the value of £75 million following an application by the Crown Prosecution Service under the Proceeds of Crime Act.

2. Piercing the corporate veil: a difficult possibility

Given that PPE Medpro is insolvent, the general public may well be asking why the government cannot disregard its corporate personality and seek to recover against Barrowman/Mone personally given the evidence that they profited directly from the business. However, English law remains highly cautious about this. As established in Salomon v A Salomon & Co Ltd [1897], a company has a separate legal personality distinct from its shareholders and they are generally insulated from liability (and it is important to note that only Mr Barrowman had a beneficial interest in PPE Medpro). 'Piercing the veil' means disregarding that separation and holding those shareholders personally liable for the company’s acts or obligations.

As established (and reaffirmed) in the Supreme Court's decision in Prest v Petrodel [2013] UKSC 34, the corporate veil may only be pierced in narrow circumstances, typically where a person is using a company to evade a pre-existing legal obligation. The court will only disregard the corporate form if the company is interposed to frustrate the enforcement of an existing legal duty, and where no alternative remedy is available. Mere wrongdoing, injustice or misuse is generally insufficient.

Veil-piercing is not impossible, but would likely be resisted by any competent litigation defence, and it would be an uncertain and potentially expensive gamble in these circumstances.

3. Insolvency Act 1986: recovery via the administrator (or liquidator in due course)

Because PPE Medpro is now in administration, much of the recovery strategy will now lie in the hands of the office-holder. The Insolvency Act 1986 offers several claw-back mechanisms and director liability routes.

Insolvency Practitioners have extensive investigatory powers (pursuant to the Insolvency Act 1986) to assist in understanding the company's failure, the conduct of those concerned in its management and to realise assets for the benefit of creditors and the Insolvency Act imposes an obligation on company directors and others to provide information that the office holder reasonably requires. Failings in this regard can result in being required to attend an examination in court and should parties not comply, this can lead to severe consequences, including being held in contempt, which may result in fines and/or imprisonment.

There are various ways in which transactions (for instance the £29m of profit from the deal which it has been said was paid into a trust benefitting Mr Barrowman's family, including Baroness Mone and her children) can be reviewed and potentially set aside or restitutionary relief ordered. Whilst the timing of the transaction in relation to the insolvency is significant for certain claims, such as preferences and transactions at an undervalue, others, such as transactions defrauding creditors (pursuant to section 423 of the Insolvency Act 1986) have no such time constraints. This claim is essentially where a transaction was entered into at an undervalue (i.e. no value for the transaction given to the company) for the purpose of putting assets beyond the reach of a creditor so as to frustrate an actual or potential claim that the creditor has against the company.  The office-holder will also examine the conduct of the directors and de facto directors to consider how their conduct may have affected the company and the transactions that they procured the company enter into. The office-holders may also consider other claims such as dishonest assistance and knowing receipt to try to recover monies for the benefit of creditors (as a whole).  

Strategic considerations

In the absence of personal claims and difficulties piercing the corporate veil, action via the administrator now appears to have the best prospect for successful recovery. The government's strategy may have been to exert public and reputational pressure through the High Court breach of contract claim in the expectation that the ultimate beneficial owners would pay the damages awarded, but PPE Medpro subsequently missed the deadline by which to make the £122 million payment. The prospects of recovery now lie in the hands of the office-holder, which has various tools at their disposal to achieve that purpose.