Re BW Estates Ltd (No 2); Randhawa and Another v Turpin and Another (No 2)

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeSir Geoffrey Vos,Lord Justice Underhill,Lord Justice Henderson
Judgment Date01 Aug 2017
Neutral Citation[2017] EWCA Civ 1201
Docket NumberCase No: A2/2016/3206

[2017] EWCA Civ 1201

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

BIRMINGHAM DISTRICT REGISTRY

CASE No: 8446 OF 2013

Royal Courts of Justice

Rolls Building

London, EC4

Before:

Sir Geoffrey Vos, CHANCELLOR OF THE HIGH COURT

Lord Justice Underhill

and

Lord Justice Henderson

Case No: A2/2016/3206

Between:
Gursharan Randhawa
Sukhinder Randhawa
Applicants/Appellants
and
Andrew Turpin
Matthew Hardy (as former Joint Administrators of BW Estates Limited)
Respondents

Mr Richard Salter QC and Mr William Edwards (instructed by Tenet Compliance & Litigation Ltd) for the Appellants

Mr Peter Arden QC and Mr Matthew Weaver (instructed by Cameron Legal Ltd) for the Respondents

Hearing dates: 12 th and 13 th July 2017

Approved Judgment

Sir Geoffrey Vos, Chancellor of The High Court:

Introduction

1

This appeal raises what appears to be a comparatively simple question, namely whether the sole director of a company, whose articles required two directors for its board meeting to be quorate, could validly appoint administrators under paragraph 22 of Schedule B1 to the Insolvency Act 1986 ("Schedule B1"). The complicating feature of the case was that, whilst 75% of the shares in the company were held by that sole director, the remaining 25% were at all times registered in the name of a long-dissolved Manx company.

2

The judge decided, putting the matter very broadly, that the administrators' appointment was valid on the basis that (a) the articles of association had been informally varied by the members' informal course of conduct, (b) the consent of the only existing registered shareholder (holding 75% of the company's shares) was sufficient to trigger the principle arising from Buckley J's decision in Re Duomatic Ltd [1969] 2 Ch 365 (the " Duomatic principle"), and the requirement in the articles of association for a quorum of two members for a shareholders' meeting could not prevent the operation of that principle, when no actual meeting had ever taken place, or (c) each of (i) the beneficial owner of 100% of the Company's shares (the father of the registered holder of the 75%), (ii) the existing registered shareholder, and (iii) the Company's solicitors had acquiesced in the appointment, and the appellants (who took an assignment of debt from those solicitors) were fixed with that acquiescence. In any event, the application by the appellants was a Henderson v. Henderson (1843) 3 Hare 100 abuse of process, because they had not challenged the validity of the appointment in a previous application.

3

The applicants before the judge and the appellants in this court are two creditors of the company, BW Estates Limited (the "Company"), Mr Gursharan Randhawa and Mr Sukhinder Randhawa (together the "Randhawas"). The respondents here and before the judge were the joint administrators, Mr Andrew Turpin ("Mr Turpin") and Mr Matthew Hardy (the "Joint Administrators").

4

Put very shortly, the Randhawas contend that the sole director was not entitled to make any valid appointment, when there was no second director to make up a valid quorum of two directors, and that the Duomatic principle cannot be extended so as to operate without the consent of the two registered shareholders required to make up a quorum of members at a shareholders' meeting. The Randhawas also contend that neither acquiescence nor abuse of process can be relied upon to prevent the court considering the binary question as to validity of the appointment of an administrator.

5

Many other issues were canvassed by the judge and in argument before us, but the case boiled down to these few points. I shall, however deal with the other issues raised in due course.

Chronological background

6

On 13 th January 1986, the Company was incorporated. Mr Robert Williams ("Robert") subscribed for 75 shares and his wife, Mrs Pauline Williams ("Pauline"), for 25 shares. From the Company's incorporation until 2009, its directors were Robert and Pauline. The Company owned five properties let and managed by agents and charged to Nationwide Building Society ("Nationwide").

7

According to the Company's Annual Returns, in 1988 or 1989 Pauline's 25% shareholding in the Company was transferred to Belvadere Investment Company Limited, a company incorporated in the Isle of Man ("Belvadere").

8

On 23 rd October 1996, Belvadere was dissolved, so that any of its assets passed to the Crown as bona vacantia under what is now section 193 of the Isle of Man Companies Act 2006. Belvadere was, however, seemingly never removed from the register of members of the Company.

9

On 12 th August 2009, David was appointed as a director of the Company. On 13 th August 2009, Robert resigned as a director of the Company following an undertaking he gave to the court in directors' disqualification proceedings that he would not act as a director of any company. The position after 13 th August 2009 was, therefore, that David (Robert's son) was the sole director of the Company. It was alleged, however, that David was, in relation to the Company's affairs, accustomed to act on the instructions of his father, despite Robert's disqualification.

10

On 8 th November 2012, HHJ Simon Brown made an order in favour of the Randhawas entering judgment against Robert for damages to be assessed and an interim payment of £686,487 on account. He also ordered that Robert should state "who, to his knowledge, beneficially owns the shares in Belvedere Estates Limited (a company incorporated in the Isle of Man)".

11

On 15 th November 2012, Robert responded to the 8 th November 2012 order saying "I do not know. I was acquainted with a company Belvadere Investments Co Ltd but was told this was liquidated some time ago".

12

On 18 th February 2013, final charging orders were made in favour of the Randhawas. The first was against Robert and Pauline over a number of properties, and the second was against Robert alone over shares including the 75 shares in the Company registered in David's name, but of which Robert was alleged to be the beneficial owner.

13

On 12 th June 2013, HHJ Simon Brown gave final judgment in favour of the Randhawas against Robert for some £2,158,891.79 inclusive of interest, plus indemnity costs in respect of claims for fraudulent misrepresentation. The judge ordered that the file should be sent to the Director of Public Prosecutions to consider what action should be taken in respect of Robert.

14

On 12 th July 2013, Nationwide appointed fixed charge receivers over all five properties owned by the Company.

15

On 19 th July 2013, Mr Turpin's contemporaneous note of a meeting attended by him, Robert, David, and Mr Martin Lord ("Mr Lord"), a representative of Lewis Onions, the Company's solicitors, recorded that "it is considered appropriate to place the [Company] into administration, to take control of the [Company's] affairs and protect the interests of all creditors generally".

16

On 28 th August 2013, a directors' meeting of the Company took place, attended by David as the sole director of the Company, Mr Lord, Mr Turpin and another representative of the Joint Administrators' then firm. The minutes record that "a quorum was present", and that "[h]aving regard to the financial position of the Company … it would be in the best interests of the Company if the directors sought the appointment of the [Joint Administrators] as joint administrators to the Company". The meeting also purported to appoint Lewis Onions to swear the necessary statutory declarations and notice of appointment.

17

On 29 th August 2013, notice of the intended appointment of the Joint Administrators was sent to Nationwide. An issue developed as to whether the notice was properly sent and received, but that issue does not affect what this court has to decide.

18

On 11 th September 2013, David, as the sole de iure director of the Company, purported to appoint the Joint Administrators as joint administrators of the Company under paragraph 22 of Schedule B1. Nationwide had neither made its own appointment nor objected to the appointment proposed by David. Both Joint Administrators filed statements dated 11 th September 2013 consenting to act and expressing the opinion that the purposes of the administration were reasonably likely to be achieved.

19

On 17 th September 2013, Robert issued a debtor's bankruptcy petition seeking a bankruptcy order, which was in due course duly made.

20

An estimated statement of affairs filed by the Joint Administrators dated 4 th November 2013 showed assets of £621,682 and debts of £602,982, including a debt of £553,108 said to be owed to "Belvadere Investments" and recorded in the notes as having some uncertainty surrounding it.

21

On 21 st May 2014, HHJ Cooke directed the Joint Administrators to convene a meeting of creditors and present revised proposals to bring the administration to an end.

22

On 24 th July 2014, the Randhawas purchased (at face value) a debt of £17,790 payable by the Company to its solicitors, Lewis Onions.

23

On 13 th August 2014, the Randhawas issued an application under Insolvency Rule 2.109 and paragraph 74 of Schedule B1 for orders that the Joint Administrators' remuneration be disallowed or reduced, and that the Joint Administrators pay the costs of the application personally. This application did not, however, contend that the appointment of the Joint Administrators was invalid. It rested on the basis that the Joint Administrators could not, in the circumstances, have made a proper statement that the purpose of administration was likely to be achieved, and that the actions taken by the Joint Administrators were ineffectual, such that they should not be given any remuneration at all.

24

On 22 nd August 2014, the Joint Administrators ceased to hold office, and the Randhawas assumed control of the...

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