Over at the Wardman Wire, Matt is currently presiding over yet another ‘Spartacus Action’, this time relating to a ‘cease and desist’ letter issued by the Texas-based owner of what used to be a chain of Anglican bookshops to a British blogger/cartoonist, Dave Walker, which led to the removal of 75 posts from Dave’s blog.
Okay, so Christian bookshops aren’t exactly my thing, in fact the two that I know of in Birmingham City Centre, one of which is/was an SPCK store, are just about the only bookshops in the area I haven’t been into and my only recollection of the SPCK one, other than its general location, is that its window displays tended to look a mite less scary than those of larger evangelical shop that was big on targeting kids…
…but personal and irreligious prejudices aside, we’ve got ourselves yet another blogger in the firing line for writing openly about matters that a litigiously-minded individual, J Mark Brewer, who also happens to be a commercial lawyer in his home state of Texas, would prefer that he, and others, didn’t discuss, and when the call for a bit of solidarity goes out then, as bloggers, we stand together.
So far as the backstory to all this goes, Dave’s missing archive is still retrievable via Google’s cache and, with any luck, efforts should be under way to retrieve this material and get into an onlne archive somewhere that Brewer will find rather more difficult to threaten, but if you prefer a quick summary of the main issues then try this from Blogula-Rasa:
[Dave Walker] has removed all content from his blog pertaining to the odd and ongoing story of how an Anglican bookstore chain got turned over to a group of Texans of the Orthodox faith for a song. And how a lot of people lost their jobs over the last year or so, and how one young man was driven to despair and committed suicide, all because this strangely fundamentalist Orthodox group decided to gut the bookshops, fire the staff, and behave in a very anti-businesslike way. Almost as if they deliberately wanted to drive the bookshops into the ground and somehow leverage that failure.
There’s also more background to be found at MetaCatholic, including some interesting questions about Brewer’s rather unusual interpretation of Eastern Orthodox doctrine – worth reading the whole post and the comments – which, when added to everything else, has got my ‘something’s not quite what it seems’ bump itching, and regular readers will know what comes next.
We’ll take the contemporary stuff first, because it take some unpicking but…
In June of this year, the charitable trading company which operated what SPCK’s bookshops, SSG LLC, filed for Chapter 11 bankruptcy – and if you’re thinking all sounds rather unfamiliar, what the references to ‘LLC’ and Chapter 11 bankruptcy tell us is that we’re dealing with a US registered company (Houston, Texas, to be precise). Not uncoincidentally, SSG LLC’s decision to run for Chapter 11 parallels a very different set of legal proceedings currently awaiting Brewer’s attention, anything up to an estimated 30 employment tribunal claims, including 15 being prepared by the shopworker’s union USDAW, most of which relate to the imposition of unilateral variations in contractual terms although, from what I can pick up, there well also be at least one gender discrimination claim in the offing arising from the dismissal of a pregnant employee.
As yet, I’ve been unable to find any trace of SSG LLC on the UK Companies House Register, not even as a foreign company trading in the UK.
Meanwhile, SPCK’s remaining bookshops, including those in Durham and Chichester Cathedrals have been transferred to companies called ENC Shop Management Co,, Durham Shop Management Co and Chichester Shop Management Co. all of which are listed on Companies House as foreign companies (Houston registered, again) and all having the same secretary and directors…
SECRETARY: BREWER, SANDRA K
DIRECTOR: BREWER, J MARK
DIRECTOR: BREWER, PHILIP W
There is, however, also a UK registered company called Saint Stephen the Great (which is what the SSG in SSG LLC is short for), with a company number of 06110519 – guess who it’s directors are?
DIRECTOR: BREWER, JOHN MARK
DIRECTOR: BREWER, KAREN ELLEN
DIRECTOR: BREWER, SANDRA KAY
This appears to caused a little confusion as this particular Saint Stephen the Great does not appear to the company that ran SPCK, rather its a charitable company limited by guarantee (charity no. 1119839) set up in February 2007 as a limited liability vehicle that, so far as I can see, takes over the role and purpose of the Saint Stephen the Great Charitable Trust (charity no. 1109008) which was set up in 2004 and then transferred to the limited liability company as a subsidiary (charity no. 1119839 – 1) under a uniting direction issued by the Charity Commission in July 2007.
And the trustees of these charities are…?
JOHN MARK BREWER
SANDRA KAY BREWER
KAREN ELLEN BREWER
Since shipping up in the UK in 2004, it worth noting that only once has any of Brewer’s operations actually filed any paperwork with a regulatory authority – the Saint Stephen the Great Charitable Trust files its first year’s accounts and annual return with the Charity Commission albeit that both were filed 6-9 months late, The Trust’s annual return and accounts for 2005-6 are still listed as being overdue as are the first year’s accounts and annual return for the limited liability company at Companies House, but not with the Charity Commission as this company was not registered as a charity until August 2007.
Having noted a few anomalies at this end, and within the last few minutes, a contact of mine in the US has forwarded some additional, and extremely interesting, information about Brewer’s efforts to file for bankruptcy.
My understanding is that, having filed initially for chapter 11 bankruptcy, which exists to give companies time to restructure as a going concern, this has now been switched to an application for chapter 7 bankruptcy, which is the full liquidation of the company… HOWEVER…
A petition has also been filed on behalf of as yet unidentified creditor, contesting the application for bankruptcy and this petition makes a number of very interesting allegations, specifically…
1. That there is no legal entity, i.e. company, with name ‘SSG LLC’ registered to Brewer in the US nor is there an SSG LLC registered with the US Internal Revenue Service for the purposes of claiming tax exemptions afforded to US charities.
2. That the SSG LLC referred to in Brewer’s petition for bankruptcy is, in actual fact, Saint Stephen the Great Limited, the UK registered charitable company limited by guarantee, noted earlier on – amongst the evidence for this, the petition notes that taxpayer number supplied for ‘SSG LLC’ on the bankruptcy petition is identifical to that of the UK registered charity/company, and,
3. That Brewer’s petition and its schedules provide the court with false information about the assets of the charity/company during the period that it ran SPCK from November 2006 to June 2008 and discloses that Brewer is acting as legal counsel in these proceedings on an agreed retainer of $75,000.
Here, I have a direct quote from the petition – the annotation in square brackets is mine]:
While the debtor operated numerous bookshops in England and Wales it lists not one asset on its schedule A or B, but lists on the petition that the estimated value of assets is in excess of $100,000. Mark Brewer says that he agreed to accept a retainer of $75,000 to act as counsel, even though he is an interested party and insider, but his disclosure of compensation provides that he has been paid nothing.
[I’m not entirely sure, but I believe that, as legal counsel is his own company’s bankruptcy proceedings, Brewer’s fees would be recovered from the remaining assets of the company, which are claimed to be $100,000, before debts to other creditors, including those former employee’s who were made redundant when ‘SSG LLC’ filed for bankruptcy, are settled – if there is anything left to settle them with, of course. Quite what the disclosure that he has, apparently, been paid nothing as yet might mean, if anything, I’m not entirely sure.]
The Statement of Financial Affairs reference millions of dollars of business in the last few year and even hundreds of thousands in the months leading up to the filing, but again, no assets are listed. And no bank accounts are listed as having been recently closed.
If the allegations I’ve seen are correct, then it would appear that Brewer is attempting to take a British registered company/charity into bankruptcy under US law in the US court -as to why he may be doing that, if that is indeed what is going on here, one possible explanation is that if SSG LLC does not exist then the legal entity that took over SPCK in November 2006 could only have been either Brewer, acting as a sole trader, or the Saint Stephen the Great Charitable Trust. In either case, Brewer would be personally liable for any debts or liabilities incurred between, at least, November 2006 and July/August 2007. when the Charity Commission allowed the transfer of the Trust to a subsidiary of the Charitable company – and in UK law that personal liability extends to financial liabilities incurred as a result of actions taken prior to the transfer, even if the laibility itself only arise as the result of legal action taking place after the transfer.
One possible interpretation of the usual circumstance revealed by the petition, which asks for Brewer’s application for chapter 7 bankruptcy to be summarily dismissed, is that Brewer is seeking to avoid any possibility of personal liabilities arising out of the closure of a number of SPCK book shops and the array of pending employment tribunal cases, although there may conceivably be others – not that I can personally think of any off the top of my head.
Given this new information, there would also seem to be some significant questions to be asked as to what information, if any, Brewer may or may not have disclosed to the Charity Commission in the course of seeking approval for bringing the charitable trust under the umbrella of the limited liability company/charity.
I am currently awaiting a copy of the full petition and will, of course, post it in full as soon as I receive it, subject to verification that this will not prejudice proceedings – my contact is currently attempting to obtain a copy from court records filed in the US without doing anything that might disclose their identity. One thing that is worth noting, however, is that date on the petition is the same as that on which Dave Walker received the cease and desist letter from Brewer, which suggests that Brewer may have been more concerned about the possibility of Walker and publishing the contents of the petition than of any of Dave’s previous posts.
I was going to go on to provide more information about Brewer’s backgound prior to SPCK/SSG, some of which is very interesting indeed, but that will have to wait for another post given the issues revealed by the content of the petition I’ve seen so far.
There’s an interesting discussion at Ship of Fools about the legalities of this matter that I’d comment in had my registration been sorted – as things stand I’ll try to clarify thing here and hope someone there will see this and cross-post the information.
1. Who has been running SPCK since November 2006?
From what I can ascertain, the agreement for the bookshops was between SPCK and the St Stephen the Great Charitable Trust, which was a UK registered charity until August last year. As such, the trust must have been constituted under the law of England and Wales.
In February 2007, Mark Brewer set up and incorporated St. Stephen the Great Ltd as a company limited by guarantee. This has a UK company number and, again, must be incorporated under UK law.
In August 2007, the Charity Commission registered St Stephen the Great Ltd as a registered charity and, at the same time, permitted the St Stephen the Great Charitable Trust to become a subsidiary charity of St Stephen the Great Ltd – all, again, under UK law.
So, we have a limited liability parent company/charity with a subsidiary charitable trust that does not have limited liability.
Finally, we have ENC Shop Management – this was incorporated in March 2008 as a US company trading in the UK. It, together with the Durham and Chichester management companies, are the only one’s registered in the US and subject to US law, specifically that of the State of Texas.
2. Who is SSG LLC, the company that filed for bankruptcy in Houston, Texas?
So far as I can ascertain, SSG LLC does not appear to exist. I cannot find any such company registered in Texas – well, actually there are several companies with variations on the SSG name but none appear to have anything to do with Brewer – and tax information filed with the Bankruptcy court in Texas appears to relate to the UK registered St Stephen the Great Ltd.
There is also no record of SSG LLC applying for or obtaining tax exempt status as a charity in the US from the IRS, which is the nearest equivalent to UK charity registration.
3. Where does liability rest in this nest of companies?
As a charitable trust. the St Stephen the Great Charitiable Trust’s liability for debt is unlimited – if it become bankrupt, liability for any outstanding debts rests with its Trustees and the liability is personal.
However, as a subsidiary of St Stephen the Great Ltd, the assets and liabilities of the charitiable trust may have been transferred to the limited liability company on its becoming a subsidiary and if the company folds then, but for a notional guarantee sum to be paid by members (typically between £1 & £10 as specified in its Memorandum of Association) then any debts and liabilities notionally ‘die’ with the company.
However, this presupposes that Trustees (i.e. Brewer and his family member) acted in good faith throughtout and were neither negligent in their management of the company nor that they acted fraudulently. If either is proven in court, then limited liability of the company can be set aside by the court and liability, again, becomes personal.
In addition, as we are dealing with charities, if the Charity Commission believes that charitiable funds have been misappropriated or other transferred away from the charity unlawfully and in breach of trust, it can institute proceedings to recover the monies regardless of any limitations on liability in Company Law.
3. Can Brewer legally file for bankruptcy in the US?
If SSG LLC does not exist, then no, not on behalf of either the charitiable trust or charitable company, both of which full under the jurisidiction of the High Cour of England and Wales. Only the US registered companies set up in March this year can file for bankruptcy in the US. Only the Us registered ENC, etc, can be liquidated under US law.
4. Why does this matter?
Because if Brewer’s application for bankruptcy in the US is accepted – and on what I can see so far, I cannot see that it can be – he will not be at any risk of being held personally liable for debts incurred in the UK – although the Charity Commission could still seek reimbursement of any charitable funds used in breach of trust if that were proven.
If, on the other hand, either or both the UK registered charitable company and charitable trust go into liquidation then he may become personally liable for some or all of their outstanding liabilities, including any compensatory awards made by employment tribunals in any of the pending cases.
5. But aren’t those of SPCK’s former employees who lost their jobs eligible for payments in lieu of redundancy from the UK’s National Insuarance fund?
If they were actually made redundant on Brewer filing the bankruptcy application in the US, then yes- if everything else is legal and above board… and this seems such a cluster that one simply cannot be sure of the latter on the information to hand.
However, it seems that some, if not most, of the pending employment tribunal cases are not just about redundancy payments and or the settlement of outstanding wages. There is apparently at least one case of a woman dismissed while pregnant, which is a discrimination case in which, potentially, there is no upper limit on the amount that a tribunal can award in compensation, and from what I can see of the background to the other cases it seems likely that disputes over changes in contractual terms will mean that breach of contract will feature heavily in proceedings as well. Quite what else USDAW may be helping ex-employees of SPCK chuck into the mix is anyone’s guess, but the generally rule of thumb in employment tribunals is, as the complainant, its best to throw in the kitchen sink and let the tribunal rule out anything its doesn;t swallow than be conservative in your claim and miss out on a payout.
6. Shouldn’t the Charity Commission be investigating all this?
I understand that they now have a copy of the full petition referred to in this post in their possession.
17 thoughts on “SPCK owner seeks US bankruptcy protection for UK charity”
Thanks for taking up the baton. The more the merrier.
This is excellent. I wonder, is it possible for your contact to obtain court transcripts as and when they are produced?? Also note that the notice of the employmeny tribunal cites the three companies/charities:
(1) St Stephen the Great Limited [Co RESPONDENTS]
(2) St Stephen the Great Charitable Trust
(3) ENC Management Company
so if it was their aim to weasel out of the claims by transforming themselves into something else, it seems to have failed!!!
I think that US Court Transcripts are public documents.
Wanting to be helpful, rather than just speak up, I have saved the first 9 pages of the google results untill google said the rest were omitted because of similarities.
I don’t know if I’ve wasted my time or not but if someone wants it, email me and I’ll send the link. simosthoughts at gmail dot com
A few more notes for clarification.
There is no such thing in the UK as a Limited Liability Company (LLC). An LLC is a US entity. There is in the UK a Limited Liability Partnership (LLP) but there is no LLP registered in the UK under any of the variations of SSG or St Stephen the Great.
The number quoted in the bankruptcy petition in the Texas court is the UK registered charity number – the petitioner claims it’s a UK registered company, which is not true. There is no UK company registered with the number quoted as a UK company registration number on the bankruptcy petition.
I believe that the Charity Commission advised the Brewers to separate the trading entity from the charitable entity, since a charity may only trade and include its trading within charitable accounts if the purpose of the charity is furthered by the trading. SPCK could legitimately do this as a charity, but the aims of the St Stephen the Great trust(s) are not to communicate Christian literature etc, they are to set up Orthodox Churches, and while a trading profit (haha) from the bookshops could have supported this purpose, it is not charitable in itself. This is why Oxfam Trading is a wholly owned operating company owned by Oxfam the charity. Oxfam the charity might own the shares, but the entities are separate.
The Charity Commission would probably be looking into the extent, if any, to which charitable money has been used to prop up the operation of the shops. Any such payments would probably be ultra vires, and therefore a breech of trust.
ENC, Durham Cathederal (sic) Shop Management and Chichester Cathedral Shop Management are UK registered companies, registered by persons from outside the UK. They are thus subject to UK company law, and can become insolvent in the UK (but not bankrupt.) They may also be subject to US law, but that’s a matter for a US based lawyer.
Thanks, Furious… However…
From what I can see, it was the charitable trust that was the trading entity, at least on taking over SPCK’s shops in November 2006.
The company was not incorporated until Feb 2007, after which it was registered as a charity in June 2007 and the Trust rolled into it as a subsidiary in August 2007 under S96 Uniting direction.
Which is bizarre as the usual trading structure for a charity is that of a parent charity, which is often, these days, also a company limited by guarantee, and a non-charitable company limited by shares operateing as a wholly owned subsidiary, with profits transferred to the charity either by covenant or gift aid.
Th structure you describe is absolutely the right one for a charity with a trading arm – but its not what Brewer registered unless its ENC that’s the trading arm, in which case we still wind up with Brewer trying to ditch a Uk registered charitable trust in a US court to avoid liabilities.
And… and here’s the rub, liability for trustees of charitable trusts is unlimited and personal.
I’m the person who posted about this on Slashdot. I did it in hopes of connecting with some other interested people, and it appears I have. I’m going to try to ferret out the back posts from the blog in question and at least make them available on my own blog, which is located in the U.S.
I have downloaded the statement of affairs, the debtor’s bankruptcy schedules, the amendments to the schedules, the disclosure of compensation by attorney for the debtor, the trustee’s motion to dismiss (a much clearer copy), and a strange anonymous letter sent to the Court; all from the US court system’s official PACER service. I will be happy to forward them to you if you will send me an email address via back channel.