Neville and Another v Krikorian and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Chadwick,Lord Justice Dyson,Sir Martin Nourse |
| Judgment Date | 04 July 2006 |
| Neutral Citation | [2006] EWCA Civ 943 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2004/2726 & 2726 (A) |
| Date | 04 July 2006 |
[2006] EWCA Civ 943
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (BRISTOL DISTRICT REGISTRY)
(HH JUDGE HAVELOCK-ALLAN QC)
High Court reference 23C02
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Chadwick
Lord Justice Dyson and
Sir Martin Nourse
Case No: A3/2004/2726 & 2726 (A)
Mr Ian Clarke (instructed by asb law, Innovis House, 108 High Street, Crawley, RH10 1 AS) for the Appellant, Avo Krikor Krickorian
Mr Stephen Davies QC and Mr Paul French (instructed by Stephens & Scown, 25–28 Southernhay East. Exeter, EX1 1RS) for the Respondents to the appeal
Lord Justice Chadwick
There are before the Court (i) an appeal from an order made on 10 December 2004 by His Honour Judge Havelock-Allan QC, sitting as a Deputy Judge of the High Court in the Bristol District Registry of the Chancery Division, on an application for summary judgment in proceedings in the administration of Unigreg Ltd brought by its administrator against two former directors, (ii) an application by notice filed on 30 December 2004 for leave to adduce further evidence (subsequently set out in a witness statement dated 28 January 2005) and (iii) a further application by notice filed on 3 April 2006 to adduce evidence set out in a witness statement dated 30 March 2006.
Summary judgment was given against each of the two former directors for the amount standing to the credit of the company on his own loan account. It is not, now, in dispute that each former director was liable to repay that amount. The question raised by the appeal is whether the judge was right, in the circumstances of this case, to go further (as he did) and give summary judgment against the appellant (one of the two former directors) for an amount standing to the credit of the company on the loan account of the other former director; or, to put the point another way, whether the judge was right to hold one former director jointly and severally liable for the indebtedness of the other.
That question arises in the circumstances that it is not in dispute that, in operating the loan accounts, the company was in breach of section 330(2) (a) of the Companies Act 1985, which provides that a company shall not make a loan to a director of the company. Section 341(2) of the 1985 Act is in these terms (so far as material) :
"341(2) Where an arrangement or transaction is made by a company for a director of the company … in contravention of section 330, that director … and any other director of the company who authorised the transaction or arrangement … is liable –
(a) … ; and
(b) (jointly and severally with any other person liable under this subsection) to indemnify the company for any loss or damage resulting from the arrangement or transaction.."
The judge refused permission to appeal. The appeal is brought with permission granted in this Court on 31 March 2005 by Lady Justice Arden.
The underlying facts
Unigreg Ltd ("the company") is a company incorporated in England and Wales under the Companies Acts 1948–1967 for the purpose of carrying on business as distributors and dealers of pharmaceutical products. At all relevant times until 18 July 2001 its issued shares were held as to 68% by Mr Avo Krikor Krikorian ("Avo Krikorian") , as to 30% by his son, Mr Krikor Avo Krikorian ("Krikor Krikorian") , and as to the remaining 2% by Seta Krikorian Nutrition Foundation. For convenience I will refer to Avo Krikorian and Krikor Krikorian together as "the Krikorians". It is said on behalf of the Krikorians (but not accepted by the administrator) that, on 18 July 2001, all the issued shares in the company were transferred to Unigreg Group Limited, a company which they owned and controlled.
Until 18 July 2001, the Krikorians were, together, the only directors of the company. On 18 July 2001 they resigned that office and two others, Mr Alan Rutland and Mr Alan Booth, were appointed in their stead.
The financial statements for the company in respect of the years to 31 July 1995 and 31 July 1996 showed a position of solvency. They disclosed no loans to directors. The auditors' reports were unqualified. The position changed, however, during the next accounting period: a period of 17 months to 31 December 1997. The balance sheet as at 31 December 1997 disclosed shareholders' funds of £981,997; but, of that sum, £867,111 was represented by monies lent to Krikor Krikorian. The former auditors had resigned. The report of the newly appointed auditors, dated 29 July 1999, was qualified: "Because of the possible effect of the limitation in evidence available to us in respect of the director's loan". The notes to the accounts (at note 21) attributed the balance due from Krikor Krikorian "to cash drawings and payment of personal expenses by the company"; and recorded that the loan was interest free and repayable on demand. It was further noted that: "Loans to the directors are in contravention of Schedule 330 (sic) of the Companies Act."
The balance sheet at the end of the next accounting period, 31 December 1998, disclosed shareholders' funds of £746,704; but assets included debtors of which £1,324,434 were monies lent to Krikor Krikorian and £109,719 monies lent to Avo Krikorian. There had been another change of auditors. The newly appointed auditors qualified their report, dated 21 June 2000, in much the same terms: "Because of the possible effect of the limitation in evidence available to us in respect of the directors' loans …". Note 21 to the accounts, again, drew attention to the apparent contravention of section 330 of the 1985 Act.
That pattern was continued in the financial statements for the accounting period to 31 December 1999. The balance sheet as at the year end showed shareholders' funds of £552,230; but, again, assets included debtors of which amounts of £1,692,174 and £399,148, respectively, were monies advanced to Krikor Krikorian and Avo Krikorian on their loan accounts. The auditors' report, dated 21 April 2001, was qualified as before; and, again, note 21 to the accounts drew attention to the apparent contravention of section 330 of the 1985 Act.
The financial statements for the accounting period to 31 December 2000 were signed off on 20 December 2001. By that date, as I have said, the Krikorians had resigned office as directors. But they were directors during the whole of the accounting period and outstanding loans to them were shown in the accounts in the amounts of £2,149,670 (Krikor Krikorian) and £63,815 (Avo Krikorian) .
On 11 June 2002, on the company's own petition presented on 7 June 2002, it was ordered that the affairs of the company be administered under Part I of the Insolvency Act 1986. Mr Richard Neville, an insolvency practitioner, was appointed administrator of the company.
These proceedings
By an originating application in the administration, dated 15 October 2003, the administrator sought extensive relief against the Krikorians under section 212 of the Insolvency Act 1986 and under sections 151 and 322 of the Companies Act 1985. Relief was sought, also, against Unigreg Group Limited; but nothing turns on that. For the purpose of the present appeal it is sufficient to refer to the relief claimed in the following paragraphs of the originating application:
"4. A declaration that Avo Krikorian and/or Krikor Krikorian were guilty of misfeasance and breach of duty as directors of Unigreg Limited by causing or allowing it:
4.1 to create and operate their directors' loan accounts through which they caused or allowed Unigreg Limited to loan moneys to them in contravention of section 330 of the 1985 Act;
…
6. As against Avo Krikorian:
6.1 A declaration that the sum due to Unigreg Limited on the directors' loan account from Avo Krikorian as at 30 June 2001, namely £227,423 remains outstanding as a debt due to Unigreg Limited.
6.2 An order that Avo Krikorian do pay the sum of £227,423 to Unigreg Limited, together with interest thereon.
…
7 As against Krikor Krikorian:
7.1 A declaration that the sum due to Unigreg Limited on the directors' loan account from Krikor Krikorian as at 30 June 2001, namely £2,253,336 remains outstanding as a debt due to Unigreg Limited.
7.2 An order that Krikor Krikorian do pay the sum of £2, 253,336 to Unigreg Limited, together with interest thereon.
…"
Points of defence were filed on behalf of both Avo Krikorian and Krikor Krikorian. The allegation in paragraph 4.1 of the originating application was denied. But it was accepted (at paragraph 28 of each defence) that monies properly standing to the credit of the company in the two loan accounts (if any) were loans made in contravention of section 330 of the Companies Act 1985.
The application for summary judgment
On 8 October 2004 the administrator applied for summary judgment under CPR Pt 24 against both Avo Krikorian and Krikor Krikorian. Again, it is sufficient to refer to the relief claimed under paragraph 5.1 (which repeats paragraph 4.1 of the originating application) , paragraphs 14 and 15 (which repeat paragraphs 6.1 and 6.2 of the originating application) and paragraphs 7 and 8 (which repeat paragraphs 7.1 and 7.2 of the originating application) .
The application for summary judgment was supported by a witness statement (his sixth witness statement) made by Mr Matthew Wald, a partner in the firm of solicitors instructed by the administrator. Mr Wald referred, in that witness statement, to a bundle of documents which...
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