Gary John Fielding and Another v Stephen Hunt (acting as Liquidator of the Burnden Group Ltd)

JurisdictionEngland & Wales
JudgeHis Honour Judge Stephen Davies
Judgment Date15 February 2017
Neutral Citation[2017] EWHC 247 (Ch)
Date15 February 2017
CourtChancery Division
Docket NumberCase No: 2541 of 2010

[2017] EWHC 247 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

MANCHESTER DISTRICT REGISTRY

IN THE MATTER OF THE BURNDEN GROUP LIMITED

AND IN THE MATTER OF THE INSOLVENCY ACT 1986

Manchester Civil Justice Centre,

1 Bridge Street West, Manchester M60 9DJ

Before:

His Honour Judge Stephen Davies

SITTING AS A JUDGE OF THE HIGH COURT

Case No: 2541 of 2010

Between:
Gary John Fielding
Sally Anne Fielding
Applicants
and
Stephen Hunt (acting as Liquidator of the Burnden Group Limited)
Respondent

John Briggs (instructed by Addleshaw Goddard LLP, Manchester) for the Applicants

James Pickering (instructed by Mills & Reeve LLP, Cambridge) for the Respondent

Hearing dates: 27, 28 September and 21 October 2016

Further written submissions 30 November and 21 December 2016

His Honour Judge Stephen Davies His Honour Judge Stephen Davies
1

Introduction

1.1

This is an appeal by the applicants, Mr Gary and Mrs Sally Fielding (the Fieldings), brought under rule 4.83 of the Insolvency Rules 1986, against a decision made on 29 December 2015 by the respondent, Mr Stephen Hunt, the liquidator of The Burnden Group Limited (BGL), rejecting their proof of debt.

1.2

The proof of debt originally advanced by the Fieldings as long ago as February 2011 was a substantial one, said to be £3,249,083. The revised proof of debt with which this court is currently concerned is a little larger still, said by Mr Fielding in his first witness statement to be £3,599,781.56. The proof of debt dispute has generated a significant amount of evidence, both in terms of witness statements and of exhibited material.

1.3

The proof of debt dispute has also been vigorously contested by both sides and, as a result, the hearing of the appeal has become protracted. The hearing was originally listed for 2 days in September 2016. On day one, 27 September 2016, the claim was opened by Mr Briggs, counsel for the Fieldings, in the course of which I dealt with and rejected a preliminary objection taken by Mr Pickering, counsel for the liquidator, that the court had no jurisdiction to consider or adjudicate upon the revised claim, and I also dealt with an opposed application by the liquidator to rely on further evidence, which I allowed in part. On day two, 28 September, Mr Briggs completed his substantive submissions and Mr Pickering began his substantive response, but there was insufficient time to complete it so that a further day had to be found, the first available date convenient to all being 21 October 2016. On that day Mr Pickering completed his substantive submissions, in the course of which he made further specific submissions in relation to claims 2 – 6 (as explained below) in respect of which the Fieldings reasonably considered they needed further time to consider and to respond. A timetable was set for that to be done by way of supplemental evidence and written submissions, with a further day being reserved in case further oral submissions proved to be necessary, the first convenient available date being 15 February 2017. In the event the parties agreed that further oral submissions were unnecessary and that I could proceed to produce this judgment on receipt of the final submissions. I was notified accordingly on 6 January 2017. In many cases it would not have been appropriate to allow the parties the additional time and court resource which they have been allowed, but in my view the time taken and court resource allowed has been proportionate both to the complexity of the issues involved and the value and importance of the proof of debt to the parties.

1.4

It is initially surprising that so much time and effort has been devoted to contesting this proof of debt, in circumstances where as matters currently stand BGL has no prospect of paying any dividend to creditors. The explanation however is that this application is in substance, if not in form, a precursor to two misfeasance applications brought by the liquidator against the Fieldings and the former administrators of BGL, challenging a payment of £1.3 million made by the administrators to the Fieldings. If I am satisfied that the Fieldings have a valid proof of debt in excess of that £1.3 million then the misfeasance applications will effectively fall away, because the liquidator will be unable to establish any resultant loss suffered by BGL as a result of that payment being made even if he can establish breach. It is therefore very much in the interests of the Fieldings, both directly and because they gave an indemnity to the former administrators, to establish that they have a claim in excess of £1.3 million, even if they have no real prospect of receiving any actual dividend.

1.5

By way of overview, the Fieldings are a married couple who have between them effectively owned and controlled a group of companies engaged in a conservatory business in the Bolton and Blackburn areas, known as the Burnden Group. Mr Fielding has never been a registered shareholder or a formally appointed director of BGL. For the purposes of this appeal I am not required to consider, still less make any finding, as to whether or not he was a shadow director of BGL. I refer to the Fieldings merely by way of convenient shorthand save where it is necessary to distinguish between the two. On 2 October 2008, as a result of a "pre-pack" administration and asset sale completed that day, Mrs Fielding acquired a 100% shareholding in BGL and BGL acquired the assets and business of three of the companies within the Burnden group. The result was that from October 2008 onwards BGL, under its former name of K2 Glass Ltd, carried on the conservatory business in its own right.

1.6

Unhappily however the business did not prosper and BGL in turn was the subject of a further pre-pack administration and asset sale in January 2010, under which its assets and business were transferred to another company effectively owned and controlled by the Fieldings. The administrators of BGL accepted that the Fieldings were owed a substantial amount by BGL and that they were secured creditors, with the result that they made a payment of £1.3 million to the Fieldings from the recoveries made from the pre-pack transaction, but subject to an indemnity in case it transpired that sums to that value were not actually owed.

1.7

However in due course the administrators' proposals for BGL were rejected and it went into liquidation. An investigation into its affairs was conducted by the respondent liquidator, assisted by Mr Andersen, a forensic investigator with the firm in which Mr Hunt is a partner. It is as a result of those investigations that the decision was taken to reject the proof of debt and also to issue the misfeasance applications to which I have already referred, shortly before the expiry of the relevant limitation period. Those misfeasance proceedings have since been stayed pending the determination of this appeal.

1.8

The proof of debt as currently advanced is divided into 6 separate claims, which may be summarised as follows.

(1) The roll over debt claim. This is a claim for £3,150,000, which the Fieldings say represents monies loaned by Mrs Fielding to BGL in order to finance the acquisition of the assets and business of the three companies as part of the first pre-pack sale in October 2008. The liquidator's position is that nothing is due because sometime in December 2008 it was agreed between the Fieldings and BGL that what was originally intended to be a loan from Mrs Fielding to BGL should instead be converted into an allotment of a further shareholding to her with the result that the loan liability was extinguished. The Fieldings dispute that any such agreement was reached, and contend that insofar as the documentation relied upon by the liquidator may indicate otherwise it was produced in error.

(2) The ransom and retention of title payments claim. This is a claim for £298,760.94, now reduced to £178,487.91, which the Fieldings say that they paid on behalf of BGL to existing suppliers in the aftermath of the first prepack sale, in order to ensure that they were prepared to supply BGL as the new trading company. The liquidator's position at the September hearing had been that from Mr Andersen's analysis of the relevant records the Fieldings had been able to establish a claim, but for no more than £35,075.43, although by the October hearing the liquidator's position was that not even that amount was due. Following the October 2016 hearing the Fieldings have reduced their claim to £178,487.91. I will refer to the reasons for these changes in more detail when considering this element of the proof of debt.

(3) The Vital claim. This is a claim for £1,561,316.21 in respect of trading payments between BGL and a company referred to as Vital. It is net of a claim for interest charges, which is no longer pursued, and is also subject to a credit for £699,999, being the Fieldings' estimate of the value of stock provided by Vital which was subject to retention of title claims. Its net value according to the Fieldings is therefore £861,317.21. Although the basis for advancing this claim has varied, it is now asserted on the basis of an assignment between Vital and the Fieldings entered into on 21 December 2009, the validity of which the liquidator has indicated that he does not challenge. However the liquidator does contest the value of the claim. On his analysis of the records he is prepared to rely upon he assesses the claim as being no more than £974,256.48. Nonetheless the liquidator has taken and remains of the view that due to a lack of evidence he is unable to make any specific deduction against the claim for the value of stock provided by Vital subject to retention of title claims. It follows that the claim which the liquidator would be prepared to admit still stands at £974,256.48, rather than reducing downwards to £274,257.48 as it would if he had been...

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