Re Ahmed (A Debtor) Ingram and another v Ahmed and Others

Hearing dates: 9, 10, 11, 12, 13 March 2015, 14 January 2016, 18 March 2016,

Background

This application started life as an application dated 28 May 2013 by the first respondent's trustees in bankruptcy for an order under s. 284 of the Insolvency Act 1986, although the application notice also asked for the relief now sought.

The basis for the s. 284 order was that the transfer by the first respondent of his minority holding of shares ("the Shares") in various companies (trading in Manchester and London in the design, sourcing and distribution of branded and non-branded fashion clothing, Hornby Street Limited ("Hornby"), Wembley Menswear Company Limited ("Wembley") and Continental Shelf 128 Limited ("Continental")), to the second respondent, and (in respect of shares in Hornby and Wembley) through him to the third to the fifth respondents, was void, being made between presentation of a petition by Monecor (London) Limited ("Monecor") to make the first respondent bankrupt on 23 January 2007 and the bankruptcy order made on 21 April 2009: see s. 284(3). The debt was assigned to Monecor's sister company Tradition (UK) Limited, but nothing turns on this.

It is now common ground that the transfer of the Shares took place on 5 or 6 June 2007. All sorts of issues arose, such as whether there should be ratification pursuant to s. 284(1) and whether the transfers fell within the exception contained in s. 284(4)(a). On 27 August 2013 the second to the fifth respondents issued a cross-application for validation of the transfers, on the grounds, inter alia, that the Shares were transferred to the second respondent before the commencement of the bankruptcy (i.e. in June 2007), in good faith and without notice of the petition.

A few months prior to the presentation of the petition, in about mid-September 2006, all the respondents retained Andrew Andronikou to assist the first respondent, the debtor, with his financial difficulties. An Individual Voluntary Arrangement ("IVA") was made by the first respondent and passed by a meeting of creditors on 29 March 2007, but that approval was revoked by Andrew Simmonds QC sitting as a Deputy Judge of this Division on 15 December 2008. His judgment dated 5 December 2008 bears careful reading. The family and associates of the bankrupt claimed that they were owed debts of nearly £7m by the first respondent, whereas it was found that the debts amount to less than half that sum. The second respondent gave evidence at that trial, claiming, in order to vote for the IVA, that he was owed £3,882,424, whereas the debt he was owed was £1,851,500.

By letter dated 19 May 2010, the second respondent claimed that the Shares were transferred to him in March 2007 (the time of the IVA proposals) but disclosing in this action two transfers dated 6 June 2007. The annual returns filed at Companies House do not show such transfers. The returns for Hornby and Wembley dated 11 October 2009 assert that the bankrupt's shares in Hornby and Wembley were "disposed of in the period on 27/3/2007". The 2 June 2011 return for Continental states that the 1200 shares of the bankrupt were held by the second respondent as at 2 June 2009. However, the annual returns for Hornby to 11 October 2007 (filed 18 October 2007) and to 11 October 2008 (filed 15 October 2008) show that the bankrupt remained the registered holder of his 1,200 shares in Hornby. The annual returns for Wembley to 11 October 2007 (filed 18 October 2007) and to 11 October 2008 (filed 15 October 2008) show that the bankrupt, again, remained the registered holder of his 1,200 shares in Wembley. Again, the annual returns for Continental to 2 June 2007 (filed 12 June 2007), to 2 June 2008 (filed 6 June 2008) and to 2 June 2010 (filed 30 June 2010) show that the bankrupt remained the registered holder of his 1,200 shares in Continental.

Further, a Guarantee dated 5 June 2007 signed by both the bankrupt and the second respondent acknowledged that the bankrupt had an interest in Hornby, Wembley and Continental.

The second respondent resisted all attempts to restore the Shares forming part of the bankruptcy estate until the eve of this trial. The respondents have now accepted that the transfers were void and share transfer forms have been executed and delivered to the applicants' solicitors (who have accepted them, but not, I am told accepted the Shares in principle, whatever the distinction may be) under cover of a letter from the respondents' solicitors dated 26 February 2015. The Shares may now be worthless (although I make no such finding) subject to the offer made for them by the second respondent.

By letter from his solicitors dated 27 February 2015 the second respondent offered to purchase the Shares for the sum of £120,000.

The only issue before me is whether the applicants are entitled to relief in the form of the value of the Shares as at the date of the transfers (or indeed any other date) and, if so, the amount of such relief.

The evidence, apart from the expert evidence, shows that there is a dispute as to whether the Shares had a value at all at relevant times. There is the evidence served late (before the trial) of Mr Ingram, the first applicant, and the evidence also served late but responding I was told to Mr Ingram's evidence, of Mr Hosking, the original trustee in bankruptcy, giving evidence for the respondents.

Mr Registrar Nicholls made an order on 9 September 2013 for exchange of witness statements by 4 pm on 31 December 2013. Having considered Mitchell v. News Group Newspapers Limited [2013] EWCA Civ 1537 as explained in Denton v. TH White Limited [2014] EWCA Civ 906, I allowed part of Mr Ingram's evidence to be adduced in evidence. However I did not allow the evidence of Mr Ingram setting out the steps that he said he would have taken steps to sell the Shares in accordance with his statutory duty. Mr Davis QC said that this was Mr Ingram's way of getting round the total absence of evidence on the issue of whether and when he would have tried to market the Shares. Mr Ingram's evidence was undoubtedly new and there appeared to be no good reason as to why he did not give it earlier. It seemed to me that Mr Hosking's evidence was serious and substantial new evidence, and again I inferred that there was no good reason why the evidence was not adduced before. Taking all the circumstances of the case into account I therefore ruled out the evidence of Mr Hosking by not giving permission to adduce it at this late stage pursuant to CPR 32.10.

The second to fifth respondents' case

The quantum of any relief is said by Mr Moraes to depend on expert evidence, but Mr Giles Maynard-Connor (who has replaced Mr Davis QC in acting for the second to the fifth respondents) says that the application is misconceived as the applicants are not entitled, in the absence of evidence of actual loss and an actual proposed sale, to any award based on a notional value at the time of the transfers. Thus the expert evidence is, says Mr Maynard-Connor, irrelevant. I was asked to determine as a preliminary matter whether relief was available in principle where assets the subject of a transfer rendered void under s. 284 have been restored to the estate, but as appears below I declined to do so in the circumstances.

It is important that on 14 January 2014 Mrs Registrar Derrett made an order that the parties should agree the number of the Shares and the relevant dates for valuation purposes, failing which she would determine them herself. In fact the parties themselves agreed the dates which they believed to be relevant. The respondents now say that these dates are irrelevant, so the case is proceeding on quite a different basis from that before Registrar Derrett.

Mr Davis QC submitted, and Mr Maynard-Connor submits, that the relief sought by the applicants is so misconceived as to be virtually unarguable. The applicants would have to plead and prove both when they would have sold and also actual and not merely notional loss, and they have not done so. Mr Moraes however pointed out that Mr Ingram could not give evidence of any actual sale because, owing to the actions of the respondents, he was never afforded an opportunity to sell.

Mr Maynard-Connor's submission was that there is no basis for any form of unjust enrichment calculated by reference to a notional value. Loss has to be pleaded and proved. It would be an abuse of process for the trustees to pursue this application in order to negotiate a higher price for the Shares from the respondents. In Sempra Metals Limited v. IRC [2008] 1 AC 561, the House of Lords made clear that restitution is another name for unjust enrichment and, although a just outcome is the objective, not only is the primary remedy "disgorgement" of benefit (see e.g. Lord Hope at 585), but the applicant has to prove both that the respondent has been enriched and that he has been unjustly enriched, neither of which is pleaded or proved in the present case.

Mr Moraes says (a) that Mr Maynard-Connor's approach is misconceived as a matter of...