The Secretary of State for Business, Innovation and Skills v Gul-Nawaz Khan Akbar and Others

JurisdictionEngland & Wales
JudgeDavis-White
Judgment Date16 November 2017
Neutral Citation[2017] EWHC 2856 (Ch)
CourtChancery Division
Date16 November 2017
Docket NumberCase No: D30LS031

[2017] EWHC 2856 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS IN LEEDS

INSOLVENCY AND COMPANIES LIST (ChD)

Leeds Combined Court Centre

1 Oxford Row, Leeds LS1 3BY

Before:

HIS HONOUR JUDGE Davis-White QC

(SITTING AS A JUDGE OF THE CHANCERY DIVISION)

Case No: D30LS031

Between:
The Secretary of State for Business, Innovation and Skills
Claimant
and
(1) Gul-Nawaz Khan Akbar
(2) Mumtaz Khan Akbar
(3) Rab Nawaz Khan Akbar
(4) Fameeda Akbar
(5) Kauser Akbar
Defendants

Miss Lucy Wilson-Barnes (instructed by Howes Percival) for the Claimant

Miss Eleanor Temple (instructed by Carrick Read) for the Defendants

Hearing dates: 14 (Reading), 17–21 July 2017

His Honour Judge Davis-White QC:

Introduction

1

The proceedings before me are brought pursuant to section 6 of the Company Directors Disqualification Act 1986 (" CDDA 1986"). They relate to the conduct of each of the defendants whilst a director of the company now named Greentabs Limited, but which for many years was named Mumtaz Food Industries Limited (" MFIL" or the " Company")).

2

MFIL was incorporated on 22 December 1997. The First Defendant, Dr Gul-Nawaz Khan Akbar (" Dr Gul-Nawaz") was appointed a director on incorporation and remained a director thereafter. According to records at Companies House, the Second Defendant (Mr Mumtaz Khan Akbar, " Mumtaz"), the Fourth Defendant (Mrs Fameeda Akbar, " Fameeda") and the Fifth Defendant, Mrs Kauser Akbar (" Kauser") were appointed directors on 7 April 1999. They remained directors thereafter. Mrs Gazala Kauser Akbar was also appointed a director on 7 April 1999 but she ceased to be a director on 2 March 2012 before the matters of which complaint is made in this case. Again according to records at Companies House, the Third Defendant (Mr Rab Nawaz Khan Akbar (" Rab Nawaz") was appointed a director on 22 December 1999. As Counsel did during the trial, I have referred to the Defendants by their given names for convenience and intend no disrespect in so doing.

3

As will be clear from the names of the defendants, MFIL was at all material times a family company owned and operated by members of the Akbar family. Dr Gul-Nawaz, Mumtaz and Rab Nawaz are brothers. Kauser is the wife of Dr Gul-Nawaz. Fameeda is the wife of Mumtaz.

4

So far as the shareholdings in MFIL are concerned, the position is not entirely clear from the contemporaneous documents.

5

It is common ground that for some considerable time there were 3,000 issued Ordinary Shares of 1 pound each, which were held as to 1,000 shares by each of Dr Gul-Nawaz, Mumtaz and Rab Nawaz. This is confirmed by a letter dated 28 February 2012, from the Company's auditors and accountants, Henton & Co (" HC"). seeking tax clearance in respect of the transfer of such shares to a proposed new holding company, Mumtaz Holdings Limited (" MHL"), in consideration of MHL issuing 1,000 Ordinary Shares to each of the three brothers. MHL was incorporated on 22 February 2012. The clearance sought was given by letter dated 2 March 2012. What has been confirmed in evidence to be the final but unsigned audited accounts for MFIL for the year ended 31 March 2012 show the directors as holding no shares in MFIL. A note to the accounts refers to the parent company being MHL A dividend tax voucher produced by MFIL dated 30 June 2012 shows MHL as a shareholder holding 3,000 shares and receiving a dividend totalling £2.6 million (£866.67 per share).

6

However, the statement of affairs for MFIL, following its going into liquidation, shows, as at 24 May 2013, the three brothers as each holding 1,000 Ordinary Shares. In addition it shows there being 12 Ordinary Shares in issue held by other members of the Akbar family and lettered from B to M. These "alphabetical shares" appear to have been created by a board resolution dated 25 May 2012. The lettered shares were non-voting, with no right to share in a distribution on a winding up, but with a right to dividends.

7

For the purposes of these proceedings I am prepared to assume that the transfer of shares was given effect to by being registered in the company's register of members, having been properly authorised.

8

During most of its life MFIL was primarily concerned with running two separate, but connected, businesses. One was the famous Mumtaz restaurant on Great Horton Road, Bradford. The other was the processing and sale (wholesale and retail) of Indian foods. This business, including a factory, was also based at the Great Horton Road site. The family had, as I understand matters, conducted business from there since the 1980's and then effectively transferred the businesses to MFIL in about 1997. By 2012, the Great Horton Road site comprised the Mumtaz restaurant, a head office block and a processing and packaging factory with associated warehousing and offices.

9

Also under the effective ownership of members of the Akbar family (not necessarily the same members in each case), at the relevant time were a number of other companies, including Mumtaz (UK) Limited, Mumtaz Ventures Limited, Mumtaz Food Products Limited (" MFPL") and Mumtaz Leeds Limited. As at 31 March 2011 each of those named companies were debtors of MFIL. At all material times, Mumtaz Food Products Limited was owned by Dr Gul-Nawaz. It was incorporated in 2008. At some later date, Mumtaz Food Products Limited acquired a subsidiary, Mumtaz Foods plc.

10

A further relevant Akbar family company was Mumtaz Bradford Limited. This company was incorporated in 1995. The three Akbar brothers were directors. It too became a subsidiary of Mumtaz Holdings Limited.

11

In 2012, a major reorganisation of the MFIL businesses was planned and took place. A number of elements were involved which I shall have to return to. A main mover behind the proposals seems to have been an earlier identification, in about 2010, that the Great Horton Road site was no longer suitable for the business of processing and selling prepared food and a decision to move the food processing and sale business to new premises on other land owned by Mumtaz Food Products Limited, where a new factory was to be built. Another mover seems to have been to separate out the various businesses of MFIL and the three brothers' involvement in them. In this respect, Dr Gul-Nawaz (and his son, Bilal) was more involved in the food processing business and Mumtaz and Rab Nawaz in the restaurant business. During the second part of 2012, various assets of MFIL were transferred:

(1) MFIL's freehold properties were transferred to MHL. The purchase price was satisfied out of MFIL's reserves, by way of dividend payable to MHL as shareholder and offset against the purchase monies payable by MHL. In economic effect, the properties at a value of £2.6 million were distributed to its shareholder with no return to MFIL;

(2) MFIL's wholesale and retailing business was transferred to Mumtaz Foods plc, the wholly owned subsidiary of Dr Gul-Nawaz's company, MFPL. The consideration was a pound and the taking over of some, but not all, liabilities relating to the buisness;

(3) MFIL's Bradford restaurant business (or the element of that business carried on by MFIL) was transferred to Mumtaz Bradford Limited (and thus remained indirectly owned by the three brothers, through their ownership of MHL, the holding company of Mumtaz Bradford Limited);

(4) A debt of approximately £1million owed by MFPL to MFIL was eliminated. In very broad terms an equivalent debt from MFPL came to be owed to Dr Gul-Nawaz. This was not effected by a simple distribution and assignment of the debt. Rather, it was effected by a series of complicated transactions, under a tax saving scheme. Under that scheme, an equivalent sum was distributed to Dr Gul-Nawaz through the purchase of gold bullion for his benefit worth £976,055. In economic effect, a distribution to him was made. The money for that distribution came from MFPL which loan was set off against the debt owed by MFPL to MFIL. That inter-company debt owed by MFPL was thereby substantially reduced. Just as the freehold properties were removed from MFIL's balance sheet, so was a large part of the inter-company debt. The debt was substantially reduced by the making of a distribution to Dr Gul-Nawaz which in legal terms was funded by MFPL and offset against the debt owed by MFPL. In fact the money largely seesm to have gone in a circle with Dr Gul-Nawaz lending money to MFPL for it to lead on to MFIL. The result is that, at the end of the day, MFPL, instead of owing approximately £1 million to MFIL owed an equivalent sum to Dr Gul-Nawaz. The effect from MFIL's perspective was that it was as if, in economic terms, it had distributed £1million of debt owed by MFPL to Dr Gul-Nawaz.

12

I have referred to a distribution to Dr Gul-Nawaz through the mechanism of purchasing gold bullion for his benefit. As I shall go on to explain, in my judgment the latter arrangement was in effect a return of capital to Dr Gul-Nawaz which, for tax reasons under a tax savings scheme, was devised as being part of the operation of an employee benefit scheme. The relevant purchases took place in three tranches in the period November-December 2012. The gold bullion was purchased in large part by MFIL directly and in part indirectly. The indirect purchase was by contributing to the assets of an employee benefit trust whose trustees then decided to use such monies in joining in to buy gold for Dr Gul-Nawaz at the same time that MFIL did.

13

The Secretary of State asserts that the conduct of each of the Defendants in causing or allowing these transactions to take place is such as to make them unfit to be concerned in the management of a company within the meaning of s6 of the CDDA 1986. In substance the complaint is that the financial position of MFIL was such that that the transaction should not have gone ahead, creditors being prejudiced.

14

As I...

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