Richard Brewer v Zafar Iqbal
| Jurisdiction | England & Wales |
| Judge | Briggs |
| Judgment Date | 11 February 2019 |
| Neutral Citation | [2019] EWHC 182 (Ch) |
| Docket Number | Case No: CR-2011-002695 |
| Court | Chancery Division |
| Date | 11 February 2019 |
[2019] EWHC 182 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES COURT
Rolls Building
7 Fetter Lane
London EC4A 1NL
CHIEF INSOLVENCY AND COMPANIES COURT JUDGE Briggs
Case No: CR-2011-002695
Joseph Curl (instructed by Brecher LLP) for the APPLICANTS
Daniel Lewis (instructed by DWF LLP) for the RESPONDENT
Hearing dates: 21–24 January 2019
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.
CHIEF INSOLVENCY AND COMPANIES COURT JUDGE Briggs
Chief ICC Judge
Mr Iqbal is an insolvency practitioner and partner at Cooper Young. He takes appointments in personal and corporate insolvencies. He was appointed administrator of ARY Digital UK Limited (the “Company”) on 19 May 2011. Mr Iqbal sold the Company's assets to a company incorporated by the Company's management (I generally shall refer to the management as the “directors”) for the purpose of acquiring the assets during the administration. After the assets were sold Mr Iqbal produced a report to creditors and gave his proposals for the administration. The creditors failed to approve his proposals. The Company entered insolvent liquidation and Mr Iqbal was discharged under paragraph 98 of Schedule B1 to the Insolvency Act 1986. Six years from his appointment, to the day, Richard Brewer and Mark Wilson acting as joint liquidators of the Company issued an application seeking permission pursuant to paragraph 75(6) of Schedule B1 to the Insolvency Act 1986 to examine the conduct of Mr Iqbal. Permission was given. In this trial Mr Iqbal defends allegations that in effecting the sale of the Company's assets shortly after he was appointed administrator he acted negligently or in breach of his equitable duty of care, breach of trust, fiduciary duty or statutory duty.
The Company was incorporated on 9 April 1999, its holding company being ARY Digital FZ LLC based in Dubai. In 2000 the Company acquired private television channels which are said to have catered for the Southeast Asian community in the UK. The ARY Digital Group describes itself as a broadcaster of customised streaming content. It is a Dubai-based holding company which was founded by a Pakistani businessman, Haji Abdul Razzak Yaqoob in 1970. Mr Iqbal's disclosure included a copy of an online promotion page (printed out by Mr Iqbal in May 2011) which explains that the Group is a family owned concern with main operations being handled by the four brothers. One of its aims is to promote Pakistan culture around the world but the programming also caters for Urdu speakers living in Pakistan and abroad. It does this by acquiring the rights to broadcast through digital channel networks. The broadcasts include general entertainment, food, music and religion. The Group claims to broadcast to more than 100 countries in Asia, the Middle East, Europe and the USA.
The directors and shareholders of the Company were Mr Mohammed Salman Iqbal and Mr Yaqoob. Its UK and Europe operation consisted of three channels: an entertainment channel known as ARY One World; Qtv, news and current affairs channel; and an Islamic education channel. From 2008 One World was free to air. To facilitate the broadcasts the Company needed to acquire Electronic Programming Guides (“EPG”). These are described as digitally displayed, non-interactive menus providing programme scheduling information that are shown by a cable or satellite television provider to its viewers on a dedicated channel. EPGs are transmitted by specialised equipment housed within the provider's central facility. By tuning into an EPG channel, a menu is displayed that lists current and upcoming television programmes on all available channels.
The EPGs were acquired on a fixed-term basis by agreement between the Company and British Sky Broadcasting Limited (“BSB”). It appears that the first agreement made between the Company and BSB for EPGs was agreed in or around 10 January 2007. That agreement expired or perhaps more accurately was renegotiated, and a new agreement was made on 17 September 2008 (the “Agreement”). There is reference in the Agreement to overdue invoices amounting to £89,383.12. Annex A to the Agreement provides for a payment to be made to BSB in respect of the overdue invoices. This demonstrates BSB's willingness to enter new agreements notwithstanding outstanding debt and a pragmatic approach to debts incurred by the channel operators. The annex sets out an obligation on the Company to pay the sum of £112,589.31 by 30 October 2008. If such payment was not made BSB was entitled to terminate the Agreement “forthwith”. That is to be contrasted with clause 8 which permits BSB to suspend the provision of services in certain circumstances not relevant to this matter and to terminate for non-payment of invoices for three months or more. Termination under clause 8 for a material or persistent breach of obligation, such as non-payment for three or more months, requires three months' notice. The notice is to be served in accordance clause 9.6. Termination may also arise if a notice is served as a result of insolvency. Insolvency is a term defined in the Agreement. A notice served pursuant to the insolvency clause is said to have “effect forthwith”. Pursuant to the Agreement the Company paid a deposit of £69,618.75 in respect of each of the three channels.
An issue that arose in this case is whether it is likely that BSB would have permitted the channels operated by the Company to operate even though there were arrears when it entered administration. The Agreement provides some evidence of BSB's approach. Expert evidence (which I shall deal with below) answers the question more definitively.
The Company enters administration
The revenue of the Company in the year ending 30 June 2008 was £3.7 million giving a net profit of £191,684. Nevertheless, current liabilities exceeded £2.5m which largely comprised sums owed to connected companies for services, programme rights and other fees. The accounts for the years ending 2009 and 2010 show that a profit was made in 2009 but a loss is shown for the year ending June 2010. In that year net liabilities increased to £2,730,649. Of this sum £1,897,470 was owed to the holding company, ARY Digital Dubai FZLLC and £750,000 to Salman Iqbal (a director of the Company). The holding company is said to have provided management services and programme rights to the Company. The notes to the 2010 accounts explain that the “ability of the company to continue trading is dependent upon the continued support of its related company. Directors have obtained assurance from the related company that it will be provided. Accordingly, the directors consider it appropriate to prepare these financial statements on a going concern basis.” The related company was the holding company.
The balance sheet discloses that the stock remained constant at £137,982. Mr Iqbal accepted in evidence that the EPGs were not included in the stock figure. It appears that the EPGs were assigned no value in the accounts. The 2010 accounts do not provide for a contingent or prospective debt owed to Nimbus Sport International Pte Ltd resulting from an agreement between the parties dated 1 March 2006. That agreement concerned broadcast rights for certain cricket matches under the control of the Board of Control for cricket in India. By notice of arbitration dated 26 May 2010 Nimbus Sport International claimed a licence fee pursuant to the agreement. A notice of material breach had been served by Nimbus on the Company, prior to the notice, demanding payment of US$1,688,888.88. By 2011 it was clear that the Company had a number of creditors including HM Revenue and Customs, Getty Images, Dean Sullivan & Co (accountants to the Company), and the London Borough of Ealing. The Company was also in arrears under the payment terms of the Agreement. It is not in dispute that by April 2011 the Company was balance sheet and cash flow insolvent.
Mr Iqbal was introduced to the Company through Dean Sullivan & Co accountants, in mid-to-late April 2011. His evidence is that he held an initial meeting with the directors of the Company at the Company's office. It is worth mentioning that Mr Iqbal, although sharing his last name with one of the directors is not related in any way with the directors or their family. He was informed about the arbitration proceedings, the fact that the Company had made losses in the recent past and was told that the holding company would no longer lend its support. Mr Iqbal recommended that the Company enter administration.
Mr Iqbal's evidence is that on or about 19 April 2011 he contacted Ben Lynch, a partner at Edward Symmons, about valuing and selling the Company's assets. He had used Edward Symmons on many occasions during his professional career and was satisfied that the firm would be able to assist with valuing and selling the assets. His evidence is that he asked Mr Lynch whether he had experience in the broadcast industry and was assured that he had. Mr Lynch informed Mr Iqbal that he had 16 years working at the BBC, and, according to Mr Iqbal, said that he would be able to value the Company's assets. In the period prior to the filing of a notice of intention to appoint, Mr Din (of the accountants) informed Mr Iqbal that the EPGs were together likely to be worth £4,000 on the open market but if sold with the other assets of the Company they may be worth “closer to £10,000”. Mr Salman Iqbal then offered £35,000 for the EPGs. This figure was mentioned to Mr Lynch and became the benchmark.
It is not in dispute that...
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