Re Oxford Pharmaceuticals Ltd sub nom Wilson and another v Masters International Ltd and another
| Jurisdiction | England & Wales |
| Judge | Mark Cawson QC |
| Judgment Date | 10 July 2009 |
| Neutral Citation | [2009] EWHC 1753 (Ch) |
| Docket Number | No 4173 of 2001 |
| Court | Chancery Division |
| Date | 10 July 2009 |
[2009] EWHC 1753 (Ch)
Before: Mr Mark Cawson QC
(Sitting as a Judge of the High Court)
In the Matter of Oxford Pharmaceuticals Limited
And in the Matter of the Insolvency Act 1986
No 4173 of 2001
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Companies court
Peter Shaw (Instructed by Salans) for the Applicants
Daniel Margolin (Instructed by Needleman Treon) for the Respondents
Hearing dates 18—22 May 2009
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.
(A) Introduction
By an Ordinary Application dated 27 September 2007, Mark John Wilson (“Mr Wilson”), the liquidator of Oxford Pharmaceuticals Limited (“OPL”), and OPL seek the following relief against Masters International Limited (“MIL”) and Dr Zulfikar Masters (“Dr Masters”) (together “the Respondents”), namely:
1.1 A Declaration that payments made by OPL to MIL in the period 28 December 2000—6 July 2001 were preferences pursuant to S239 of the Insolvency Act 1986 (“the 1986 Act”). The payments in question total £700,000 and were made on 28 December 2000 (£250,000), 6 April 2001 (£200,000), and 26 April 2001 (£250,000).
1.2 An Order that MIL makes full repayment of the above payments.
1.3 An Order pursuant to S212 (misfeasance) and/or S239(3) and/or S241(1) and/or S241(2) of the 1986 Act that Dr Masters be required jointly and severally with MIL to make repayment of the above payments.
1.4 A Declaration that four payments made between 1 October 2001 and 26 November 2001 by OPL to MIL and totalling £115,000 were void pursuant to S127 of the 1986 Act.
1.5 An Order that MIL make full repayment to OPL of these latter payments; and
1.6 An Order pursuant to S212 of the 1986 Act that Dr Masters be required jointly and severally with MIL to make repayment of these later payments.
A claim for repayment of the sum of £90,135 alleged to have been overpaid by OPL to MIL is no longer pursued.
(B) Representation
Mr Peter Shaw appeared for Mr Wilson and OPL and Mr Daniel Margolin appeared for MIL and Dr Masters. I am grateful to them for their helpful written and oral submissions.
(C) Witnesses
Four witnesses gave evidence, namely:
4.1 Mr Wilson, who made Witness Statements dated 18 December 2007 and 30 March 2009.
4.2 Dr Masters, who made Witness Statements dated 25 February 2009, 13 May 2009 and 19 May 2009.
4.3 Robin Duncan (“Mr Duncan”) who was called on behalf of the Respondents and who made Witness Statements dated 25 February 2009 and 13 May 2009.
4.4 Patrick Fitzpatrick (“Mr Fitzpatrick”) who was also called on behalf of the Respondents and who made a Witness Statement dated 20 May 2009.
Mr Duncan is a Chartered Accountant who began to work for MIL in 1999, and who still works as a consultant for MIL and other companies controlled by Dr Masters.
Mr Fitzpatrick worked for Barclays Bank plc (“the Bank”) until September/October 2001. At all relevant times prior thereto, he performed a relationship management role on behalf of the Bank with MIL and OPL.
Dr Masters' second and third Witness Statements, Mr Duncan's second Witness Statement and Mr Fitzpatrick's Witness Statement were admitted with my permission during the course of the trial after I had, on the first day of the trial (18 May 2009) refused to grant an adjournment on MIL's and Dr Masters' application. After this further evidence had been admitted, I did not gain the impression that an adjournment would have enabled these witnesses to adduce further evidence of assistance going beyond that in fact given.
(D) Factual Background
(i) MIL and OPL
MIL was incorporated on 17 October 1984 and distributes pharmaceuticals from the UK worldwide, but principally to the Caribbean and the Middle East. At all relevant times, the directors of MIL have been Dr Masters, Dr Masters' wife (Zabeen Masters) (“Mrs Masters”), Suzad Masters and Ashok Kumar (“Mr Kumar”). Dr and Mrs Masters have, between them, at all relevant times, held 99% of the issued share capital of MIL.
OPL was incorporated on 15 June 1994. It was Dr Masters' evidence that OPL was incorporated with a view to supplying the NHS and others in the UK with pharmaceuticals that were not otherwise available in the UK. At all relevant times prior to it being wound up on 19 December 2001, Dr Masters was the sole director of OPL and the entire issued share capital was held byMIL.
OPL had what were essentially two lines of activity:
10.1 Firstly, in 1996 an opportunity was identified for the distribution of a natural skin cancer treatment provided by Curaderm International AVV (“Curaderm”), a company incorporated in the Netherlands Antilles, known as Curaderm Cream or BEC-5 (“the Cream”). On 1 August 1996, OPL entered into a distribution agreement with Curaderm (“the Curaderm Distribution Agreement”) for the distribution of the Cream. Prior to the Cream being licensed for use in the UK, and other markets, the Cream required to undergo what has been described as a “complex suite of regulatory approvals” by the Medicines Control Agency, including clinical trials with patients; a process that involved considerable upfront cost. Unfortunately the process took considerably longer than anticipated, and turned out to be considerably more costly than anticipated. It was Dr Masters' evidence that the cost was in excess of £2m, although it is fair to say that it is not obvious from the accounts of either OPL or MIL how expenses of this amount are reflected therein. The costs in question, which I nevertheless accept were significant, were funded out of monies advanced to OPL by MIL (having largely been advanced by the Bank to MIL) and, to a lesser extent, by direct advances from the Bank.
10.2 In 1997 the opportunity arose to distribute a product known as Bismuth and Indoform Paraffin Paste (“BIPP”) belonging to Trinity Pharmaceuticals (“Trinity”). There is an inconsistency between Dr Masters' evidence and that of Mr Duncan as to how the opportunity was taken up. Mr Duncan's evidence, which I prefer, ties in better with the documentation and what subsequently occurred and was to the effect that MIL acquired the relevant rights from Trinity for £650,000, and that MIL allowed OPL to exploit the right in return for payment of an annual management charge of £130,000 payable over 5 years, with a loan being obtained from the Bank to assist in funding the £650,000.
(ii) Banking Facilities
Both MIL and OPL obtained banking facilities from Barclays. The documentation shows the granting of a term loan of £180,000 to OPL in late 1997 and that by, September 2000, OPL enjoyed an overdraft facility of £25,000, as well as continuing to owe approximately £70,000 under the term loan. The documentation further shows that MIL enjoyed facilities of £600,000, temporarily increased to £650,000 until 30 November 2000, as well as various ancillary facilities explained by Mr Fitzpatrick in evidence. The facilities provided by the Bank to MIL and OPL were secured by a cross- guarantee and debenture entered into by each of OPL and MIL dated 18 September 1999 (“the Cross-Guarantee and Debenture”), and the provision by Dr and Mrs Masters of unlimited guarantees to the Bank for the liabilities of OPL and MIL.
(iii) 1999 Accounts
OPL's accounts for the year ended 31 December 1999 showed net liabilities of £530,691, of which £501,543 represented monies owed by OPL to MIL. The accounts noted, as did those for the following year ended 31 December 2000, that they had been “prepared on the going concern basis as the ultimate parent undertaking [ie MIL] has agreed to provide financial support to the company for a period of a least 12 months from the signing of the financial statements”.
(iv) Agreement with Loxias
It was the Respondents' evidence, which I accept, that by mid 2000 it had become clear that the costs incurred in relation to the Cream had become prohibitively high, and that OPL and MIL could not afford to continue to sustain them. Consequently, on 30 June 2000, OPL entered into an option agreement with an Australian entity controlled by one Scott Tyne (“Mr Tyne”), namely Loxias Technologies Pty Limited (“Loxias”), for the sale to Loxias of information relating to the Cream, including clinical trial results, expert opinions etc., at a price of £500,000 payable by two instalments of £250,000 each payable on 31 December 2000 and 31 March 2001. The option was exercised by Loxias on 15 July 2000, but pursuant to a “Novation Deed” dated 17 March 2001, between Loxias (1), Glycomed Sciences Limited (“Glycomed”) (2), OPL (3) and MIL (4), Loxias assigned its option rights to Glycomed, a company in which Dr Masters had become a director and minority shareholder.
In his original Witness Statement, Dr Masters suggested that the price of £500,000 agreed with Loxias was significantly reduced as a result of a late discovery that the Cream did not have the benefit of patent rights that Dr Masters said he was led by Curaderm to believe that it did have prior to the entry into the Curaderm Distribution Agreement. However, under cross- examination, Dr Masters was taken to an email dated 16 April 2001 attaching draft paragraphs of a Witness Statement that he had sent to his then solicitors, Herbert Smith, in the context of proceedings commenced by Curaderm against OPL that I refer to below. In evidence, Dr Masters broadly confirmed the contents of these draft paragraphs, and reference is made therein to Mr Tyne having informed Dr Masters about the patent position in a telephone call in August 2000, i.e. after the purchase price of £500,000 had been...
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