Kevin Thomas Brown (Liquidator of Shahi Tandoori Restaurant Ltd) v Abdul Monnan Bashir
| Jurisdiction | England & Wales |
| Judge | Prentis |
| Judgment Date | 26 February 2021 |
| Neutral Citation | [2021] EWHC 337 (Ch) |
| Date | 26 February 2021 |
| Docket Number | CR-2019-004024 |
| Court | Chancery Division |
[2021] EWHC 337 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
RE: SHAHI TANDOORI RESTAURANT LTD (co.no.03658338)
AND RE: THE INSOLVENCY ACT 1986
The Rolls Building, 7 Rolls Buildings,
Fetter Lane, London, EC4A 1NL
ICC JUDGE Prentis
CR-2019-004024
Faith Julian (instructed by Charles Russell Speechlys LLP) for the Applicant
Lynette Calder (instructed by Rainer Hughes) for the First Respondent
Dale Timson (instructed by Rainer Hughes) for the Second Respondent
Hearing dates: 24–26 November 2020
Further written submissions: 4 December, 11 December 2020
Introduction
40 Beaconsfield Road, Brighton is to the north of the railway station and just to the south of the viaduct carrying the Hastings line. It is an area popular with students rather than day-visitors. In November 1990 the Bashir family opened their Shahi Tandoori Restaurant there, initially run by the father of Abdul Monnan Bashir and Abdul Bahar Bashir, the Respondents. It was successful enough that by 1996 it could expand into number 42 next door from which to operate its dining restaurant, number 40 remaining the takeaway. From 2005 number 42 has been owned by the First Respondent and leased to the restaurant.
On 29 October 1998 Shahi Tandoori Restaurant Ltd (the “Company”) was incorporated to take over the business. Two days later the First Respondent was appointed director and Reena Bashir secretary. They are recorded at Companies House as having resigned on 1 January 2014, leaving an apparent gap in directorships as on the same date the Second Respondent, who had been appointed as a director on 2 February 2008, also resigned. Whether those resignation dates are accurate, and what role the Respondents carried out from 1 January 2014, is in issue.
The First Respondent was sole shareholder in the Company until 2008. From then he has held 9 of the 12 issued shares and the Second Respondent 3.
Although there remains an identically-named restaurant on the site, still run by the family, the Company ceased trading on 31 March 2015.
On 14 March 2017 HMRC presented a winding-up petition against the Company in the sum of £362,317. Aside from penalties, interest and surcharges, that was made up of corporation tax based on the Company's returns from the year ends 1999 through to 2009, in a sum in excess of £111,000, and VAT assessments from 31 July 2010 through to August 2014 of more than £135,000.
That led one or both Respondents, whether as de facto director or shareholder, to approach an insolvency practitioner, Neil Gibson. Under his aegis a new director of the Company was appointed, Amy Blackham. She had no connection with it or prior knowledge of it, but on 4 April 2017 took the appointment to facilitate the creditors' voluntary liquidation which commenced on 12 May 2017. On 5 December 2018 Kevin Brown was appointed liquidator in place of Mr Gibson.
Counsel for the Respondents are right to observe that the corporation tax element of the petition bears very little resemblance either to the Company's filed accounts, or to its trading figures. Mr Brown has not elaborated on the position. However, Ms Blackham in signing off the statement of affairs allowed the petition debt in full, the other identified creditor being Sameer Frozen Food Limited, owed £37,392. There were no assets.
The claim
This claim was brought by application notice of 14 June 2019. No pleadings were ordered. The relief as originally described in the notice was for:
“A declaration that the transactions in the sum of £771,918 comprising of monies belonging to the Company retained for the benefit of the Respondents constituted misfeasance within the meaning of section 212 of the Insolvency Act 1986 [“ IA86”] and/ or that the total sum of £771,918 remains property that the Company is entitled to under section 234(2) of the [IA86]…”;
together with an order that:
“the Respondents do repay, restore or account and/or contribute by way of compensation to the assets of the Company in the sum of £771,918 on a joint and several basis”.
By consent order of 9 January 2020 there was added:
“or in such other sum as the Court thinks fit”.
Those sums represent cash which the liquidator says was removed from the Company's takings over the course of its trading by the Respondents or either of them, without being accounted for in the books.
The consent order also added another ground:
“Further, or in the alternative, a declaration that in failing to file, progress, or pursue diligently an appeal and/ or review and/ or challenge against a Notice of Assessment issued by HMRC on 19 August 2014, or cause the same to be done, either in time or at all, the Respondents are guilty of misfeasance pursuant to section 212… and/ or have breached their statutory, fiduciary and/ or other duties to the Company”.
The resulting order sought is that:
“…the Respondents do repay, restore or account and/ or contribute by way of compensation to the assets of the Company in the sum of £139,846.92 plus the costs of the Company's liquidation and such statutory interest as may be due on the debts comprising the Company's liquidation estate, or such other sum as the Court thinks fit”.
The £139,846 is the amount of the 19 August 2014 assessment. Following an HMRC investigation, which I will describe below, that was its calculation of undeclared VAT on its determination of undeclared takings, including £2,409 interest.
The grounds are further elucidated in Mr Brown's evidence.
In his first statement he relies on breaches of duties under the Companies Act 2006 (“CA06”) and otherwise in, in the period 1 November 1998 to 31 July 2013:
15.1 “Failing to properly declare the Company's income to HMRC”, and
15.2 “Transferring property belonging to the Company (namely cash) to themselves for their personal benefit”.
The first of these is said to be a breach of section 174 CA06, reasonable care, skill and diligence. Mr Brown goes on to say that this failure to account for VAT “by intentionally concealing a large proportion of its income from HMRC… ultimately led to the Company becoming insolvent”.
Except as to its factual aspect of intentional concealment through the filing of inaccurate returns, Ms Julian for Mr Brown has not pursued this point separately at trial. Put in these bald terms, no loss to the Company is identified; on the contrary, what is stated is a preservation of assets through non-payment of a creditor.
The second ground has been the kernel of the case at trial. Ms Julian relies principally on its being a breach of section 171, acting within powers, and section 172, promoting the success of the Company.
Shortly before trial the Respondents chose to be represented by separate counsel, Lynette Calder for the First Respondent and Dale Timson for the Second Respondent. Although the Respondents' initial witness statement in answer, dated 6 August 2019, was in joint names and signed by both, it is the First Respondent who has made two later, overlapping, witness statements, of 26 November 2019 and 26 October 2020, his third and fourth. The First Respondent was cross-examined, but not the Second: Mr Timson did not call him, and presented no evidence. The First Respondent denies all allegations; his brother has put the liquidator to proof.
Although the application notice sought the same relief against each, in his fourth statement of 29 September 2020 Mr Brown accepted that his claim against the Second Respondent inured only for the time he was a director, being from 1 February 2008. The total sought against him under this second ground is therefore £321,252.
What the separation of representation emphasises is that the position of each Respondent must be assessed.
The third ground is the Company's claim of entitlement to the cash under section 234 IA86. This added nothing, and was not pursued in light of the intervening decision in Re Charlotte Street Properties Limited [2020] EWCA Civ 687.
The fourth ground is if the Respondents or either of them did not take cash, then they were in breach of their duty of stewardship of the Company's assets for allowing it to be taken by the other or some other. This, then, is an alternative to the second ground. It was explicitly put only in Mr Brown's third statement of 3 January 2020, as “a failure to properly manage and account for the Company's affairs and assets”. Aside from engaging that fiduciary duty, sections 171, 173 and 174 CA06 may apply.
The fifth ground is the failure to progress the appeal. Ms Julian confirms that this is presented as an alternative to the second ground. In his third statement of 3 January 2020 Mr Brown said that this should be added to the claim because of the Respondents' defence that nothing had been taken, so none of the assessed tax was due. The claim is for the £139,846, being the VAT assessments with interest. Non-pursuit of the appeal is said to constitute a breach of sections 172 and 174 CA06.
The Respondents have each raised limitation defences. Those were the subject of further written submissions, and I will deal with them at the end.
The law
The law is largely agreed between the parties, and can be dealt with shortly.
Section 212 IA86 is a procedural gateway, not a free-standing cause of action.
By section 171 a director must “(a) act in accordance with the company's constitution, and (b) only exercise powers for the purposes for which they are conferred”.
By section 172 a director “must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit...
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Insolvency Team ' Recent Insolvency Case Update - 21 April 2021
...decisions to have been published recently. This summary covers: Brown (Liquidator of Shahi Tandoori Restaurant Ltd) v Bashir [2021] EWHC 337 (Ch) Re Mederco (Cardiff) Ltd [2021] EWHC 386 (Ch) Lyle v Bedborough [2021] EWHC 220 (Ch) Re TXU Ltd, Insolvency and Companies Court, 2 March 2021 Re ......
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Insolvency Team ' Recent Insolvency Case Update - 21 April 2021
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