Top Brands Ltd and Another v Gagen Dulari Sharma
| Jurisdiction | England & Wales |
| Judge | HHJ Simon Barker QC |
| Judgment Date | 08 May 2014 |
| Neutral Citation | [2014] EWHC 1454 (Ch) |
| Docket Number | Case No. 8570 of 2013 |
| Date | 08 May 2014 |
| Court | Chancery Division |
[2014] EWHC 1454 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
Birmingham Civil Justice Centre
The Priory Courts
33, Bull Street, Birmingham
His Honour Judge Simon Barker QC
sitting as a Judge of the High Court
IN THE MATTER OF THE INSOLVENCY ACT 1986
AND IN THE MATTER OF MAMA MlLLA LIMITED (IN CREDITORS VOLUNTARY LIQLIIDATION)
Case No. 8570 of 2013
(as former Liquidator of Mama Milla Limited)
Representation:
Mr James Morgan instructed by KW Law LLP for the Applicants
Mr Patrick Lawrence QC and Mr William Hansen instructed by ZAK
Solicitors for the Respondent
I direct that pursuant to CPR PD 39A par 6.1 no tape recording shall be made of this judgment and that copies of this version as handed down may be treated as authentic
Introduction
The interim application the subject of this judgment was made at a very late stage before the substantive hearing of an application pursuant to s.212 of the Insolvency Act 1986 (respectively "the s.212 application", "s.212 and " IA 1986"). The parties to the s.212 application are Top Brands Limited ("TBL") and Lemione Services Limited ("LSL") as the applicants (collectively "As") and Mrs Gagen Sharma, a licensed insolvency practitioner who practises through Sharma Associates trading as Sharma & Co, as the respondent ("R").
The circumstances in which a s.212 application may be made include where, in the course of the winding up of a company, it appears that a person who has acted as liquidator of the company has misapplied or become accountable for any of the company's money or has been guilty of any misfeasance or breach of duty in relation to the company. By s.212(3), a creditor, amongst others, may initiate an application by asking the court to examine the liquidator's conduct and to compel the liquidator to (a) repay, restore or account for money or property, or (b) contribute to the company's assets by way of compensation.
Background to these proceedings
The present proceedings were issued on 28.10.13 by As as creditors of Mama Milla Limited ("MML"), a company then and now in creditors' voluntary liquidation, against R, then the liquidator of MML, for relief under s.212 and for an order pursuant to s.108(2) IA 1986 that R be removed as liquidator of MML and be replaced by Mr Barry Ward ("Mr Ward"), a licensed insolvency practitioner and principal of Ward Sheldrake Consultancy. The relief sought under s.212 includes an order against R for repayment, restoration, an account or contribution by way of compensation in the sum of £548,074.56 ("the Sum") for the benefit of MML's creditors, or such other sum as the court thinks fit, plus interest.
On 20.12.13, the court gave directions in respect of the application under s.108(2) IA 1986 as a result of which a creditors' meeting was held on 17.1.14 at which R was removed from office and replaced by Mr Ward. Accordingly, R was the liquidator of MML from the commencement of the winding up on 21.9.1 1 to 17.1.14.
At an initial short hearing on 26.1 1.13 and at the hearing on 20.12.13, the court gave directions for the progress of the s.212 application through to a three day trial fixed to commence on 14.4.14.
The Sum is said to have been received into MML's account with National Westminster Bank PIC ("NatWest") very shortly before MML entered creditors' voluntary liquidation, to have been transferred by R as liquidator of MML to her business account with Barclays Bank PLC on 8.1 1.1 1, and to have been paid away by R by 5.3.1 2.
TBL's and LSL's status as creditors of MML had been in issue during the course of R's tenure of office as liquidator. TBL and LSL first notified R of their respective claims to be creditors of MML by faxes dated and sent to R on 15.11.11. Further communications followed, including from As' then solicitors, S G H Martineau, who submitted undated proofs of debt under cover of letters dated 24.1.12 explaining the basis on which TBL claimed to be a creditor in the sum of £322,666 and LSL claimed to be a creditor in the sum of £189,265. On 3.5.12 R rejected these proofs of debt. In consequence, on 23.5.12, As issued an application, designated case no. 8264 of 2012 ("the first action"), against R pursuant to r.4.83 of the Insolvency Rules 1986 ("IR 1986") for an order reversing R's decision to reject their proofs of debt. On 27.9.12 the parties submitted a consent order ("the Consent Order") to the court, which was entered on the same day, by which R consented to the reversal of her decision and agreed to admit TBL's proof of debt in the sum of £332,666 and LSL's proof of debt in the sum of El 89,265.
It is common ground that before 27.9.12 R knew that As intended to make an application against her under s.212 and that that would be a likely consequence of accepting their proofs of debt.
The applications issued on 28.3.14
On 28.3.14, barely a fortnight before the date fixed for the substantive hearing of the s.212 application, R and As issued interim applications.
By their application, As sought permission to amend their Points of Claim to conform to the evidence and an order for specific disclosure. R consented to the application to amend and an order for specific disclosure has also been made.
R's application is for an order adjourning the trial so as to allow R to pursue a claim to set aside the Consent Order. By so doing, R seeks to undermine As' status as creditors and, in consequence, thwart their standing to pursue the s.212 application. For the grounds of her application, R refers to a 28 page witness statement dated 28.3.14 to which she exhibits documents collated in 5 lever arch files running to some 1449 pages. Put shortly, R wishes to contend that her consent to the Consent Order was procured by fraudulent misrepresentation and that the transactions relied upon by As to found their proofs of debt were part of a carousel fraud designed to defraud HMRC of very substarltial sums of VAT. R also supports her application with draft Particulars of Claim ("draft P/C") in fraud proceedings issued on 14.4.14.
Fortunately, because the court had been notified that an application in other proceedings had been compromised, it was possible to list As' and R's applications for hearing on the afternoon of 7.4.14. However, that listing would not have permitted full argument on R's application. By 7.4.14, an eight volume trial bundle had been delivered for the three day trial and there appeared to be a real question as to whether the substantive s.212 application could be heard within the 3 day fixture. By 7.4.14, the court had also been notified of the compromise of a three week trial of yet other proceedings fixed for June. It was therefore possible to allocate sufficient time to hear R's application on 15.4.14 and, without disadvantaging other court users, to reserve time in June for the substantive hearing of As' s.212 application in the event that R's adjournment application fails.
Issues raised by R's application to adjourn the trial
Mr Lawrence QC and Mr Morgan make their submissions by reference to four issues which may be expressed as follows:
(1) Does R, being a former liquidator and no longer an office holder, have sufficient standing to bring an action to set aside the Consent Order? ("The Competent Party Issue")
(2) Is R estopped from challenging the Consent Order on the ground that her consent was obtained by fraud? ("The Estoppel Issue")
(3) Would an action by R against As based on such a challenge be an abuse of the court's process? ("The Abuse of Process Issue")
(4) Should the court refuse to further adjourn the trial and refuse to give directions for the concurrent trial of R's challenge to the consent order for procedural reasons? ("The Procedural Issue").
On 7.4.14, Mr Lawrence submitted that the Procedural Issue arises for consideration if R establishes that (1) she is a competent party, (2) she is not estopped from challenging the Consent Order, and (3) such challenge is not an abuse of process. For that reason he invited me to hear and rule upon those issues before turning to the Procedural Issue. Mr Morgan submitted that the Procedural Issue is free standing and could equally well be considered first as a determinative point. In order to ensure that argument was completed on 15.4.14, 1 decided to hear the respective parties' submissions on all four Issues. However, in my judgment the Procedural Issue is, as Mr Morgan submits, free standing and should be viewed in this judgment as being decided alongside rather than after the other three issues, which are sequential.
Before turning to the issues, it is necessary to summarise the nature of and the background to R's fraud claim.
R's fraud claim
1 start by reminding myself that on this application my remit in relation to the fraud claim R now wishes to advance does not include fact finding beyond being satisfied -if such be the case -that the claim would not be not susceptible to adverse summary judgment, in short that it has a real prospect of success. If, on the available material, the claim now sought to be advanced by R car1 be shown to be fanciful or imaginary, the gateway should be barred as there would be no point in going further.
Mr Morgan, on behalf of As, takes this point drawing attention to (1) the lateness of R's challenge, which he submits evidences a lack of genuineness in R's application, coupled with the absence of any new material or startling recent (or post Consent Order) factual discovery, (2) R's own evidence that she does not have the means to restore or repay the Sum, and (3) the lack of substance relating to As in the allegations set out in the draft PIC. Mr Morgan submits that R's...
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