Skip to Main Content

Find Case LawBeta

Judgments and decisions from 2001 onwards

Metrocab Ltd & Ors, Re

[2010] EWHC 1317 (Ch)

Neutral Citation Number: [2010] EWHC 1317 (Ch)

Case Nos: 11024 of 2008 and 12686 of 2009

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 11/06/2010

Before :

MR. PHILIP MARSHALL QC

(SITTING AS A DEPUTY JUDGE OF THE HIGH COURT

In the matter of Metrocab Limited

And in the matter of the Insolvency Act 1986

Between :

(1) METROCAB LIMITED

(2) KAMAL SIDDIQI

Applicants

- and -

(1) THE OFFICIAL RECEIVER

(2) HER MAJESTY’S REVENUE & CUSTOMS

(3) M. L. COWLISHAW (AS JOINT LIQUIDATOR OF METROCAB LIMITED)

(4) C.J. FARRINGTON (AS JOINT LIQUIDATOR OF METROCAB LIMITED)

Respondents

-and-

In the matter of Frazer Nash Technology Limited

And in the matter of the Insolvency Act 1986

(1) FRAZER NASH TECHNOLOGY LIMITED

(2) KAMAL SIDDIQI

Applicants

- and -

(1) THE OFFICIAL RECEIVER

(2) HER MAJESTY’S REVENUE & CUSTOMS

(3) M. L. COWLISHAW (AS JOINT LIQUIDATOR OF FRAZER NASH TECHNOLOGY LIMITED)

(4) C.J. FARRINGTON (AS JOINT LIQUIDATOR OF FRAZER NASH TECHNOLOGY LIMITED)

Respondents

Mr. William Willson (instructed by Messrs. Pitmans) for the Applicants

Mr. Andrew Westwood (instructed by Her Majesty’s Revenue & Customs) for the Second Respondent

Ms. Sandra Bristoll (instructed by Messrs. Martineau) for the Third and Fourth Respondents

Ms. Hilary Stonefrost (instructed by Pinsent Masons) for Mr. Nasser Kazeminy, Triomphe Investments I LLC, Triomphe Investments II LLC, Triomphe Investments III LLC, Triomphe Investments IV LLC

Mr. Jeremy Richmond (instructed by Kennedy & Co.) for Sibson Mill Properties Limited

Hearing dates: 20-21 May 2010

Judgment

Mr. Philip Marshall QC (sitting as a Deputy Judge of the High Court):

Introduction

1.

I have before me two applications to rescind winding-up orders made in relation to Metrocab Limited (“Metrocab”) and Frazer Nash Technology Limited (“FNT”). The applications are made by each of the companies concerned and by Mr. Kamal Siddiqi (“the Applicants”). Mr. Siddiqi is the sole director of both Metrocab and FNT. He also owns 90% of the issued share capital of Metrocab and 90% of the issued share capital of the parent company of FNT, Kamkorp Limited.

2.

The winding-up order in relation to Metrocab was made by Mr. Registrar Jaques on 17 June 2009, on the petition of Her Majesty’s Revenue & Customs (“HMRC”), presented on the basis of outstanding national insurance contributions and PAYE payments amounting to £159,665.06. That in relation to FNT was made by the same Registrar on 1 July 2009 and was also based on a HMRC petition relating to outstanding national insurance and PAYE payments, this time amounting to £90,208.58. It is accepted by the Applicants that both of the winding-up orders were made regularly.

3.

Under rule 7.47(4) of the Insolvency Rules 1986 any application to rescind a winding-up order must be made within 7 days after the date on which the order was made. In this case the applications are both out of time. That in relation to Metrocab was made on 14 October 2009, some four months after the making of the order. The FNT application was also made on 14 October 2009, some three and half months after the relevant date. The Applicants therefore apply for an extension of time pursuant to rule 4.3 of the 1986 Rules.

4.

The applications are opposed by persons who claim to be creditors. The applications of both Metrocab and FNT are opposed by Mr. Nasser Kazeminy and four companies with very similar names who have been described as his investment vehicles, Triomphe Investments I LLC, Triomphe Investments II LLC, Triomphe Investments III LLC and Triomphe Investments IV LLC (collectively referred to hereafter as “the Triomphe Parties”). They hold promissory notes and have made advances in respect of which they claim Metrocab and FNT are liable. The application of Metrocab is also opposed by Sibson Mill Properties Limited (“SMP”), the landlord under a lease of premises formerly occupied by Metrocab as tenant. The claims of the Triomphe Parties and SMP are contested by the Applicants. It is said that they are not creditors at all. Although objection was taken in evidence to the standing of at least the Triomphe Parties in the applications, no objection to their appearance was taken in submissions at the hearing (and nor was any objection taken to their appearance when these applications were before Ms. Registrar Derrett on 16 December 2009 when she gave directions for SMP to serve evidence). In so far as they required permission to appear and be heard I was and am willing to grant it. It is important for the court to take into account the views of creditors in an application of this kind (see Re Dollar Land (Feltham) Ltd. (1995) BCC 740) and this must include the views of those who claim to be creditors where their status is one of the very matters the court is being asked to determine in the course of the application, as in this case.

5.

In addition, I have heard submissions on behalf of HMRC, the Second Respondent to each application. Subject to payment of the outstanding debts of each of Metrocab and FNT to HMRC, in cleared funds, and payment of their costs of the petition and of these proceedings, HMRC does not oppose the applications.

6.

Finally, I also heard submissions on behalf of the Third and Fourth Respondents to each application, Mr. Matthew Cowlishaw and Mr. Christopher Farrington, two partners in Deloitte LLP. They are the joint liquidators of both Metrocab and FNT (“the Liquidators”) having been appointed on 5 October 2009 by the Secretary of State under section 137 of the Insolvency Act. They are neutral in connection with the applications but have filed a report pursuant to the order of Mr. Registrar Simmonds dated 21 October 2009 and have thereafter served and filed evidence in order to assist the court.

Background

7.

As set out in the judgment of Mr. Justice Teare of 9 December 2009 (“the First Judgment”) in proceedings in the Commercial Court brought by the Triomphe Parties against the Applicants and related parties ([2009] EWHC 3297 (Comm)) (“the Commercial Court Proceedings”), to which I will return in due course, Mr. Siddiqi is an automotive engineer, technologist and entrepreneur in the field of innovative design and development of, amongst other things, electric and hybrid electric transportation technology.

8.

As also described in that judgment, Mr. Siddiqi has close connections with a number of companies including, apart from Metrocab and FNT and its parent company, Kamkorp Limited, Frazer-Nash Research Limited (“FNR”), a company engaged in research, design, and engineering of environmentally friendly and energy efficient systems for the transportation and industrial markets.

9.

According to the evidence of Mr. Siddiqi, Metrocab was engaged in the business of the assembly, sales and after sales support of diesel taxis. It is one of the two approved manufacturers of purpose-built taxis in the United Kingdom. In 2005, however, it was decided that diesel taxis had a limited future commercially and in June 2005 Metrocab stopped producing them, the last diesel taxi being manufactured and sold in August 2005. Instead the company embarked on a programme to introduce environmentally friendly “hybrid” electric/fuel taxis into the UK market. It commenced the design of the chassis, body styling and interior of a new hybrid taxi around a more advanced, environmentally friendly and efficient powertrain. In doing so it was assisted by FNR which participated in the customisation of its hybrid drivetrains for use in some prototype hybrid taxis in addition to the design and development of a new chassis and body.

10.

Metrocab conducted its business from industrial premises at Units 19-23 Darwell Park, Tamworth (“the Premises”). It leased the Premises from SMP. As a result of alleged arrears of rent SMP changed the locks at the Premises on 24 April 2009 and subsequently sold assets located there. The extent and true market value of the assets disposed of is in dispute. They were sold by SMP to a third party for £5,000.

11.

According to the evidence of Mr. Siddiqi, FNT was engaged in the business of engineering, layout and manufacture of motor and generator controllers for low speed electric vehicles and the provision of engineering services. The company had also developed some capabilities in the assembly of prototype electric and hybrid electric vehicles and the production of low volume electric and electronic modules. It provided engineering services to one of its associated companies. From the First Judgment it appears that this associated company was FNR.

12.

Both Metrocab and FNT are alleged to have a joint and several liability to the Triomphe Parties in respect of various promissory notes and loans details of which are contained in a schedule to the judgment of Mr. Justice Teare. The sums advanced were made to enable Mr. Siddiqi and the companies with which he is associated to develop one or more environmentally friendly forms of transport. The Triomphe Parties have submitted proofs of debt in the Metrocab liquidation amounting to US$25,426,271 and in the FNT liquidation amounting to US$21,666,413. The position in connection with these proofs of debt awaits the outcome of the Commercial Court Proceedings in which the claims of the Triomphe Parties in respect of these promissory notes and loans are contested. The Triomphe Parties did apply for summary judgment in respect of their claims. In the First Judgment Mr. Justice Teare refused to grant summary judgment but, having regard to the weakness of the defence, required the defendants to pay US$25m. into court failing which judgment would be entered against them. On 25th February 2010 the sum required to be paid into court was revised down to £5m.. This condition has now been duly fulfilled and pursuant to an order of Mr. Justice Teare dated 5 March 2010 all issues concerning the promissory notes and all issues, save those relating to quantum, in connection with the loans are to be determined at a trial due to take place in November 2010.

The Application for an Extension of Time

13.

In this case I have heard full submissions on the substantive merits of each application and, for the reasons set out below, have concluded that they should be dismissed. It follows that whether any extension of time should be granted or not is academic. However, having heard full submissions on the point and in case the matter goes further, I set out below my conclusions on the applications for an extension of time.

14.

In Sayers v. Clarke Walker [2002] 1 WLR 3095, Lord Justice Brooke (with whom the other members of the Court of Appeal agreed), explained at 3100, in the context of an application for permission to appeal out of time, that in a case of any complexity the “check list” in CPR rule 3.9, concerning relief from sanctions, should be applied. The rationale is that, given the applicant has not complied with a time limit in the court rules, if the court is unwilling to grant him relief from his failure to comply through an extension of time, the consequence would be that the order of the lower court would stand and he could not appeal it. Even though this was not a sanction expressly “imposed” by the rule, the consequence would be exactly the same as if it had been “and it would be far better for courts to follow the check-list contained in CPR r 3.9 on this occasion, too, than for judges to make their own check-lists for cases where sanctions are implied and not expressly imposed”.

15.

In my judgment this analysis is equally applicable in the context of an application for an extension of time such as that made by the Applicants in this case. Although the application is made under the Insolvency Rules, rule 7.51 of those rules applies the practice and procedure of the High Court (except so far as inconsistent with the provisions of the Insolvency Rules). If the Applicants are unsuccessful in obtaining an extension of time the consequence will be that the winding-up orders will stand. The consequence will accordingly be the same as if rule 7.47 of the 1986 Rules imposed a sanction for not making an application within the seven day period provided for.

16.

The matters to be considered under CPR rule 3.9 are “all the circumstances of the case” including (a) the interests of the administration of justice; (b) whether the application for relief has been made promptly; (c) whether the failure to comply was intentional; (d) whether there is a good explanation for the failure; (e) the extent to which the party in default has complied with other rules, practice directions and court orders; (f) whether the failure to comply was caused by the party or his legal representative; (h) the effect which the failure to comply had on each party; and (i) the effect which the granting of relief would have on each party. In the case of a procedural appeal the court would also have to consider item (g), “whether the trial date or the likely trial date can still be met if relief is granted”. I take each factor in turn.

17.

Factor (a): The interests of the administration of justice require any application for rescission of a winding-up order to be made promptly. As reflected in a practice note published in [1974] 1 WLR 4, in connection with applications to rescind, a winding-up order affects all creditors of the company and gives the Official Receiver authority to act immediately. Without the requirement for a prompt application a considerable degree of uncertainty would arise for creditors and the Official Receiver and any liquidator thereafter appointed. The importance of complying with the time scale set down by rule 7.47 therefore has a particular importance and led Mr. Justice Lightman in Leicester v. Stevenson [2003] 2 BCLC 97, at 100f, to conclude that any extension of time must be justified and strictly justified if the extension is to cover any substantial period.

18.

Mr. Willson, counsel for the Applicants, suggested that the fact that undisputed debts of Metrocab and FNT can be discharged and that both companies could continue to trade are appropriate matters to consider under this heading. In my judgment, however, they fall more properly to be considered as part of the substantive merits of the application. If I had to determine the merits and address those matters in order to determine the application for an extension of time I would not have reached a conclusion favourable to the Applicants. I would still have refused an extension of time. I deal with the reasons for this below when I address the substance of the applications.

19.

Factor (b): In this case the applications for an extension of time were made nearly four months late in the case of Metrocab and some three and half months late in the case of FNT. In the context of the short time limit of seven days set by the legislation these periods of delay are significant. In this regard it is notable that in Wilson v. Specter Partnership [2007] BPIR 650, at 659, Mr. Justice Mann described a delay of about four and half months between the point at which an application to rescind could have been mounted and the date on which it was actually launched as “a very large delay”.

20.

The delay is particularly striking in a case such as this in which the making of the winding-up order was well known to the Applicants and was only made after multiple adjournments (the Metrocab petition having come on for hearing on 4 February 2009, 4 May 2009 and 13 and 20 May 2009 and that relating to FNT having come on for hearing on 13 May 2009 and 24 June 2009). Where a winding-up order has been made without the knowledge of the applicant or where he has only had a short period in which to respond the court will naturally be much more sympathetic (see Re Calmex (1988) 4 BCC 761 and Re Virgo Systems Ltd. (1989) 5 BCC 833, at 834G).

21.

Factor (c): It was accepted by Mr. Willson, on behalf of the Applicants, that the failure to comply in the case of both Metrocab and FNT was intentional.

22.

Factor (d): In this case the only evidence of the Applicants specifically addressing the reasons for the delay are the two initial witness statements of Mr. Siddiqi dated 9 October 2009, his fourth witness statement dated 31 December 2009 in the Metrocab proceedings and his third witness statement of the same date in the FNT proceedings.

23.

In his initial statement concerning Metrocab Mr. Siddiqi gives three reasons for delay: “(i) third party funds needed to be arranged which has been difficult under current economic climate, (ii) negotiations with Sibson have been necessary, in order to obtain access to records and files and to seek a mutually acceptable arrangement with the lease of the premises, and (iii) a new strategic plan has had to be put in place”.

24.

Taking each of these matters in turn:

i)

The suggestion that third party funds had to be arranged to enable the application to be made is unconvincing. The following matters suggest that ample funding should have been available to enable the applications to be made promptly:

a)

The agreed facts and the findings made in the Commercial Court Proceedings strongly support the conclusion that Mr. Siddiqi has substantial funds available. As recorded in the First Judgment, at paragraph 6, Mr. Siddiqi and his family have been able to provide substantial sums (said to be of the order of £82m.) by way of loans or investments to Metrocab, FNT, FNR and other associated companies. In his evidence Mr. Siddiqi refers to advances that he has made of £3,864,801.29 to Metrocab and that he and group companies have made to FNT of £3,932,964. In his further judgment delivered on 25th February 2010 ([2010] EWHC 201 (Comm)) (“the Second Judgment”), in which he reviewed the amount to be paid by Mr. Siddiqi and his co-defendants as a condition of not having summary judgment entered against them, Mr. Justice Teare concluded, at paragraphs 36-37, that Mr. Siddiqi had provided about £16m. to his companies in the previous two and half years. Moreover, very recently, he had made substantial payments to other creditors of about £4m. with much of this being derived from his personal resources. He therefore concluded that an order that Mr. Siddiqi pay £5m. into court was not such as was likely to stifle his defence.

b)

In his first witness statement Mr. Siddiqi comments upon the sudden withdrawal of funding from his companies by the Triomphe Parties in February 2008 and the difficulties in raising funds from investors, with efforts to do so being aborted in early 2008 as a result of global financial turmoil. I note, however, from the Second Judgment, paragraph 17, that Mr. Siddiqi was able to purchase two Ferraris in this period which had a value, some two years later, of some £300,000 according to the evidence that Mr. Justice Teare preferred. This suggests that Mr. Siddiqi himself was in a position to provide funding during this period, if he wished to do so, and was not wholly dependent on attracting third party investors or lenders.

c)

In his initial witness statement Mr. Siddiqi confirmed that he had been able to make available additional funding for Metrocab. He failed to explain why was he unable to do so earlier so as to permit the rescission application to be made timeously.

d)

In the same statement Mr. Siddiqi explains that third party money has been made available by shareholders to enable the debt due to HMRC to be paid and working capital will be provided if the rescission application is successful. No explanation is provided as to why these resources could not be made available earlier by shareholders, of which, of course, Mr. Siddiqi is the most significant.

e)

Within approximately seven weeks of the date of the winding-up order the Applicants had been able to secure funds to instruct a City firm of solicitors, Messrs. Herbert Smith, to represent them in the Commercial Court Proceedings.

f)

In his fourth witness statement in the Metrocab proceedings Mr. Siddiqi refers to the fact that he has “now been able to procure additional group funding” and suggests that this has been “significantly helped by the group winning a new contract in September 2009” with an original equipment manufacturer (“the First OEM Contract”). From this evidence it appears that the additional “group funding” has not been exclusively dependent on winning the First OEM Contract and, in so far as not so dependent, no explanation has been provided as to why it was not made available much earlier.

ii)

The suggestion that negotiations with SMP were necessary to obtain access to records and files and to seek a mutually acceptable arrangement regarding the lease of the Premises before an application was made is also unconvincing. Mr. Siddiqi’s own evidence confirms that the Applicants did not obtain access to the records and files held at the Premises prior to making the application, these records having been disposed of by SMP after re-entry. As regards negotiations regarding the lease, little information is given as to what these entailed. Mr. William Tet Hin Chia, the Group Director of Operations for the Frazer-Nash/Kamkorp group, simply says in his witness statement that Metrocab and SMP entered into some renegotiation of the lease in the summer of 2009. Mr. Martin James Smith, a director of SMP, has made a witness statement in which he denies that any such negotiations occurred. In any event the absence of any new arrangement regarding a lease has not prevented the application being made.

iii)

I am also unimpressed by the further suggestion that a new strategic plan had to be put in place before an application could be made. I am unclear as to what strategic plan is referred to. The only business plan containing any form of strategy that I have been shown was evidently prepared sometime after October 2009, once the application was underway. Self-evidently its production did not prevent the application being launched.

25.

In his first statement in the FNT proceedings Mr. Siddiqi gives two reasons for delay “(i) third party funds needed to be arranged and (ii) a contractual arrangement to provide engineering services to an associated company, which was dependent on its success in securing a contract to produce hybrid demonstrator passenger cars”. The first of these points I have already considered above. On the second matter, the evidence is once again unconvincing:

i)

This evidence would appear to consist of a rather opaque reference to a contract to provide services to FNR in respect of the First OEM Contract (it being the relevant party to that contract according to the Second Judgment, paragraph 11).

ii)

Although the First OEM Contract was concluded on 9 September 2009 no application was made until 14 October 2009. Had the application really been awaiting the conclusion of that contract one might expect it to have been made much more swiftly than it was.

iii)

Neither the relevant contract with FNR nor the First OEM Contract have been put in evidence. Although Mr. Siddiqi asserts that, as result of these contracts, FNT will be funded by the cash flow generated by FNR this assertion cannot be tested or verified in the absence of the contractual documentation that is clearly available. Although the First OEM Contract is alleged to be confidential I was informed by Mr. Willson, counsel for the Applicants, that no attempt has been made to obtain a waiver of that confidentiality to enable the contract to be revealed to the court in these proceedings. Indeed even a redacted version, such as was apparently shown to Mr. Justice Teare, has not been produced. Given the doubts raised by Mr. Justice Teare in the Second Judgment regarding the reliability of Mr. Siddiqi’s evidence and my own similar reservations, as a result of the analysis set out above and below, this is a significant omission.

iv)

It is unclear precisely what cash flow will be produced under the alleged contract between FNT and FNR. In the Second Judgment, at paragraphs 30-31, reference is made to cash flow schedules showing that there would be a cash flow deficit of £5m. by August 2010 if the Metrocab venture was funded. It remains obscure as to how this was to be fully covered other than by reducing or eliminating funding on the Metrocab venture. In the witness statement of Mr. Chia reference is made to a second Original Manufacturers Contract (“the Second OEM Contract”) of 1 April 2010 but once again it has not been produced. The only funds referred to as having been paid under this contract have allegedly been paid into court to satisfy the condition imposed in the Commercial Court Proceedings.

26.

In the circumstances I am not satisfied that there is any good explanation for the failure to comply with the prescribed timescale for an application for rescission.

27.

Factor (e): Beyond the late service of the witness statement of Mr. Chia, which I do not consider to be a significant matter in this context, no breaches of other rules or practice directions or court orders has occurred on the part of the Applicants.

28.

Factor (f): There has been no suggestion that the delay in making the applications was the fault of the Applicants’ legal representatives as opposed to that of the Applicants themselves.

29.

Factor (g): This is not relevant.

30.

Factor (h): It seems to me that the main effect of the failure to comply has been the added period of uncertainty thereby created for creditors and the joint liquidators in respect of the status of Metrocab and FNT. Although the joint liquidators have carried out some work, in particular in reporting to the court on the financial position and other matters affecting the solvency of each company, in accordance with an order of Mr. Registrar Simmonds dated 21 October 2009 (apparently relating to both companies although I have only seen an order relating to Metrocab), the Registrar requested that the work carried out should be proportionate. In their reports the joint liquidators have indicated that further work could have been done. If the applications were unsuccessful the period for a fuller investigation would have been delayed. If the applications were successful costs would have been incurred unnecessarily. Although the Applicants have agreed to pay the joint liquidators’ reasonable costs they have concerns over the level of those costs and reserve the right to have them assessed. This then creates the prospect of further expenditure being incurred on a contested assessment not all of which may be recoverable.

31.

Factor (i): The effect of the granting of relief to the Applicants would of course be to allow them to have their applications determined. It has not been suggested that the grant of an extension of time would cause further prejudice to the respondents or creditors generally beyond that set out above.

32.

Having regard to all of these specific factors, in my judgment the balance comes down against the grant of an extension of time. Of particular significance in this regard is that the delay was intentional and without any proper justification. If I had regard to the underlying merits of the application my conclusion that an extension should not be granted would follow as a matter of course, a subject to which I now turn.

The Merits of the Applications to Rescind

(1)

Relevant Principles

33.

Rule 7.47(1) of the Insolvency Rules 1986 provides that:

“Every court having jurisdiction under the Act to wind up companies may review, rescind or vary an order made by it in the exercise of that jurisdiction”.

34.

Until this rule came into force a winding-up order could not be rescinded. The winding-up proceedings could only be stayed (see Re Intermain Properties Ltd. (1985) 1 BCC 99,555 and Re Calmex Ltd., supra at 762). By contrast a provision for rescission had existed under the pre-existing bankruptcy legislation (see section 108(1) of the Bankruptcy Act 1914).

35.

It might have been thought that the principles applicable in the context of applications for a stay of winding-up and under prior bankruptcy legislation would provide some relevant guidance for the exercise of the court’s power under rule 7.47. However:

i)

As noted by Judge Colyer QC (sitting as a Judge of the High Court) in Re Piccadilly Property Management Ltd. [1999] 2 BCLC 145, at 163:

“...a distinction falls to be drawn between, on the one hand, post-1986 cases concerning stays, other than those cases where a stay is applied for because it is too late to seek rescission, as would have been the case in Re Lowston [1991] BCLC 570, to which I shall be referring, and pre-1986 stay cases which have to be examined carefully to see whether after 1986 they would have been or could, if the application had been commenced in a later era, be cases involving review and rescission. I accept therefore that it would be easier today to obtain the review and rescission of a winding-up order than usually it is to obtain a stay, and usually than it was before 1986 to obtain a stay”; and

ii)

As Peter Gibson J. in Re Virgo Systems Ltd., supra, at 834, explained, in bankruptcy under the old legislation, the court had regard to the principles on which the court would annul an adjudication under section 29 of the 1914 Act and that does not provide a safe guide for the exercise of the court’s discretion in relation to companies.

36.

More recent decisions in bankruptcy under the equivalent provisions regarding rescission in section 375 of the Insolvency Act 1986 do provide assistance. Gathering together the authorities on that provision together with those directly related to rule 7.47 as well as the pre-existing power to stay a winding-up order (whilst applying the distinction noted by Judge Colyer QC in Re Piccadilly Property Management Ltd.), the position appears to be as follows:

i)

The power to rescind is discretionary and is only to be exercised with caution (see Re Dollar Land (Feltham) Ltd., at 748D; Re Piccadilly Property Management Ltd. [1999] 2 BCLC 145 and Wilson v. Specter Partnership [2007] BPIR 649, at 658);

ii)

The onus is on the applicant to satisfy the court that it is an appropriate case in which to exercise the discretion (see Papanicola v. Humphreys [2005] 2 All ER 418, at 424);

iii)

It will only be an appropriate case where the circumstances are exceptional and the circumstances relied on must involve a material difference from those before the court that made the original order. There is no limit to the factors that may be taken into account and they can include changes that have occurred since the making of the original order and significant facts which, although in existence at the time of the original order, were not brought to the court’s attention at that time. Where the new circumstances relied on consist of or include new evidence which could have been made available at the original hearing, that, and any explanation the applicant gives for the failure to produce it then or lack of such explanation, are factors to be taken into account (see Papanicola v. Humphreys, at 424-425; and Mond v. Hammond Suddards [2000] Ch. 40, at 49, a review case, applied in the context of a winding-up rescission application in Re Turnstem Ltd. [2005] 1 BCLC 388);

iv)

The circumstances in which the court’s power will be exercised will vary but generally, where the rescission application (as here) involves dismissal of the winding-up petition so that the company in question is free to resume trading, the court will wish to be satisfied that:

a)

The debt of the petitioning creditor has been paid or will be paid, that the costs of the Official Receiver (or any liquidator appointed) can be paid and that the company is solvent at least on the basis that it can pay its debts as and when they fall due (see Re Dollar Land (Feltham) Ltd., at 748);

b)

The application has not been presented in a misleading way and the court is in possession of all material facts and has not been left in doubt (see Re Turnstem Ltd., at 408g);

c)

To use the language of Buckley J. in Re Telescriptor Syndicate Ltd. [1903] 2 Ch. 174, at 182, “all the facts are as I hope they are; that the trading operations of this company have been fair and above board” (see Re SN Group Plc [1994] 1 BCLC 319, at 326 and HM Revenue & Customs v. Cassells [2008] EWHC 3180, paragraph 34). The court would therefore generally need to be satisfied that there is nothing that requires investigation of the affairs of the company (see Re Dollar Land (Feltham) Ltd., at 748). In cases such as Re Lowston Ltd. [1991] BCLC 570 (applied in Re Piccadilly Property Management Ltd., at 169) the court has talked of “shady practices”, “unattractive incidents” or dealings of a curious nature which raise suspicion and require investigation; and

d)

There are no other cogent reasons for not making the order sought (see Re Piccadilly Property Management Ltd., at 163h).

(2)

The Present Applications

37.

Applying these principles I am satisfied that it would not be appropriate to accede to the present applications.

38.

First, I am not satisfied that this is an exceptional case in which the circumstances relied upon are materially different from those before the courts making the original orders:

i)

The sole basis on which it is said that this is an exceptional case is that the First and Second OEM Contracts have now been concluded and they were not in place at the time of the winding-up orders. It is said that the effect of these contracts is that Metrocab and FNT can now pay all of their undisputed debts as they fall due and have a viable future for their businesses.

ii)

The Registrar, when considering whether to make winding-up orders was told of the impending conclusion of at least the First OEM Contract. He declined to adjourn the petitions further to allow this to occur and for funds to be realised thereby.

iii)

I have not been shown the First or Second OEM Contracts, even in redacted form, and have not seen any of the terms under which funding is to be raised. Neither Metrocab nor FNT are presently parties to these contracts and no related contracts are in evidence between these companies and FNR or any other entities of Mr. Siddiqi entitling them to the provision of financial support or revenue derived from the First and Second OEM Contracts.

iv)

In essence the situation is not significantly different from that which pertained before the Registrar. Before the petitions were finally determined Mr. Siddiqi had the wherewithal to provide financial support to both Metrocab and FNT (see the matters set in paragraph 24(i) above). This remains the position albeit that certain of his group companies now have had their resources supplemented by the funds provided under the First and Second OEM Contracts. All that may have altered is a change of mind on the part of Mr. Siddiqi about providing the required financial support. Such a change of mind does not in my judgment constitute an exceptional case or the type of change of circumstances warranting rescission of the winding-up orders. A comparable situation is that of Re Turnstem Ltd. where a change of mind on the part of the applicant concerning his defence to the petition debt was not considered to be an exceptional case.

39.

Second, although adequate provision does appear to have been made to meet the petition debt and the amounts due to creditors whose debts are undisputed, I am not satisfied that sufficient protection has been offered in connection with the costs of the Liquidators or that Metrocab and FNT will be able to meet their debts as they fall due were the winding-up orders to be rescinded and these companies permitted to continue trading having regard to the following:

i)

Mr. Willson has helpfully provided a note setting out the sums held by or to the order of Messrs. Pitmans, solicitors for the Applicants totalling £1,104,997.90. This sum is designated to cover the debts due to HMRC for which proofs have been submitted in the sums of £235,811.58 in connection with Metrocab (although this figure may be the subject of revision downwards to £214,845.58) and £381,292.66 in connection with FNT (although this figure may also require adjustment downwards to £357,639.16) . Provision has been made for the costs of HMRC in a sum of £5,000 for each company. It also provides for sufficient funds to meet debts due to local authority and trade creditors leaving £255,000 by way of working capital for the companies (£150,000 for Metrocab and £105,000 for FNT) and a balance of £175,000 for costs, of which £25,000 is held by the Liquidators to the order of Pitmans and £50,000 is held by Pitmans themselves as security for costs. The figure for working capital may be higher as a result of recent payments to trade creditors, which has reduced the figure owed by FNT from £75,762.25 to approximately £4,000.

ii)

Metrocab needs to acquire further stock and equipment in order to start business in accordance with its business plan. The amount required is calculated to be £225,859. In addition the salary expenditure or “burn rate”, as it is put in the business plan, in the first six months would be in the order of £150,000 to which would have to be added other overheads such as rent due in the initial period of trading in which little income is anticipated. In the case of FNT, according to its 2009 forecast it is anticipated to have a monthly salary liability or “burn rate” of £46,093 giving an annual figure of £525,698. No other ongoing liabilities have been provided for. Having regard to the figures, the working capital available to Metrocab through Pitmans would be inadequate to meet its initial anticipated expenditure and cash requirements. Similarly the cash and expenditure requirements of FNT could not be met from the funds for working capital allocated to it at Pitmans without the existence of substantial income from its only anticipated customer, FNR.

iii)

Under the 2009 business plan for Metrocab and according to the evidence of Mr. Chia, its immediate activity is intended to be after-sales support for existing diesel Metrocab taxis. This has not historically been profitable. According to the financial results for the year ended 30 June 2008 the operating loss from this activity was £562,571 and in 2006 and 2007 even larger losses appear to have been incurred of £646,001 and £723,231 respectively. Although the business plan suggests it would break even in the first year of re-started operations and achieve a profit of £87,479 in the second year based on “a conservative estimate” it is unclear how this estimate takes account of past performance. There is simply a general statement by Mr. Siddiqi in his fourth witness statement that the 2008 results were unaudited and that the company’s resources were more focussed on the development of hybrid taxis and maintenance and upkeep of premises and assets with sales of spare parts being kept to a minimum. The trading history of Metrocab gives rise to the real prospect that the company will be re-starting a loss making activity for which there is inadequate funding available from the sums held by Pitmans.

iv)

In so far as Metrocab is to engage in the production of a hybrid taxi, from the information provided to the Liquidators this would require a licence and expenditure of some £12m. over one or two years. It is unclear how this cost is to be funded whether by the OEM Contracts or otherwise.

v)

In relation to FNT, its future income depends upon the success of FNR. According to the Liquidators’ report regarding FNT, the last publicly available financial statement for FNR to 30 June 2008 shows that it made an operating loss of £2,560,632 and had net liabilities of £28,177,339 (albeit Mr. Siddiqi says that £25,288,729 is owed to a group company and is not due until FNR is in a financial position to repay it). Of course these accounts pre-date the execution of the First and Second OEM Contracts which appear to involve FNR. However, as set out in the Second Judgment, paragraph 30, there is an anticipated deficit in relation to the hybrid taxi venture, even with the funds made available through the First OEM Contract, of almost £5m. by August 2010. Although the Second OEM Contract has since been concluded, the only sums known to have been raised under it have been paid into court to meet the conditions imposed in the Commercial Court Proceedings. To the above must be added the fact that FNR has also recently been the subject of a winding-up petition by HMRC in respect of a debt of £567,732.43 albeit the petition debt was paid on 13 May 2010 so as to ensure the petition is dismissed.

vi)

I have been informed that the Liquidators’ costs now amount to approximately £260,000 in aggregate. Although the Applicants reserve the right to have these costs assessed the Liquidators contend that their costs are entirely reasonable and proportionate. The security currently provided for these costs, even with the remaining sums earmarked for costs at Pitmans, is inadequate to cover the sum potentially due to the Liquidators if they are correct in their contentions.

40.

Although it is possible that further funding might be made available by Mr. Siddiqi or his companies to meet any ongoing solvency and liquidity issues of Metrocab and FNT I have concluded that this would be far too uncertain a basis on which to proceed to rescind the winding-up orders. The failure of Mr. Siddiqi and his companies to provide such funding in the past so as to avoid the making of the winding-up orders and the apparent shortfall in funds available to advance the hybrid taxi project to a conclusion, even after execution of the First and Second OEM Contracts, does not inspire confidence.

41.

In coming to the above conclusions on the solvency of Metrocab and FNT I have not taken into account the disputed debts alleged to be due to the Triomphe Parties and to SMP. Of course if such debts were taken into account both companies would clearly be heavily insolvent. The decision in Wilson v. Specter Partnership, at 659, suggests that an application to rescind could be brought where there were new grounds available to show that the petition debt was bona fide disputed on substantial grounds. If it is correct that a rescission application could be mounted on this basis, it would be odd if the court, in considering the solvency of the company in question, could then properly take the disputed debt into consideration again. In my judgment it would not be right to take the debts allegedly due to the Triomphe Parties and SMP into account if they are genuinely disputed on substantial grounds. I have concluded that there is such a dispute in connection with the claims of the Triomphe Parties given that summary judgment has been refused in the Commercial Court Proceedings. Although the defence in those proceedings was described as very weak indeed by Mr. Justice Teare in the First Judgment he nevertheless concluded that it was not unreal or fanciful and directed the issues to be tried.

42.

I have also concluded that there is a substantial dispute between SMP and Metrocab. SMP claims that it has a debt of £309,137.06 consisting of £109,770.18 for rent arrears and unpaid service charges up to 28 April 2009, a claim for damages amounting to £56,997.59 in respect of unpaid rent and service charges in the period from 29 April to 28 September 2009 and a dilapidations claim amounting to £142,389.29. In response the Applicants say that the rent arrears claim ignores the payment of a three months rent deposit. Although various points were advanced regarding inconsistencies in the evidence of Mr. Siddiqi and Mr. Chia on this topic and the timing of it being raised, in my judgment these matters cannot be resolved on the basis of conflicting witness statements and require determination at a trial. The Applicants deny that they are liable in damages for failing to vacate the Premises. They say that they were not permitted to obtain access to remove assets located at the Premises. Once again, although points were made regarding correspondence of Metrocab only referring to access being obtained with respect to a hybrid taxi, I consider this to be a matter which will have to be resolved at a trial. The same goes for the dispute over dilapidations which appears to revolve around detailed questions of whether works carried out at the Premises following re-entry were improvements or repairs. Finally, I should add that a cross-claim for damages, said to exceed any amount properly due to SMP, is advanced by Metrocab that raises serious issues over whether items located at the Premises were removed and sold by SMP at undervalue. This raises difficult issues over the ownership of the assets disposed of, their value and the precise nature and extent of the duty owed by SMP in relation to the assets. The Applicants’ contentions on such matters cannot be dismissed summarily. They require to be tried.

43.

Third, I have concluded that the evidence served in support of the applications has been presented in a misleading way and the court has not been provided with all the material facts. By way of illustration:

i)

The initial witness statements of Mr. Siddiqi were wholly inadequate in providing sufficient information regarding the financial position of each of Metrocab and FNT, hence the direction of Mr. Registrar Simmonds for the filing of reports by the joint liquidators.

ii)

Importantly the evidence of Mr. Siddiqi failed to provide details of a funding shortfall for the hybrid taxi project of £5m., or of how it might be met, after taking account of expected proceeds from the First OEM Contract. On the contrary he provided a misleading impression by stating that the First OEM Contract would “put the group back into a sound financial basis” and “will generate sufficient group revenue in excess of several million Euros and sufficient to fund group cash flow requirements”. As noted by Mr. Justice Teare in the Second Judgment, this is a disturbing aspect of Mr. Siddiqi’s evidence. I regret to note that, despite Mr. Justice Teare’s observations (some three months ago), no attempt was made to correct the misleading impression given prior to this matter coming on for hearing.

iii)

Neither of the OEM Contracts have been produced in evidence despite their apparently central importance. It is asserted that the reason for this is the existence of confidentiality obligations to the “OEM in question”. However, as mentioned above, when I asked Mr. Willson whether the Applicants had made any attempt to obtain a waiver of any such obligation to enable the court to see the agreements I was told that they had not.

iv)

Mr. Siddiqi has provided a considerable amount of evidence regarding his dispute with the Triomphe Parties. In his fourth witness statement in the Metrocab application Mr. Siddiqi appears to be contending that a shareholders loan from the Triomphe Parties of £3,912,063 was somehow agreed to be due to a company called Ecotive Limited and was not properly due to the Triomphe Parties. He failed to disclose that this forms no part of his defence in the Commercial Court Proceedings which encompass the same lending.

v)

In his initial statement in the Metrocab application Mr. Siddiqi asserted that HMRC were the sole creditor of the company when in fact, as he admitted in his third witness statement, he himself had made loans of £3,864,801.29 and there were others debts due to a local authority and trade creditors.

vi)

In his initial statement in the FNT application Mr. Siddiqi provided a list of creditors. As he himself admitted in his second statement in that application, he omitted loans from himself and group companies totalling £3,932,964. The list provided also suggested the aggregate debt due to creditors was £90,046.97. The Liquidators’ report on FNT then revealed that the level of debt to trade creditors alone was £126,381.

vii)

In his fourth witness statement in the Metrocab application Mr. Siddiqi asserted that engines at the Premises were paid for by associated companies. By contrast, when asked by the Liquidators about the same engines, he asserted that the money to buy the engines had been provided by Metrocab.

viii)

Mr. Siddiqi informed the Liquidators that Metrocab did not own the hybrid technology and that the only way in which that company would be viable would be if it received a licence to use the technology. Such information was omitted from Mr. Siddiqi’s evidence in support of the application.

44.

Fourth, I am not satisfied that Mr. Siddiqi, and those acting on his behalf, have fully co-operated with the Liquidators and I accept that the Liquidators have properly concluded that there are a number of matters that warrant further investigation. Again by way of illustration:

i)

I refer to the information provided to the Liquidators set out above that has been contradicted by the contents of Mr. Siddiqi’s witness statements.

ii)

The Liquidators were told by Mr. Chia that Metrocab had acquired certain technical drawings at a cost of £3.5m. They therefore requested copies of the various drawings and design work purchased. None have been provided.

iii)

The Liquidators’ report records a number of transactions in the nominal ledger of Metrocab as being amounts paid to or received from Mr. Siddiqi. A schedule has been provided showing £1,324,104 received in the period between 24 December 2007 and 30 June 2008 and a further £2,540,697 between 1 July 2008 and 30 June 2009. The Liquidators have been unable to trace all of these transactions to the company’s bank account and in a number of cases the amounts shown on the ledger as received from Mr. Siddiqi are shown on the bank statements as received from others.

iv)

Contradictory information has been provided to the Liquidators as to the ownership of a prototype hybrid taxi. On the one hand it has been said by Mr. Chia to belong to FNT and on the other hand it has been said by Mr. Siddiqi to belong to FNR.

v)

Some £3,889,150 has been paid by Metrocab to FNT which has yet to be accounted for. There are also substantial payments to other related parties of £1,738,415 which are yet to be accounted for. Mr. Siddiqi has asserted that the payments were to reimburse FNR for costs incurred on its behalf and to reimburse salaries and operating costs paid on its behalf by FNT and other group companies. Such assertions need to be investigated and tested.

vi)

There is a debt of £2m. from Metrocab on an Ecotive Limited balance sheet which is not on the Metrocab balance sheet as a liability. Mr. Siddiqi has provided an explanation which appears to involve the transfer of a receivable from the Triomphe Parties to Ecotive Limited. The explanation is not easy to understand and warrants proper investigation.

vii)

The Liquidators have identified payments totalling £992,025 from FNT to Mr. Siddiqi within one year of the winding-up order and when PAYE and national insurance contributions were not being met. Mr. Siddiqi claims that this was a repayment of funds he had invested although he accepts that repayments of this type were not always “channelled through the appropriate group company”. These matters require investigation.

viii)

There have been significant cash payments made to or on behalf of Mr. Siddiqi or FNR. These have included a deposit on an aircraft of £539,928 and a payment to a Ferrari dealership of £90,000. Such payments call for an explanation which has yet to be provided.

45.

Fifth, I have grave doubts as to the purposes behind the applications. In relation to Metrocab Mr. Siddiqi has explained in his evidence that the purpose of the applications is to allow Metrocab to continue the development of a hybrid taxi, to allow the provision of after-sales support to owners and operators of the existing Metrocab taxis on the market and to allow the company to continue the employment of 12 skilled or semi-skilled workers. Mr. Siddiqi states that he is committed to provide the necessary financial support himself or via an associated company (which is apparently FNR). However:

i)

It is unclear to me why the development of a hybrid taxi must be carried out by Metrocab as opposed to another of Mr. Siddiqi’s companies. Although Mr. Siddiqi has referred to Metrocab being one of two approved manufacturers of purpose-built taxis and to the demise of Metrocab leaving the other approved manufacturer in a monopoly position he has not explained how the approval process works and why there is any obstacle to another company in his group obtaining the necessary authorisation. I note that the First and Second OEM contracts have apparently been made and substantial funds obtained as a result despite Metrocab being in liquidation. There has been no suggestion that the funding would cease if the applications were unsuccessful. I also note that, as recorded in the Liquidators’ report, Mr. Siddiqi informed them “we can do a hybrid taxi without the Metrocab name, because its been into receivership many times in the past few years, and you don’t need a name in the mud but still it has some name”.

ii)

As I have already mentioned, according to the information that Mr. Siddiqi supplied to the Liquidators (as recorded in their report) Metrocab does not own the hybrid taxi technology and the only way the company would be viable would be if a licence was granted to Metrocab. It would also take investment of about another £12 million to get the hybrid taxi to market through Metrocab.

iii)

Metrocab no longer has any stock available to it to supply nor any equipment, these having been disposed of by SMP. It would have to acquire assets and premises from which to trade. It would therefore largely be starting from scratch.

iv)

After-sales support for existing diesel Metrocab taxis has not historically been profitable according to the available financial results for Metrocab.

v)

Mr. Siddiqi refers to the workforce of both Metrocab and FNT having apparently been kept engaged in some way with their salaries being met by Mr. Siddiqi himself. There is nothing to suggest that such employees could not be engaged by one of Mr. Siddiqi’s other group companies if the future business proposed for Metrocab was in fact carried on elsewhere within the group.

All of the above suggests little in the way of a commercial rationale for the substantial level of investment required from Mr. Siddiqi or his group of companies to re-establish the business of Metrocab.

46.

There are similar questions in connection with FNT which appears simply to have an available work force and no significant assets or premises. It is unclear why the work force could not be engaged by another company in the group.

47.

To the above must be added the fact that several months have now passed since these proceedings commenced without any application for expedition which raises a question as to whether there is any genuine need or concern to reinstate the business of Metrocab and FNT.

48.

This leads on to consideration of whether there is any other explanation for the applications. In this regard it is notable that the applications to rescind were made within a few days of the appointment of the Liquidators. In the absence of any other satisfactory explanation an inference that might reasonably be drawn is that the applications were brought in order to prevent any proper investigation of the affairs of Metrocab and FNT. That inference becomes stronger once the number of matters warranting investigation becomes apparent (as set out above). The doubts thereby raised, which have not been dispelled by the Applicants’ evidence is, in my judgment, a further reason for not acceding to the applications.

49.

Finally, although it has been suggested that the rescission application would allow Metrocab and FNT to defend themselves properly in the Commercial Court Proceedings and Metrocab to recover its assets and those of other group companies and company staff from SMP I have not found this convincing. I do not accept that the Commercial Court Proceedings cannot be effectively defended by the Liquidators if it is appropriate to do so. Even if they had only limited resources Mr. Siddiqi would remain a defendant and they could either simply adopt his defence or not admit the claims brought in the light of that defence. In relation to the claims against SMP these ought to be capable of being made by the Liquidators of Metrocab in respect of its assets and, in so far as necessary or appropriate such claims could be assigned to Mr. Siddiqi or one of his companies or elsewhere. Claims by other group companies or staff can be brought by those persons themselves.

Conclusion

50.

I will therefore dismiss the applications. I will hear counsel on any consequential or further directions that may be required in the light of this judgment.

Metrocab Ltd & Ors, Re

[2010] EWHC 1317 (Ch)

Download options

Download this judgment as a PDF (482.3 KB)

The original format of the judgment as handed down by the court, for printing and downloading.

Download this judgment as XML

The judgment in machine-readable LegalDocML format for developers, data scientists and researchers.