Metrocab Ltd & Ors, Re

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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 25^th 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.

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.

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”.

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.

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.

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.

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.

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”.

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).

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.

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.

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”.

Taking each of these matters in turn:

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:

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.

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.

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.

Factor (g): This is not relevant.

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.

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.

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.

Relevant Principles

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”.

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).

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:

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:

The Present Applications

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

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:

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:

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.

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.

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.

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:

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:

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:

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.

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.

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.

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.

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.