1. 2. philip ralph amatt 3. first report 4. exhibit pra1 ...5 company secretary name from to oliver...
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IN THE HIGH COURT OF JUSTICE NUMBER 3787 OF 2006
IN THE MATTER OF TREASURE TRADERS CORPORATION LIMITED
and
IN THE MATTER OF THE COMPANY DIRECTORS DISQUALIFICATION ACT 1986
Between:
THE OFFICIAL RECEIVER CLAIMANT
and
1. Peter Kippax DEFENDANT
I, Philip Ralph Amatt, Deputy Official Receiver, of Public Interest Unit, 21 Bloomsbury Street,
London WC1B 3SS, HEREBY REPORT:
1. A Winding Up Order was made on 14 December 2005 against Treasure Traders
Corporation Limited (“Treasure Traders”). This disqualification application is
concerned with the conduct of Peter Kippax (“Mr Kippax”) whilst acting as a director of
Treasure Traders. The Official Receiver has been directed by the Secretary of State for
1. Claimant
2. Philip Ralph Amatt
3. First report
4. Exhibit PRA1 & PRA2
5. Dated this 26 day of May 2006
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Trade and Industry to make this disqualification application for a disqualification order. I
have the conduct of the case and I am duly authorised to make this report.
2. The information in this report has come to the Official Receiver’s knowledge in the
course of the Official Receiver’s investigations of Treasure Traders’ affairs, the day to
day administration having been conducted under the Official Receiver’s supervision by
insolvency examiners.
3. In this report I also rely upon the affidavit of Rosemary Sarah Janes (“Ms Janes”), an
Investigator in the Department of Trade and Industry (“DTI”), sworn in support of the
winding-up petition. Copies of the affidavit and exhibits to it, the petition and Winding-up
Order, together with the witness statement of Mr Kippax dated 16 November 2005 made
in defence of the proceedings issued by the Secretary of State, are now produced and
shown to me marked “PRA1”.
4. Now produced and shown to me in the indexed paginated bundle marked “PRA2”, are
true copies of the further documents to which I shall refer in this report. Where specific
documents are referred to in this report, their page references are shown in bold text in the
body of this report.
The current position in the liquidation is:
o The assets total £2,184 and the liabilities £821,414
o Which gives a deficiency as regards creditors of £819,230
o The issued and paid up capital is £502
o Giving an overall deficiency as regards creditors and shareholders of
£819,732 [See paragraphs [#*#] to [#*#] below.]
INTRODUCTION
5. This report concerns Mr Kippax's conduct as a director of Treasure Traders, which was
incorporated on 9 September 2004 and commenced trading on 28 October 2004.
6. The Official Receiver was appointed Provisional Liquidator of Treasure Traders on the
25 November 2005, following the presentation of a petition by the Secretary of State for
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Trade and Industry. The Court made a Winding-up Order against Treasure Traders on
14 December 2005 and appointed the Official Receiver as liquidator. The Winding-up
petition was presented on the grounds of public interest. (PRA1 p[?] ).
7. This report alleges misconduct in respect of Mr Peter Kippax as follows:-
Between October 2004 and November 2005 Mr Kippax caused Treasure Traders to
administer, operate, promote and/or facilitate a money circulation scheme which was bound
to fail.
In doing so, Mr Kippax breached the following legislation:
i. Section 120 of the Fair Trading Act 1973 (“FTA 1973”);
ii. Section 1 of the Lotteries and Amusements Act 1976 (“LAA
1976”);
This has caused the public to lose an estimated £570,000.
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STATUTORY INFORMATION
DETAILS OF TREASURE TRADERS AND ITS OFFICERS
8. The following information was obtained from the public file for Treasure Traders
maintained by the Registrar of Companies (“the Registrar”) except where marked “*”,
which denotes that it was obtained from Treasure Traders own records or supplied by
the defendant.
Date of Incorporation : 9 September 2004
Date trading commenced : 28 October 2004*
Date trading ceased : 25 November 2005
Nature of Business : Trading scheme
Trading Style(if appropriate) :
Treasure Traders
Last principal tradingaddress :
1 Broadway, Hammersmith, London W6 9DL
Registered office : 1 Broadway, Hammersmith, London W6 9DL
Date and Type of anyprevious Insolvency Event
: None
Date of Petition : 31 October 2005
Provisional LiquidationOrder date
25 November 2005
Date of winding up order : 14 December 2005
Liquidator : Official Receiver
OFFICERS
9. The director of Treasure Traders has been:
Name From To
Peter Kippax 01/11/2004 -
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COMPANY SECRETARY
Name From To
Oliver Koncz 01/11/2004 19/01/2005
Peter Kippax 01/11/2004 19/01/2005
Lillian Idamiebi Brown 19/01/2005 30/09/2005
Robert Leonard Pulleng 30/09/2005 -
SHARE CAPITAL
10. According to the return filed at Companies House on Treasure Traders, Treasure
Traders has an authorised share capital of 1000 shares of £1 each, of which 502 have
been issued and these are held as follows:
Name No of Shares Held
Peter Kippax 501
Treasure Traders International Corporation 1
Total 502
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ASSETS AND LIABILITIES
STATEMENT OF AFFAIRS
11. A Statement of Affairs was not required. On information available to the Official
Receiver the assets and liabilities of Treasure Traders are:
ASSETS £ £
Bank 448
Furniture and Office Equipment (see note i) Nil
“Gem Cash” (see note ii) 1,736
Estimated total assets available to insecure creditors 2,184
LIABILITIES
Unsecured Creditors
Trade and Expenses 116,800
Members (see note iii) 570,000
Rent 22,616
HM Customs & Excise 91,998
Wages 20,000
Total owed to unsecured creditors 821,414
Estimated deficiency as regards unsecured creditors 819,230
Issued and called up capital 502
Estimated total deficiency as regards members 819,732
Notes:
i. The company had a large amount of office furniture, which is due to be sold by our agents.
This is unlikely to realise any funds for the estate, once agents’ fees are deducted.
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ii. The purported total appraised value of the “Gem Cash” is £56,000. However, an independent
valuation of a sample of the emeralds contained within these items reveals that the
estimated wholesale value is an average 3.1% of the purported appraised value.
Accordingly, the emeralds contained within the “Gem Bricks” are estimated to realise
£1,736. [PRA2 p[?] ]
iii. “Consolidated Accounts 2005” spreadsheet delivered to the Official Receiver show 978
members paid the sum of £1,200 as a deposit towards the purchase of “Gem Cash”. The
spreadsheet also shows 503 captains were paid commission. Therefore, 475 (978–503)
members remain as creditors with individual claims of £1,200. [PRA2 p[?] ]
PRESENT POSITION
12. The present position is as detailed above. There is no prospect of a distribution to
creditors.
13. To date, unsecured creditors have submitted claims totalling [?] (PRA2 p[?] )
PRELIMINARY EXAMINATION OF OFFICERS
14. On 15 December 2005 Mr C Gray of the Official Receiver’s office interviewed Mr
Kippax and the Preliminary Questionnaire (L75.01) was completed and a narrative
statement in respect of the affairs of Treasure Traders (PRA2 p[?] ).
15. On 28 November 2005 Mr C Gray interviewed Mr Pulleng at Treasure Traders’
premises and a Provisional Liquidation Inspection Questionnaire was completed in
respect of the affairs of Treasure Traders. [PRA2 p[?] ]
HISTORY
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16. Mr Alan Kippax, the managing director of Treasure Traders International Corporation,
(“TTIC”, a Canadian company), approached Mr Kippax (his cousin) regarding the
business operation of TTIC. Mr Kippax agreed to establish a similar business in the UK
with the assistance of Alan Kippax. TTIC financially supported Treasure Traders with
the commencement of trade. Until July 2005, TTIC supplied all marketing materials and
Gem-Cash to Treasure Traders.
17. Treasure Traders operated a scheme whereby members who joined were entitled to
various benefits including gemstones (which are variously described in promotional
literature as “Gem Cash” or “Gem Cache”, to which I will refer as Gem Cash) and
products at discounted prices. Prospective members were invited to attend a sales
presentation in London, Birmingham or Manchester. New members were required to pay
a deposit of £1,200, purportedly towards the purchase of Gem Cash (or latterly “Trade
Credits”). In return, Treasure Traders offered members the opportunity to earn an
income, or as the “success guide” says ‘…Why earn a living when you can make money’.
[PRA1 p[?] ]
18. In essence, Treasure Traders paid commission to members who recruited new members
to the scheme.
19. The method by which a member could earn commissions through recruitment of others
to the scheme operated by Treasure Traders is summarised at paragraphs 15 to 20 of the
first affidavit of Ms Janes sworn in support of the Winding-up petition [PRA1 p[?] ].
20. Existing members of the Treasure Traders’ scheme invited potential new recruits to
attend a presentation. Should the potential new recruit wish to join the scheme, then by
payment of £35 they could become a “registered distributor”.
21. In order to be eligible to earn commissions, a registered distributor is required to pay a
further £1,200 as a deposit against Gem Cash with a purported value of £5,000. Such
payment entitles the registered distributor to become a “Crewmember” upon the ship
“Destiny”, an imaginary treasure ship.
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22. By the recruitment of further persons to board the “ship” in this fashion, a crewmember is
advanced to the point whereby a commission is payable on attaining the rank of
“Captain”. Each ship, or “board” as has been described by Mr Kippax, has a maximum
crew of 15 comprising 8 Crewmembers (the newest recruits), 4 “Voyagers”, 2 “First
Mates” and a “Captain”.
23. The “Captain” of each “ship” is entitled to a commission of £775 paid from the £1,200
fee paid by each new Crewmember joining the scheme. When a ship has its compliment
of 15 members, it divides in two and each rank is “promoted” so that Crewmembers
become Voyagers, Voyagers First Mates, and First Mates Captains of their own “ships”.
24. Thus a “Captain” will earn a commission of £6,200 (8x £775) each time his “ship”
recruits 8 new “Crewmembers”.
25. On 31 October 2005, following an investigation conducted pursuant to Section 447 of the
Companies Act 1985, the Secretary of State for Trade and Industry presented a petition to
wind-up Treasure Traders on public interest grounds. The Petition alleges the scheme
operated by Treasure Traders was a trading scheme operating in breach of the Fair
Trading Act 1973 (“FTA 1973”) and was an unlawful lottery contrary to section 1 of the
Lotteries and Amusement Act 1976 (“LAA 1976”) [PRA1 p[?] ].
26. On 14 December 2005, a Winding-up Order was made against Treasure Traders.
27. According to Ms Kippax the cause of the company’s failure was as follows:-
o Wound up by courts
ROLES AND RESPONSIBILITIES OF THE DIRECTORS
28. Mr Kippax stated in his Company Officer Preliminary Information Questionnaire dated
14 December 2005 that he over saw the day-to-day running of the company. Robert
Pulleng was the company secretary and accountant. Lillian Brown was the company
secretary/para-legal and gave advise on program and materials. Ross Stirling was the
assistant director and helped with the running of Mr Kippax duties. William Wiseman
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was the assistant manager and assisted with managing the Hammersmith office [PRA2
p[?] ].
DIRECTORS’ REMUNERATION AND BENEFITS
29. Mr Kippax stated in his Company Officer Preliminary Information Questionnaire Form,
dated 14 December 2005, that he received £42,000 gross remuneration salary and benefits
including £15,800 for accommodation [PRA2 p[?] ]. In his statement of 15 December
2005, Mr Kippax goes on to state that he is owed approximately £55,000 by Treasure
Traders in respect of expenses, legal costs and wages [PRA2 p[?] ].
30. Mr Kippax also stated other company officers received a total sum of £34,000 including;
Mr Robert Pulleng received £3,600; Ms Lillian Brown received £22,000; Mr William
Wiseman received £7,800; and Mr Ross Stirling received £600 [PRA2 p[?] ].
ACCOUNTING INFORMATION
31. No accounts for Treasure Traders were filed with the Register of Companies House.
Treasure Traders accounting reference date is 30 September.
32. Mr Pulleng, the company secretary, personally delivered accounting records to the
Official Receiver’s Office in December 2005.
MATTERS DETERMINING UNFITNESS
THE OPERATION OF A MONEY CIRCULATION SCHEME CONTARY TO THE FAIR
TRADING ACT 1973 AND LOTTERIES AND AMUSEMENTS ACT 1976 WHICH WAS
BOUND TO FAIL CAUSING LOSS TO THE PUBLIC
The Scheme
33. Mr Kippax states that between 28 October 2004 and 14 December 2005 Treasure
Traders promoted to sales people the distribution of gemstones [PRA1 p[?] ].
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34. Treasure Traders held presentations in London, Manchester and Birmingham informing
potential customers of the company’s concept with emphasis on the rewarding benefits
associated with being promoted and earning large amounts of cash. Either friends or
family members usually introduce the individual as a stepping-stone for their own
promotion. Entry fee is £5 and usually paid by the friend or family member.
35. The first section of the information session informs potential customers about the mark-
ups associated between manufacturing costs and distribution costs.
36. The presenter then introduces several Gem Cash products to the room containing an
emerald gemstone presented in a _ inch brick surrounded in 22-carat gold leafing. An
appraisal certificate by “Jewellery Judge” Steven A Knight is inscribed on the reverse
side of the brick detailing the quality and dimensions of the enclosed gem. The presenter
then explains the savings associated with being a Gemstone distributor in the market
place by obtaining gemstones for only 34% of the appraised value
37. A distributor kit for £35 is available to participants inviting the potential customer to
become a registered gemstone distributor and become part of the sales team. The kit
includes information on the scheme, access to training sessions and also covered
administration costs.
38. The speaker then discusses the advantages of purchasing Gem Cash as follows:
• Let them Appreciate in VALUE; put the Gem-Cash in a safety deposit box and let it
appreciate in value.
• Make JEWELLERY; break open the brick and make jewellery – rings, pendants and ear
rings.
• Retail & Wholesale SALES; you could put the Gem-Cash, our 'jewellery store in a box’, in a
retail store.
• Learn to TRADE for Goods and Services; you could also learn to trade the Gem-Cash.
[PRA1 p[?] ]
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39. The presenter moves on to the introduction of Trade Deals, where members can trade
their Gem Cash (for the appraised value) to merchants in return for retail products at
highly discounted prices.
40. Mr Kippax incorporated Trade Deals on the 20 July 2005 and advised Mr Gray at the
Official Receiver’s Office that a previous company was set up in March 2004 but fell
short on demands. Therefore, Mr Kippax decided to set up Trade Deals with the intention
to trade as a separate venture [PRA2 p[?] ]. The website was launched on Sunday 24 July
2005. A £50 registration fee applies and entitles the individual to £50 worth of credit with
a telecoms company called Best Call.
41. The second part of the information section, is one of importance and is the way the
scheme sold gemstones to customers. The presenter commences with ‘Now comes the fun
part where we can take you on a voyage’ to collect treasure [PRA1 p[?] ].
42. To become part of the adventure a deposit payment of £1,200 is required towards one of
the following “Gem Value Packs”;
• Option 1: Redeem Certificate, pay a further £500 (plus VAT) and receive a Gem cache brick
containing emeralds, with a UK wholesale value of £5,000
• Option 2: Redeem Certificate with just the cost of packing and receive £1,300 retail value of
Gem-Cache (TTC chosen)
• Option 3: Redeem Certificate with no further payments and receive £1,200 retail value of
loose gemstones (not in cache, TTC chosen).
• Option 4: Redeem Certificate for and pay £400 plus a Trade Administration fee of £100
(plus VAT) and receive £5,000 worth of trade credit with Trade Deals (as of 24 July 2005).
43. A deposit payment towards one of the packs provides the recipient with a ‘Purchase
Order Deposit Receipt Certificate’; this entitles the customer to a free ticket, onboard the
‘Destiny’ ship [PRA1 p[?] ].
44. Mr Kippax advised Ms Janes, during the course of her investigation, that distributors were
very excited about the development of the fourth option (Trade Deals), as many
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customers were not interested in Gem Stones. This clearly identifies that Mr Kippax was
aware the company mission (refer to paragraph [?]) was not one of importance to
potential customers [PRA1 p[?] ].
45. It is also interesting to note that according to Mr Kippax 99% of customers who paid
deposits towards Gem Value Packs became part of the sales tracking boards (Destiny
Ship). This clearly shows there are two aspects of Treasure Traders, the potential to
make sales and recruit new members [PRA1 p[?] ].
46. Prior to amendments made by Mr Kippax, during the course of Ms Janes investigation,
the captain had an opportunity to allocate free spaces on board the “ship”, if
crewmembers were encountering difficulties recruiting new members. However, captains
would only receive commission from those crewmembers who paid a deposit towards a
Gem Pack.
47. Once aboard the ship the individual’s mission is to move up the ranks and become
captain. To become captain the individual must recruit two friends or associates who
board the ship. Each friend or associate recruited entitles the individual to a “key”. The
individual can only become captain (top of the rank) if two keys have been collected
during their voyage, this entitles the captain to £7,000 worth of ‘treasure’.
48. The ship consists of eight crewmembers, four voyagers’ two first mates and one captain.
Individuals are promoted on board by introducing new crewmembers. Once the ship is
full the board divides in two and individual moves up the rank. The crewmembers
become voyagers the voyagers’ first mates and the first mates become captains (provided
they have collected two keys on their voyage). The captains will collect £775 commission
from each deposit of £1,200 paid by each crewmember. Treasure Traders retains the
remainder of £425 for administration fees.
49. An administration department was formed within Treasure Traders to manage the
collection and distribution of funds accordingly. Funds were held in a safe at the
Hammersmith premises and recorded on a “Consolidated Accounts 2005” spreadsheet
found at [PRA2 p[?] ].
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The Lifelong Infinity Residual Retirement Bonus
50. Once the individual has completed the process of becoming captain twice, further
management positions are achievable. These positions are determined by the amount of
times the individual’s own recruits become captain and the amount of times the recruits
below them become captain (and so forth) this can be seen in the table below;
Position
Achieved
Minimum
times captain
Minimum team
developments
Cash
Reward
Emerald
Cheque
Wholesale Rep 0 0 0 0
Team Developer 2 2 Captains £30 £90
Regional Developer 3 3 Team Developers £60 £180
Regional Manager 5 3 Regional
Developers
£90 £270
Executive Manager 10 3 Regional Managers £120 £360
Regional Vice
President
15 3 Executive Managers £150 £450
51. The presentation goes on to explain the above table and benefits of becoming a senior
member (PRA2 pg [?]). It then goes on to show how increasing to higher management
positions increases potential income. The overall thrust of this part of the presentation is
to emphasise the significance of recruiting others into the scheme in order to increase the
earnings for the individual.
52. The information session explains that by obtaining senior positions within the scheme,
individuals have the ability to receive payments ‘for the rest of his life’ and includes
statements such as:
• ‘GEM-CASH, whatever you choose to do with your GEM-CASH, at a profit margin of 64%,
or greater, that’s our gift to you’.
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• ‘BUILD A SALES TEAM, you can join the ship, The Destiny, and become Captain as many
times as you like, each time collecting $12,000 in value’ [The reference to $12,000 appears
to stem from the fact that Treasure Traders was using the promotional literature produced
by TTIC in Canada]
• ‘RESIDUAL INCOME, earn sleeping money by building a strong team and helping others
become successful in this business, creating a business that works so one day you don’t have
to!’.
[PRA1 p[?] ]
53. It is important to mention at this point that the individual was required to pay the £1,200
deposit towards Gem Cash (as at paragraph [?]) if they wished to continue to this level.
Mr Pulleng advised Ms Janes, during the course of her investigation, that by paying the
£35 fee for the distributor pack, the individual only has the ability to gain further
knowledge about the company and the individual is required to pay a deposit towards a
Gem Pack to achieve the above goals [PRA1 p[?] ].
54. Ms Janes outlined in her affidavit, further to the above table in paragraph [?] that the total
amount of recruits required at each level can be calculated as below;
Qualified Position No. you need to
recruit
No. your team needs
to recruit
Total
Wholesale Rep 0 0 0
Team Developer 2+2=4 4 8
Regional Developer 3+3=6 8_3=24 30
Regional Manager 5+5=10 30_3=90 100
Executive Manager 10+10=20 100_3=300 320
Regional Vice President 15+15=30 320_3=960 990
55. A further document that gives perhaps a better overall picture of the of business being
operated by Treasure Traders is within the information session where individuals are
advised to follow two company rules;
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56. Rule 1: ‘Say nothing say nothing, say nothing, what part of nothing don’t you
understand? [PRA1 p[?] ]
57. The company “success guide” structures ‘Tips on inviting prospects by saying nothing’;
• “I know you know a good thing when you see one, so you’re going to see this business
sooner or later. So come and see it now, and you’ll be happy that I invited you.”
• Well – seeing is believing – so why don’t you come and see for yourself?”
• “I’m calling to put some money in your pocket.”
• “When you want to have a haircut, you have to go to the barber. No one can give you a
haircut over the phone; the same with a business.”
• “Serious cash is being made. You owe it to yourself to come and see this business”.
• A real business with a real product at real value. Why earn a living when you can make
money?”.
• “The more you see of this business, the more you’ll be glad you’re doing it, the more you’ll
be glad I called you. Would Tuesday at 7:30pm be better for you or Saturday at 1:30?”.
• My boss is paying me £7,000 to say nothing, and your not paying me a dime”.
[PRA1 p[?] ]
58. Mr Kippax states in his affidavit of 16 November 2005 that ‘…the approach was merely
adopted so as to not prejudice potential customers prior to the presentation and merely
enable them to attend with an open mind…’ [PRA1 p[?] ]
59. Rule 2: ‘Your Business is only as good as your list! Build a list with a minimum of 100
names! Continue adding at least 100 names per week!’. [PRA1 p[?] ]
60. The company “success guide” details this statement more clearly by listing examples on
how to accomplish this above statement (PRA1 page [?]) It is also interesting to note
that one example includes ‘the seating strategy’ which states ‘Sit in the middle of your
guests. This eliminates any negative chat between the guests. If you were not able to
cancel one, then call one of your Associates to sit in between the second and third guest’.
[PRA1 p[?] ]
61. These forms of marketing are not consistent with Treasure Traders’ mission ‘to become
one of the leading wholesale distributors worldwide of coloured gemstones and high
17
quality trade products’ and are more focused around the ability to become a part of the
sales tracking boards.
The Underlying Purpose of the Scheme
62. Whilst the purported mission of Treasure Traders was ‘to become one of the leading
wholesale distributors worldwide of coloured gemstones and high quality trade products’,
the actual operation of the scheme is such that the underlying purpose was to encourage
members to recruit new paying members to the scheme in order to benefit from earning
commissions.
63. As stated above, in order for an individual to participate in the scheme operated by
Treasure Traders, it was necessary to pay the sum of £1,200 as a deposit towards the
purchase of Gem Cash. If the underlying motive was to obtain the purportedly valuable
Gem Cash, then one would expect members to acquire and deal with the Gem Cash
product. However, in her affidavit, at paragraph 19 [PRA1 p[?] ], Ms Janes points out
that as at 20 May 2005 there were only 14 holders of Gem Cash as against at least 232
deposits paid purportedly to obtain the Gem Cash (Mr Kippax confirms this figure in his
affidavit of 16 November 2005) [PRA1 p[?] ]. Had the motivation in paying the £1,200
deposit been to obtain Gem Cash, one would expect more than 6% of deposit payers to
have actually acquired the Gem Cash product.
64. In his affidavit of 16 November 2005, Mr Kippax introduces and relies upon legal advice
obtained from Messrs Blake-Turner Solicitors as to the legality of the scheme. This
advice is dated 2 February 2005 (ie some 3 months after commencement of trading, albeit
that the advice was evidently sought in November 2004, just after the commencement of
trading) [PRA1 p[?] ].
65. Whilst the overall advice from Messrs Blake-Turner, based upon the information supplied
by Mr Kippax and other members of Treasure Traders’ staff, was that the scheme was
lawful, the following passage from their letter of advice is of crucial importance in this
instance:
“You have told me that the underlying motive in this scheme is that people actually buy
valuable gemstones. They get a genuine stone with an independent valuation….
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At the end of the day, it is going to be a question, in my opinion, of what is “the
dominant intention”…If the dominant intention of your scheme is to sell emeralds and to
get other people to sell emeralds (although you have told me you may move into rubies
and sapphires as well) and those emeralds have a value which can be realised readily
then I do not believe your scheme is unlawful.
If however the dominant motive is to get others to join the scheme and for each
primary or secondary member to obtain payment for getting others to join being
secondary or tertiary members then I believe the scheme is unlawful. [My emphasis]
[PRA1 p[?] ]
66. As stated above, were the “dominant motive” of members to be the purchase and sale of
emeralds, then they would have taken steps to obtain the emeralds for which they had
paid a deposit. In fact, only 6% of those who paid a deposit actually obtained the
emerald(s) for which they had paid a deposit On that basis, it cannot be said that the
“dominant motive” was to buy and sell emeralds and Mr Kippax, as sole director of
Treasure Traders, must have been aware of, or reckless to, this fact.
Fair Trading Act 1973
Part XI – Pyramid Selling and Similar Trading Schemes
67. In her affidavit, Ms Janes, when referring to the Fair Trading Act, states ‘Section 120 (3)
provides that where a participant in a trading scheme makes any payment to or for the
benefit of the scheme promoter or another participant and is induced to make that
payment by reason that the prospect is held out to him of receiving payments or other
benefits in respect of the introduction of other persons who become participants in the
trading scheme; then the person to whom or for whose benefit that payment is made is
guilty of the offence. Here participants in the scheme are induced to pay a deposit of
£1,200, to or for the benefit of the promoter (TT Corporation) [Treasure Traders] and a
scheme participant (the relevant captain) by the prospect held out to them of receiving
payments (£7,000/6,200 cash as captain upon completion of a board) in respect of the
introduction of other persons who become participants in the scheme. Further to this,
19
section 120(4) states that the person inducing such payment to be made is also guilty of
an offence.’ [PRA1 p[?] ]
68. Mr Kippax, in his witness statement dated 16 November 2005, defends this element of the
Secretary of States allegation by merely declaring that Treasure Traders is not a
pyramid scheme or similar. He declares that to move up the rank or to become part of the
residential program the sales team must continue to make product sales. Therefore,
whether the individual joins the scheme or not, the individual benefits from the product
purchased [PRA1 p[?] ]. However, as stated at paragraphs [?] above, this bald assertion
is not supported by the facts.
69. Earlier in this report I outlined how the Treasure Traders scheme worked. In his
judgement dated 1 December 2005, Mr Michael Furness QC, sitting as a Deputy Judge of
the High Court, considered whether the scheme was unlawful under the FTA 1973. In his
judgement he referred to a similar case dealt with by Mr Justice Neuberger (as then he
was).
70. Mr Justice Neuberger summarised an approach by looking at section 120(3)(b) in the case
of Delfin International SA Ltd [2000] 1 BCLC 71 at 83 ‘where he points out that the
court is required to look at the reality of the business under consideration, and to
consider the marketing material for the scheme as a whole’ [PRA1 p[?] ].
71. Mr Michael Furness QC, in his judgement dated 1 December 2005, agreed with Counsel
for the Secretary of State for the Department of Trade and Industry when Counsel claimed
that Treasure Traders satisfies section 120(3)(b). ‘The fact that on the face of the Scheme
documentation a participant who is induced to make the payment envisaged by section
120(3)(b) receives a benefit from the payment of s [sic] on the product does not prevent
the section from applying if the persons who make those payments in fact go on to become
participants of the Scheme’ [PRA1 p[?] ]. He further stated ‘I therefore conclude that the
business of the company involves the commission of offences by the company under
section 120(3) of the Fair Trading act 1973’ [PRA1 p[?] ].
72. Mr Michael Furness QC also considered the following allegations petitioned by the
Secretary of State
20
• That the business constitutes a trading scheme,
• The person who has applied or has recruited to become a distributor makes a payment
falling within Section 120(3)(a) of the FTA 1973
• The business was trading scheme as dealt with by section 118 of the FTA 1973
73. Again Mr Michael Furness QC agreed with Counsel (PRA2 pg [?]). At paragraph 19 he
deals with these allegations and states ‘these arguments seem to me to be clearly correct’.
Lotteries and Amusements Act 1976
74. Section 1 of the LAA 1976 states “all lotteries which do not constitute gaming are
unlawful with the exception of those provided by this Act.” [PRA2 p[?] ]
Case Law
75. In the absence of specific statutory legislation governing lottery schemes, the Courts over
the years has established case procedures when dealing with illegal lotteries.
76. The case of Seay v Eastwood [1976] 1 WLR 117 (PRA2 p[?]) is one which establishes
that there is no precise definition of (amongst other things) a lottery in the UK.
77. In the case of Reader’s Digest Association Ltd v Williams [1976] 1 WLR 1109 (PRA2p
[?]) the Courts expanded its view of what constitutes a lottery.
78. Essentially, the Court held a lottery consisted of three elements:-
o The distribution of prizes;
o Done by a mean of chance
o Some actual contribution made by a participant in return for obtaining a
chance to take part
79. In the scheme operated by Treasure Traders, these three elements are present. There is
the contribution by the participant (the £1,200 deposit) in return for obtaining a chance to
take part (the participant’s place as a “crewmember” on the “Destiny). There is the
distribution of prizes (the £6,200 paid to the “captain” on completion of a “voyage”). As
21
the captain cannot influence the introduction of sufficient new crewmembers by the
participants below him, the likelihood of a given captain obtaining his prize is a matter of
chance. This is particularly so in the case of the “Lifelong Infinity Residual Retirement
Bonus”
80. Mr Kippax states in his witness statement of 16 November 2005 in defence (paragraph
55) that ‘…the £7,000 commission referred to as treasure is not earned by recruiting two
friends or associates, or to pay £1,200 to join the group: it represents the distributors
commission earned on the sale of the products’ [PRA1 p[?] ]. Mr Kippax’s defence is
purely the fact that the distribution of Gemstones is the main objective of Treasure
Traders and that members require substantial skill when selecting new people to join the
sales team.
81. Mr Michael Furness QC stated in his judgement ‘I consider that the Secretary of State is
correct on this point too I do not think the Company can plausibly characterise the
activities of the recipients of permanent pension as sales managers who earn commission
on the activities of their sales team. On the contrary it is suggested in the explanatory
literature that after a while permanent pension can be earned with no effort at all on the
part of the recipient’ [PRA2 p[?] ].
82. When addressing whether the scheme was unlawful due to the means of chance, Mr
Michael Furness QC referred to Saville LJ’s injunction in the Court of Appeal case of Re
Senator Hanseatische Verwaltungsgesellschaft mbH [1997] 1 WLR (“Senator”) to take “a
common sense” approach [PRA2 p[?] ].
83. Mr Michael Furness QC went on to state ‘ Permanent Pension is a substantial part of the
scheme. It is promoted by the Company as a means of participants earning substantial
amounts of money…So in this sense payments generated by chance are an important, and
I would say substantial part of the scheme. For this reason I am of the view that the
scheme is a lottery of the sort envisaged by the Court of Appeal in the Senator case’
[PRA2 p[?] ].
Conclusion
22
84. Money circulation schemes are based on mathematics; many losers pay a few winners.
Mr Kippax was responsible for promoting such a scheme in the guise of a gemstone
trading programme
85. Money circulation schemes are inherently objectionable, and are unlawful pursuant to the
provisions of the FTA 1973.
86. The chance of any person receiving the permanent pension depends sufficiently on new
customers joining the scheme. The individual has little or no control over this aspect of
the scheme and as such the customer’s success is wholly or significantly dependent on
chance. This effectively constitutes a lottery and is contrary to Section 1 of the LAA
1976.
87. As such, these schemes are doomed to fail through either the intervention by a regulatory
body such as Companies Investigation Branch of the DTI, or through the eventual
exhaustion of new members willing to join the scheme
88. The scheme has the appearance of a money circulation scheme; the Court decided it was
unlawful pursuant to the provisions of the FTA 1973 and the LAA 1976. This has caused
a loss to the public totalling approximately £570,000.
SUMMARY OF MATTERS DETERMINING UNFITNESS
23
89. With regard to the affairs of Treasure Traders, the following are matters by reference to
which Mr Peter Kippax is, in the opinion of the Secretary of State, unfit to be concerned
in the management of a limited company:-
Between October 2004 and November 2005 Mr Kippax caused Treasure Traders to
administer, operate, promote and/or facilitate a money circulation scheme which was
bound to fail.
In doing so, Mr Kippax breached the following legislation:
iii. Section 120 of the Fair Trading Act 1973 (“FTA 1973”);
iv. Section 1 of the Lotteries and Amusements Act 1976 (“LAA
1976”);
This has caused the public to lose an estimated £570,000.
(see in particular paragraphs [?] to [?] )
90. In all the circumstances, I request this Honourable Court to make a Disqualification Order
as sought in the disqualification claim form.
Dated this [?] day of [?] 2006
Philip Ralph Amatt
Deputy Official Receiver
1. Claimant
2. Philip Ralph Amatt
3. First Report
4. Exhibit PRA1 and PRA2
5. Dated this [?] day of [?] 2006
24
IN THE HIGH COURT
IN THE MATTER OF TREASURE TRADERS CORPORATION
LIMITED
and
IN THE MATTER OF THE
COMPANY DIRECTORS
DISQUALIFICATION ACT 1986
Between:
THE OFFICIAL RECEIVER
CLAIMANT
and
1. Peter DEFENDANT
REPORT
OF
PHILIP RALPH AMATT
DEPUTY OFFICIAL RECEIVER
Dated the [?] day of [?] 2006
Address:21 Bloomsbury StreetLondon WC1B 3SS