Top Brands and Another v Gagen Dulari Sharma
| Jurisdiction | England & Wales |
| Judge | Lord Justice Vos,Sir Stephen Sedley |
| Judgment Date | 23 May 2014 |
| Neutral Citation | [2014] EWCA Civ 761 |
| Docket Number | A2/2014/1582 |
| Court | Court of Appeal (Civil Division) |
| Date | 23 May 2014 |
[2014] EWCA Civ 761
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand
London, WC2A 2LL
Lord Justice Vos
Sir Stephen Sedley
A2/2014/1582
Mr P Lawrence QC and Mr W Hansen (instructed by Zak Solicitors) appeared on behalf of the Appellant
Mr J Morgan (instructed by KW Law LLP) appeared on behalf of the Respondent
Introduction
This is an appeal from the order of HHJ Simon Barker QC dated 16 May 2014, now only a week ago, refusing to adjourn the trial of this misfeasance application made under section 212 of the Insolvency Act 1986 ("section 212").
The Appellant is the erstwhile liquidator of Mama Milla Limited ("MML"), MrsGagen Sharma ("the Appellant"). The Applicants in the substantive misfeasance proceedings, Top Brands Limited which is incorporated in Malta and Lemione Services Limited which is incorporated in Cyprus (together the "companies" or the "Respondents"), seek an order that the Appellant repays MML some £548,074.56 ("the Sum") allegedly paid away as a result of misfeasance. The companies are both controlled by a MrDildar Singh and his manager, MrPardeepHeer.
The Appellant seeks to appeal from the judge's decision on two substantive grounds. First, that the judge was wrong to hold that the Appellant had no standing to challenge a Consent Order that she had entered into on 28 September 2012 as liquidator of MML accepting that the companies were creditors of MML ("the Consent Order"). The judge says the Appellant ought to have held that she had sufficient interest to challenge the Consent Order under the court's inherent jurisdiction as having been brought about by fraud. Secondly, the Appellant contends that the judge was wrong to refuse to adjourn the trial so that her challenge to the Consent Order could be heard at the same time as the substantive misfeasance proceedings.
The Court of Appeal will not normally interfere with trial management decisions made by first instance judges. It is almost always better to leave such matters to the trial judge. As will appear, however, the reason for this appeal is really because matters have developed so fast that some technical legal questions have become intertwined with purely procedural ones.
I should deal first with the somewhat complex chronological background to this appeal, but before doing so it is useful to understand the statutory foundation to the applications that have been made to the court.
Misfeasance Proceedings
The misfeasance proceedings were brought under section 212 of the Insolvency Act 1986 which provides as follows:
"(1) This section applies if in the course of the winding up of a company it appears that a person who —
(a) is or has been an officer of the company
(b) has acted as liquidator or administrative receiver of the company, or
(c) not being a person falling within paragraph (a) or (b), is or has been concerned, or has taken part, in the promotion, formation or management of the company, has misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company…
(3) The court may, on the application of the official receiver or the liquidator, or of any creditor or contributory, examine into the conduct of the person falling within subsection (1) and compel him —
(a) to repay, restore or account for the money or property or any part of it, with interest at such rate as the court thinks just, or
(b) to contribute such sum to the company's assets by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just…"
Blackburne J explained the nature of such proceedings in Eurocruit Europe Limited [2008] Bus LR 146 in a case where the question arose as to the effect of a limitation defence on a claim under section 212. Blackburne J said this at paragraph 24 of his judgment:
"In my judgment, Mr Wilson's submissions on this point do not pay sufficient regard to the significance of the fact, made clear by the authorities, that section 212 is procedural in nature. The true significance of that fact is that the section merely provides an alternative means, in terms of procedure, of enabling the company, to which the defaulting director's duty was owed, to obtain recompense from that director for his breach of duty. If the liquidator chooses to name himself as the formal claimant in lieu of the company, his claim is by application, or (as appropriate) originating application, in the liquidation rather than by a claim form under CPR Part 7. The procedure is not available if it is intended to make someone other than a director (or other person falling within section 212(1)) liable for the wrong to the company, for example a claim against a non-director (along with a director) for having conspired to harm the company; in such a case or where other claims not within section 212 are brought against a director, for example a straightforward claim in debt, the claim must be brought by the company. In each case, however, the claimant is in substance the company; the relief which is granted under section 212(3) is for the repayment, restoration or accounting (to the company) of the money or property of the company or for a contribution to be made "to the company's assets by way of compensation" for the wrong in question. This is so whether the claim is brought by the company or by the liquidator or, for that matter, by a creditor or a contributory. It would be extraordinary, therefore, if, finding that a claim brought by the company in liquidation against a defaulting director had been successfully non-suited on limitation grounds, the company's liquidator could, in effect, ignore that result and advance the self-same claim again but, in his own name, shorn of any risk of a successful limitation defence merely because the claim was brought within six years of the commencement of the liquidation. The reason he cannot is that there is only a single cause of action, that of the company. All that section 212 does is give to the liquidator, if he wishes, the right to bring the claim in his own name."
Thus it will be immediately observed that section 212 is a procedural section providing a means by which a company can obtain recompense; in this case from an allegedly defaulting liquidator. That is the substance of the claim that is being brought under section 212. In other words, whoever is the nominal claimant under section 212, the beneficiary of the claim is the company itself; in this case, MML.
The court's involvement in the acceptance or rejection of proofs
Insolvency Rule 4.85 that is underlying the argument in this case relates to "expunging of proof(s) by the court". The rule forms part of Chapter 9 of the Insolvency Rules that lays down a statutory regime for the provision of proofs as follows:
"4.73. In a voluntary winding up (whether members' or creditors') the liquidator may require a person claiming to be a creditor of the company and wishing to recover his debt in whole or in part, to submit the claim in writing to him…
4.82. (1) A proof may be admitted for dividend either for the whole amount claimed by the creditor, or for part of that amount.
4.82. (2) If the liquidator rejects a proof in whole or in part, he shall prepare a written statement of his reasons for doing so, and send it as soon as reasonably practicable to the creditor.
4.83. (1) If a creditor is dissatisfied with the liquidator's decision with respect to his proof (including any decision on the question of preference), he may apply to the court for the decision to be reversed or varied. The application must be made within 21 days of his receiving the statement sent under Rule 4.82(2)…
4.84. A creditor's proof may at any time, by agreement between himself and the liquidator, be withdrawn or varied as to the amount claimed.
4.85. Expunging of proof by the court.
(1) The court may expunge a proof or reduce the amount claimed —
(a) on the liquidator's application, where he thinks that the proof has been improperly admitted, or ought to be reduced; or
(b) on the application of a creditor, if the liquidator declines to interfere in the matter.
(2) Where application is made to the court under this Rule, the court shall fix a venue for the application to be heard, notice of which shall be sent by the applicant —
(a) in the case of an application by the liquidator, to the creditor who made the proof, and
(b) in the case of an application by a creditor, to the liquidator and to the creditor who made the proof (if not himself)."
It will be readily seen that chapter 9 of the Insolvency Rules relates to the relationship between creditors and the liquidator in relation to the amount in respect of which that creditor may be admitted for a dividend in winding up. Rule 4.85 is a part of that regime. With that introduction, I turn to the complex chronological background to the issues that arise for decision in this case.
Chronological Background
On 17 November 2009, MML was incorporated in England, with its sole shareholder MrFaruq Tariq ("Mr Tariq"). On 13 August 2011, the Appellant was requested by Mr Tariq to fix a meeting of creditors and members of MML to take place on 1 September 2011.
On 15 September 2011, SERT-MST PLC ("SERT) paid the Sum to MML allegedly in respect of certain goods (soaps and razors) that had been allegedly delivered to it by the companies at the behest of...
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Re Top Brands Ltd v Sharma; Mama Milla Ltd (in creditors voluntary liquidation)
...GS also sought an adjournment of the trial. GS's application was refused, ultimately by the Court of Appeal on 23.5.14 (see [2014] EWCA Civ 761). 3 The allegation against GS is that the Sum was money belonging to MML and that, while acting as liquidator of MML, GS negligently and/or in bre......