Quicksons (South & West) Ltd v Katz (No.2)
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice ETHERTON,Mr Justice Etherton |
| Judgment Date | 25 August 2004 |
| Neutral Citation | [2004] EWHC 2443 (Ch) |
| Docket Number | Case No: 6336 of 2002 and 206 of 2003 |
| Court | Chancery Division |
| Date | 25 August 2004 |
[2004] EWHC 2443 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
The Honourable Mr Justice Etherton
Case No: 6336 of 2002 and 206 of 2003
In the Matter of Buildlead Limited (creditors' Voluntary Liquidation) and in the Matter of the Insolvency Act 1986
Mr Stephen Davies QC and Mr Richard Ascroft (instructed by D J Murphy) for the Claimant
Miss Jane Giret QC (instructed by Moon Beever) for the Respondent
Hearing dates: 5–9 and 14–22 July 2004
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
INDEX
Introduction 1 – 8
Background facts 9 – 102
The evidence 103 – 105
Representation 106
The Strike Out Applications 107
The Substantive Strike Out 108 – 140
Removal of Liquidators: legal principles 154 – 169
Grounds for removal 170
The challenge to Quickson's creditor status 171 – 197
A new liquidator 249 – 250
Decision 251—252
Mr Justice Etherton:
Introduction
There are before the court a number of applications relating to the liquidation of Buildlead Limited ("Buildlead"), which went into creditors' voluntary liquidation on 2 September 1997.
The joint liquidators of Buildlead ("the Liquidators") are Mr Steven Katz, of H. W. Fisher & Co ("Fisher"), and Mr John Kelmanson, of The Kelmanson Partnership.
By an undated application, initially returnable on 31 October 2002, Mr Kelmanson, as liquidator of Buildlead, applied for an order, pursuant to the Insolvency Act 1986 (" IA") s.236, that Lloyds TSB Bank plc ("Lloyds") and Quick, son (South and West) Limited ("Quickson") provide all information regarding the affairs of Buildlead in their possession including, but not limited to, information concerning the balance of the account between Quickson and Lloyds in August 1997 ("the s.236 Application").
By an application dated 13 January 2003 Quickson applied for an order, pursuant to IA s.108(2), that the Liquidators be removed ("the Removal Application").
By an application dated 29 July 2003 the Liquidators applied for an order that payments of £15,000 on 1 August 1997, £135,500 on 4 August 1997, £3,004 on 5 August 1997, and £2,350.53 on 6 August 1997 made by Buildlead to Quickson be declared voidable preferences pursuant to IA s.340 (sic), and that Quickson repay the same to the Liquidators ("the Preference Proceedings").
By application notices dated 3 June 2004 ("the Procedural Strike Out") and 23 June 2004 ("the Substantive Strike Out") Quickson applied for an order that the Preference Proceedings be struck out, or alternatively, in the case of the Substantive Strike Out, that summary judgment be entered for Quickson in the Preference Proceedings.
Lloyds indicated that it would abide by any order of the Court on the s.236 Application, and that it would not be represented at the hearing of that Application. During the course of the hearing before me, with the consent of the Liquidators and Quickson, I ordered that the s.236 Application be adjourned, with liberty to restore after I had given my judgment on the other Applications.
This is my judgment on the Removal Application, the Procedural Strike Out and the Substantive Strike Out.
Background facts
The following is a brief summary of the background facts. It is not intended to be a comprehensive statement of all relevant facts, but should be sufficient to understand the broad factual context of the Applications before me.
Buildlead was incorporated on 26 April 1996. It is, and has been at all relevant times, the wholly owned subsidiary of Quickson.
At all relevant times the directors of Buildlead have been Mr Karl Quick, Mr Mark Quick and Mr Robert Quick ("the Quicks"). They have also been, at all relevant times, the directors of Quickson.
On about 13 May 1996 Buildlead acquired the goodwill and certain other assets of Lynam Windows Limited ("Lynam"), a company then in administrative receivership. Lynam manufactured and installed PVC windows and doors, using the "Veka" system. Lynam operated in the South East of England. Quickson carried on a similar business in the South West of England, but using a different system.
At all relevant times Lloyds provided banking facilities for Quickson, Buildlead and Buildlead's other subsidiary, Newguide Limited ("Newguide").
On about 30 October 1996 Buildlead executed a written guarantee in favour of Lloyds guaranteeing payment, on demand by Lloyds, of all money and liabilities, whether actual or contingent then or thereafter due, owing or incurred from or by Quickson to Lloyds on any account and in any manner, as a continuing security ("the Guarantee").
By a debenture dated 30 October 1996 between Buildlead and Lloyds, Buildlead created fixed and floating charges over its assets in favour of Lloyds, by way of continuing security for all sums due from Buildlead to Lloyds ("the Debenture").
At the end of July 1997 Ernst & Young ("E&Y") were asked by the directors of Quickson and Buildlead to advise on the financial position of the Quickson group of companies ("the Quickson group"), particularly in view of the poor financial position of Buildlead. The evidence is that Mr Robert Dunkerley of E&Y gave advice about, among other things, the operation of Buildlead's account with Lloyds ("Buildlead's account").
On 1,4,5, and 6 August 1997 £15,000, £135,500, £3,004, and £2,350.53 respectively ("the August Transfers") (amounting in the aggregate to £155,354.53) were transferred from the credit balance on Buildlead's account into Quickson's account with Lloyds ("Quickson's account"). Buildlead was not indebted to Lloyds at the time of, or immediately after, the August Transfers.
Buildlead ceased to trade on 6 August 1997.
On 1 September 1997 Mr Robert Quick swore a Statement of Affairs in relation to Buildlead ("the Statement of Affairs"). The Statement of Affairs had been prepared by, and was based upon the analysis of, Mr Barry Mitchell. Mr Mitchell is a chartered accountant and a licensed Insolvency Practitioner, and was formerly a partner in Peat Marwick Mitchell & Co and then KPMG. He had been approached by the directors of Quickson and Buildlead in August 1997 to advise them.
The Statement of Affairs showed an estimated surplus, as regards preferential creditors, of £534; and an estimated deficiency, as regards other creditors, of £644,383. The preferential creditors were stated to be the Inland Revenue, HM Customs & Excise, and employees on account of arrears of pay and holiday pay. The non-preferential creditors were stated to include trade and expense creditors for £544,537, sub-contractors for £15,517, employees for £22,627, and associated company indebtedness of £62,236.
On 2 September 1997 Quickson, as shareholder of Buildlead, resolved that Buildlead should be wound up voluntarily.
At a meeting of Buildlead's creditors on 2 September 1997, Mr Kelmanson was appointed the sole liquidator of Buildlead.
The chairman of the creditors' meeting on 2 September 1997 was Mr Robert Quick. Mr Mitchell attended the meeting. Buildlead was also represented at the meeting by Mr Daniel Murphy, a solicitor practising under the name and style D J Murphy, who had been retained to advise Buildlead, Quickson and their directors.
It is Quickson's case that, at the creditors' meeting on 2 September 1997, a schedule was produced, on behalf of Quickson, showing inter-company indebtedness due from Buildlead to Quickson of £79,264.37 ("the Quickson Debt Schedule").
Minutes of the creditors' meeting prepared by Mr Mitchell recorded that a liquidation committee ("the LC") was proposed comprising Mr Gordon Weir, representing Veka plc ("Veka"), Mr Alan Atkinson, representing Glass Systems Ltd ("Glass Systems"), Mr Jeremy Taylor, representing The Guarantee Guild Ltd ("GGL"), Mr Andrew Maxwell, representing Mila Hardware Ltd ("Mila"), and Mr Mitchell, representing Quickson.
On 13 October 1997 Mr Katz was appointed joint liquidator of Buildlead at a further creditors' meeting.
The first meeting of the LC also took place on 13 October 1997.
In a report dated 10 October 1997, prepared by Mr Kelmanson for the meeting of the LC on 13 October 1997, it was said:
"Mr Katz and his firm have been instrumental in assisting to date in various matters relating to the insolvency process. It should be noted by the committee that the joint Liquidators have and will concentrate their individual efforts on different aspects of the Insolvency process, and that no duplication of effort or cost will therefore be chargeable against liquidation funds. It is intended that we discuss the various areas in the liquidation requiring attention emanating from this report, and the division of these responsibilities between the joint liquidators.
To date, as is normal in these matters, considerable time costs have been expended consequent to a necessary "front loading" of chargeable time from our respective firms. We would seek authorization from the committee for withdrawal of our time costs to date, a full breakdown of which is annexed to this memorandum."
At its first meeting, t he LC approved payment of remuneration of £6,685 to Mr Kelmanson and £2,378 to Mr Katz.
It was agreed that a further meeting of the LC would be fixed for 10 December 1997 at a provisional venue.
On 9 December 1997 Fisher produced a report on certain initial findings in relation to the...
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