Ingram v Singh & Ors

This judgment is arranged under ten headings as follows:

Introduction

The application

The hearing

The witnesses

The missing witnesses

De facto directorship

The preference claim

The undated credit note for £996,494.63

The three cash payments of £60,000, £15,000 and £61,478.23

The claim for an account

This is my judgment on the hearing of an application by the liquidator, Mr David Ingram of Grant Thornton, dated 20 September 2016 and issued on 27 September 2016, in relation to the affairs of MSD Cash & Carry PLC (‘MSD’). The applicant liquidator is represented by Mr John Briggs (of counsel) instructed by Boyes Turner. The respondents are represented by Mr Jeremy Cousins QC leading Mr Andrew Brown (also of counsel), instructed by Rainer Hughes.

On 12 September 2011, a petition to wind up MSD was presented by BDO Stoy Hayward LLP founded on a statutory demand sent to the company on 2 September 2011 in respect of unpaid professional fees. The winding up petition was served on the company on 14 November 2011 and the winding up order was made on 16 January 2012. Mr Ingram was appointed the liquidator of the company on 27 January 2012 on the application of the Official Receiver. MSD had been incorporated on 6 March 1995 and had traded as a wholesale alcohol cash and carry business. From about 2002, it had also traded in excise duty-suspended alcohol products held in bonded warehouses, notably in Seabrooks, before delivery to UK customers.

The respondents’ position is that from about March 2010 onwards, MSD’s trade purchases and sales were solely in respect of duty-suspended stock held in bonded warehouses or under-bond trading and that it had ceased to trade in domestic cash and carry sales. However, I find as a fact on the evidence that, as contended by the liquidator, from about March 2010 onwards, MSD also continued, albeit to a lesser degree than before and to a varying extent from time to time, to purchase some alcohol goods on behalf of another family-owned and operated company, Dale Wholesale Limited (‘Dale’), the fifth respondent, for the purposes of the latter’s cash and carry business which it had taken over from MSD. MSD continued to do so because it had established a commercial reputation and enjoyed beneficial credit terms with suppliers.

MSD was one of a number of family-owned and operated companies which traded in the Medway area of Kent. The head of the family is the first respondent, Mohinder Singh, to whom, without any disrespect, I shall refer as ‘Mohinder’, who is now 86 years of age. He owned the majority of the shares in MSD, with the remainder being held by his wife, Mrs Bakshish Kaur. Mohinder acted as the managing director of MSD from February 2000 until he resigned on 6 June 2011 at the age of 79 because his health was said to be being affected by disruption to MSD’s business caused by ongoing investigations and enforcement action, dating back to about July 2004, on the part of HMRC in relation to the alleged smuggling of commercial quantities of alcohol into the UK and the large-scale evasion of excise duty and VAT payable on wines, beers and spirits.

MSD’s only other director for almost the whole of the period with which the court is concerned was the third respondent, Mrs Kuldip Basi, who is now in her late 40s. She was reappointed a director of MSD on 15 January 1997 and she served until her resignation on 9 March 2011; but it is common ground, and, if it is not, I find as a fact, that Mrs Basi played no active role in MSD apart from, by way of example, signing off MSD’s audited accounts for the year ending 30 April 2008 on 27 November 2008 due to Mohinder’s absence on an extended visit to India, and Mrs Basi had little, if any, real knowledge of MSD’s affairs. In her evidence, she described her appointment as “a statutory requirement”. Mrs Basi was principally involved in her own company, Medway Soft Drinks Limited, which traded from another part of the same warehouse premises that MSD occupied (until March 2010) at Second Avenue Industrial Estate, Chatham.

The fourth respondent, Mrs Baljit Kuman, Mohinder’s elder daughter, who is now in her early 50s, served as MSD’s company secretary from 3 August 2000 until 16 December 2011. Mrs Kuman also served very briefly as the director of MSD from 23 November until 6 December 2011. She was appointed when it was appreciated, as a result of insolvency advice taken following the service of the winding up petition, that MSD had been operating without any director since Mohinder’s resignation on 6 June 2011. Mrs Kuman resigned both as company secretary and as MSD’s sole director on 16 December 2011 following a creditors’ meeting on the same day when it became apparent that MSD would not be able to move into creditors’ voluntary liquidation, as it had wished, because HMRC, as the company’s principal creditor, preferred a member of Grant Thornton to be appointed as liquidator rather than MSD’s nominee, Mr John Kelmanson.

The second respondent, Surjit Singh Deol, to whom again, with no disrespect, I shall refer as ‘Surjit’, is Mohinder’s younger son, now aged 50. There is an older son, Manjit, but he has played only a very minor, and peripheral, part in the events leading up to the present application following an apparent family falling out many years ago. However, I find that in November 2011 Manjit did collect the company’s books and papers from the company’s accountants, damaging his Bentley motor car in the process. The respondents’ position is that Surjit was merely employed by MSD as a buyer and manager but that he did not control the administrative elements and affairs of MSD reserved to its directors. It is the applicant’s case that Surjit was a de facto director of MSD at all material times.

It is necessary for me to address two further family companies. I have already mentioned one of them. Dale was incorporated on 14 October 2009 and it specialises in the wholesale cash and carry trade in alcohol products. At all times material to the present application, Dale’s shares were held equally by Mohinder and his wife, Mrs Bakshish Kaur, who is now aged 76. She was appointed as Dale’s sole director on 14 October 2009 and she resigned on 6 June 2011, although she signed off Dale’s accounts for the period between 14 October 2009 to 31 March 2011 on 13 June 2011. By then, she had been replaced as sole director by Surjit’s wife, Mrs Raminder Deol, who is now aged 44 and was appointed as a director on 1 June 2011.

In about 2013, Mrs Kaur transferred her 50% shareholding in Dale to Mrs Deol. At all material times, Surjit has worked for Dale as its buyer. In or about March 2010, MSD ceased largely to trade in the cash and carry business, at least on its own account, and it sold its existing stock to Dale. Dale took over MSD’s cash and carry warehouse at Second Avenue Industrial Estate in Chatham, and MSD moved to Bowen House in Gillingham.

The other family company is Lionheart Limited (‘Lionheart’). It was incorporated on 25 April 2007. Its first directors were Mohinder and his wife and they were the two equal shareholders. Mrs Kaur resigned as a director on 1 March 2012 but she was reappointed on 1 May 2014 when Mohinder resigned as Lionheart’s continuing director. According to Mrs Kuman’s fourth witness statement (produced during the course of the trial and dated 22 January 2018), the purpose of incorporating Lionheart was to create a non-trading limited company which would hold the various motor cars belonging to family members and their companies so that they might make use of a less expensive block fleet insurance policy. The company’s stated purpose on the Companies House information form was “the sale of other motor vehicles”, which Mrs Kuman understood was the specific numbered category closest to the family’s real purpose of “the holding of motor vehicles”.

In its original form, and so far as now material, the liquidator’s application advanced in summary the following claims, as identified by the respondents’ counsel in their written closing:

In addition, the applicant had originally sought, by paragraphs 5 and 7 of his application notice, to advance a claim that three credit notes in sums of £34,317.27, £42,925.86, and £39,272.85 issued by MSD to Dale and posted on the latter’s purchase ledger on 31 October 2011 were also void dispositions, transactions at an undervalue, or transactions defrauding creditors. On the first day of the trial, counsel for the applicant indicated that he was no longer pressing a claim in respect of these three credit notes, although he submitted that their subject matter should fall within the scope of the general account the liquidator was seeking. Mr Briggs expressly accepted that Surjit’s fourth witness statement provided compelling evidence of Dale’s entitlement to all three credit notes. The respondents rely on this concession as supporting their case, in relation to the disputed credit note, that Dale had objected to, or had rejected, stock supplied by MSD on the grounds that it was out of date or near end date.

In his written closing, the liquidator accepted that the oral evidence in the proceedings indicated that Mrs Kuman was unaware of the credit note until subsequent inquiries, despite what would appear to have been the case from her written evidence. The liquidator also accepted in closing that in the light of the oral evidence, his claim for an account could only realistically be directed at Mohinder and Surjit. He acknowledged that it appeared that neither Mrs Basi nor Mrs Kuman had had company funds under their control, nor any knowledge of the use of company funds. In his oral closing, Mr Briggs abandoned his claims against Mrs Basi and Mrs Kuman in their entirety.

The respondents join issue with the applicant on all elements of the claim. Regarding the preference claim, it is said that MSD made no preference in favour of Mohinder as MSD was not influenced by a desire so to prefer him. Regarding the credit note for £996,000-odd, it is said that this was issued prior to presentation of the winding up petition, and was justified because MSD had failed to supply goods to Dale to the value of £924,412 and had supplied goods valued at the balance of £72,082 which were damaged, out of date, or over charged. It is said that there is no demonstrated linkage of delinquent conduct to any director or officer of MSD. If the credit note was not justified, it is said that it has not been established that MSD’s position has been prejudiced as against Dale due to Dale’s inability to indemnify the full amount claimed.

Regarding the three cash payments, it is said that they cannot be void dispositions as they were made in April and August 2011, prior to the presentation of the winding up petition. It is also said that such payments were used to pay third party suppliers for goods supplied. The entries into the ledger in October 2011 are said to have been merely delayed record-keeping. Even if the payments were made after the presentation of the petition, it is said that they cannot be void payments because they were not dispositions of MSD’s property and left its net asset position precisely the same.

Finally, and regarding the claim for an account, it is said that the respondents have given the best account possible. No profits during the relevant time have been demonstrated, and an account is therefore unnecessary.

The respondents conclude by submitting that the applicant has failed to make out essential elements of each aspect of his case. In relation to the preference claim, it is said that there was never any operative influence other than the desire to implement a policy of vehicles being held in Lionheart. As to the credit note, it is said that there is compelling material to demonstrate that it was properly issued and that there was no misfeasance in issuing it. There is said to be good evidence that cash payments were made by Dale, and even if made post-petition, they could not constitute void dispositions. Finally, it is said that the applicant has failed to demonstrate that any account is likely to be productive, especially in the light of his ability to calculate his claim on the material which he already has available to him.

As the trial proceeded, and beginning (according to my notebook) on the afternoon of Day 2, and thus (perhaps significantly) just after the sixth anniversary of the order for the compulsory winding up of MSD on 16 January 2018, Mr Briggs, for the applicant, produced a series of proposed amendments to paragraphs 1, 8, and 10 of the application notice. These were subjected to a process of refinement, and final iterations were only produced on the morning of the second day of closing speeches. The respondents object to aspects of these amendments and say that they should be refused for two reasons, which were identified and addressed at paragraphs 11 to 21 of the respondents’ written closing, and were further developed in oral submissions.

In summary, it is said by the respondents that the proposed amendments should be refused for two reasons. First, because the applicant is said to assert new, time-barred causes of action on new facts so that no amendment can be properly allowed, and secondly, as a matter of discretion, because the amendments are said to come too late and ought not fairly to be permitted. The present paragraph 1 is said to be based only upon a preferential transaction concerning motor vehicles whereas the amendment relates to payment of monies by way of dividend or otherwise.

Paragraph 8.2 of the existing application notice is said to be based upon receipt of monies under a void disposition. The amendment to that subparagraph is said to relate to payment of those monies away to a third party. No allegation of payment away to a third party featured in the original wording, nor was there any allegation of misfeasance or other breach of duty. Receipt of monies, on the one hand, and their payment away to third parties in the course of conducting MSD’s business, on the other, are said to be factually distinct situations. The amendments cannot be said to arise from the same, or substantially the same, facts, and are now said to be statute-barred.

On the issue of discretion, there are said to be two aspects to this. First, that Mohinder, who was not present during the trial, has had no opportunity to explain or develop his case by reference to the amendments. Secondly, that proper case management considerations demonstrate that the amendments should not be allowed. It is said that the amendments were made inexcusably late and only following consideration of the respondents’ opening submissions. The applicant has been in office for more than six years. All of the material facts have been, or should have been, known to him many years ago. The facts upon which the liquidator relies to justify the paragraph 1 and 8 amendments were known to him, at the latest, from the time when the supplemental Scott schedule was answered since it is upon information provided in some of those answers that the applicant now seeks to base his case.

The paragraph 10 amendments are sought not because new material has come to light but because of the applicant’s desire to refashion the manner in which his case is put. It is said that no explanation has been advanced as to why it has taken the applicant so long to appreciate the nature of the case that he now wishes to advance.

It was common ground that the Civil Procedure Rules and case law developed under those Rules apply to the liquidator’s application for permission to amend. However, the application of the relevant principles is said by the liquidator to need some adaptation to accommodate the different requirements of the Insolvency Rules as regards the formulation of the applicant’s new claim.

CPR 16.2(1)(a) requires a party to set out a concise statement of the nature of its claim. Rule 1.35(2)(g) of the Insolvency Rules 2016, which corresponds to rule 7.3 of the 1986 Rules, merely requires an applicant to state the nature of the remedy or order applied for. The precise grounds of the application are said to be surplus to the requirements of the Insolvency Rules.

Dealing first with the proposed amendment to paragraph 1, the liquidator accepts that the preference claim was originally put on the basis of a sale of all of MSD’s fixed assets to Lionheart, but the true basis of the liquidator’s claim is said to be clear from Mohinder’s letter to the liquidator dated 20 August 2014 at C4/1027:

As finally formulated, the amended paragraph 1 reads as follows:

The original paragraph 1 had referred to a set-off of £277,272 against the equivalent value of all MSD’s fixed assets sold to Lionheart. As submitted by Mr Briggs, I am satisfied that the proposed amendment merely alters the make-up of the preference and not the fact of the preference or its amount. It is the same preference, and the same relief is sought. It is simply the basis of the set-off that is different. In my judgment, the proposed amendment to paragraph 1 involves no change of substance, and is founded upon Mohinder’s own case as to how the alleged preference came about, so that the respondents are not in any way misled or prejudiced in the presentation of their case.

Mr Cousins submits that whilst there was no obligation on the liquidator to plead the basis upon which the preference claim is put, when the liquidator chose to particularise the nature and the basis of his application, and the relief he sought, in his application notice, he thereby delimited his case and he now cannot seek to advance a new case outside the applicable limitation period.

As to the applicable limitation period, it was common ground that the primary limitation period applicable to a preference claim under sections 239 and 241 of the Insolvency Act 1986 is that which applies to actions on a specialty under section 8 of the Limitation Act 1980. It is therefore subject to a 12-year limitation period. However, the combined effect of sections 8(2) and 9(1) of the Limitation Act is to reduce the applicable limitation period from 12 years to six years if the claim is properly to be characterised as an action to recover a sum recoverable by virtue of a statute. On the interplay between sections 8 and 9, I was taken to observations of Peter Gibson LJ in the case of Re Farmizer (Products) Ltd [1997] BCC 655 at 662 to 663, and also of Mr John Randall QC, sitting as a Deputy High Court Judge, in the case of Re Priory Garage (Walthamstow) Ltd [2001] BPIR 144 at pages 161 to 162.

In my judgment, the effect of these authorities is that if it can fairly be said that the substance, or the essential nature, of the application is to recover a sum recoverable by virtue of section 239, then the combined effect of sections 8(2) and 9(1) of the Limitation Act is to reduce the applicable limitation period from twelve years to six. In the instant case, it seems to me that, so far as the alleged set-off against the value of the motor vehicles is concerned, the substance or essential nature of the claim is not to recover a sum of money but to reverse the reduction in the amount of Mohinder’s director’s loan account, with any order for the payment of the value of the motor cars sold to Lionheart merely being the appropriate form of relief, directed to restoring the position to what it would have been if there had not been the set-off. Thus, the applicable limitation period is twelve years, and the claim is not statute barred. In any event, I consider that this aspect of the preference claim is properly maintainable on the basis of the existing, and unamended, paragraph 1.

So far as the claim to payment of balance of £50,261 is concerned, it does seem to me that it can fairly be said that the substance or the essential nature of the amended claim is to recover that sum by virtue of sections 239 and 241. Thus, the applicable limitation period is six years, running, at the very latest, from the date of the liquidation, and thus more than six years before the amendment was first formulated in any of its several iterations.

I am satisfied that it cannot be said that Mohinder deliberately concealed any fact relevant to the liquidator’s claim for relief under section 239 so as to postpone the beginning of the limitation period under section 32. I therefore need to consider whether there is any change in the essential features of the factual basis relied upon by the applicant as a result of the proposed amendment to paragraph 1.

In my judgment, the relevant test is that formulated by Tomlinson LJ, with the agreement of the other members of the Court of Appeal, in the case of Co-operative Group Ltd v Birse Developments Ltd [2013] EWCA Civ 474 at [22]:

In my judgment, the essential features of the factual basis relied upon, and I emphasise the word “essential’”, are the fact of the preference and its amount, and not its composition. In my judgment, it matters not how the preference was made up. I therefore find that section 9 of the Limitation Act is no bar to the proposed amendment to paragraph 1. I would allow that amendment accordingly.

I turn now to the proposed amendment to paragraph 8. As presently drafted, it reads as follows:

The amendment proposed would add, at the end of the existing paragraph 8(2), the following words:

I accept Mr Cousins’s submission that the existing paragraph 8(2) of the application is based upon receipt of monies under a void disposition whilst the proposed amendment to paragraph 8(2) introduces a new allegation, relating to the payment away of those monies to a third party. I am satisfied that the proposed amendment is not one to which no period of limitation applies by virtue of section 21(1)(b). I am also satisfied that there was no deliberate concealment under section 32. The limitation period commenced when Mohinder allegedly paid away the relevant monies to the suppliers of MSD, and thus the amendment is sought outside the applicable limitation period. The question therefore is whether the amendment relies on new facts. I accept Mr Briggs’s submission that in approaching this question, in the context of an insolvency application, one is entitled to look at the facts relied on by the liquidator in his original witness statement in support of the application.

The relevant evidence is to be found in paragraph 183 of Mr Ingram’s first witness statement dated 20 September 2016:

One of the complaints there made is that trade creditors and suppliers have been paid after presentation of the winding up petition. I accept that, paraphrasing what was said by Jackson LJ in the case of Begum v Birmingham City Council [2015] EWCA Civ 386 at [30], the relevant test is whether the amended claim merely applies a “different label” to “the same underlying facts”. In my judgment, the amendment proposed to paragraph 8 merely articulates the complaint advanced at paragraph 183 of the liquidator’s first witness statement and gives a different label to the same underlying facts. I therefore find that the Limitation Act is no obstacle to the proposed amendment to paragraph 8.

So far as the proposed amendment to paragraph 10 is concerned, Mr Cousins accepted in closing that the only potential ground of objection was the expansion of the period to be covered by the account from the period up until MSD ceased to trade on 23 November 2011 to the date of the winding up order on 16 January 2012. I am satisfied that the law in this area was accurately stated by Harman J in the case of Attorney General v Cocke [1988] 1 Ch 414, at page 421E: a claim to an account simpliciter based upon a fiduciary relationship and nothing more is not barred by any period of limitation. As the law reporter observed in the headnote at page 414 G to H:

The applicable law is stated at paragraph 44-043 of Lewin on Trusts, cited by Mr Cousins. Section 23 “appears to assume that a duty to account will always be based on some other claim but it has been held that that is not so and that as between trustee and beneficiary the basis of the duty is simply the fiduciary relationship, so that the section has no application to an action for an account against a trustee. Nonetheless, a trustee obviously cannot be deprived of a limitation defence otherwise available to him merely because the beneficiary seeks an account. Here it is necessary to distinguish between an account and an order for payment of what is shown to be due on the taking of the account: the trustee is not to be made to pay an amount which depends on a claim that has become statute-barred. The court can order an account without limit of time in order to ascertain what the facts are, though it seems that the defendant must take the limitation point before the order for an account is made … The particular order made may depend on the extent to which the facts are known when it is made. It has been held that an account will be refused where it is clear that any claim to substantive relief is statute-barred.”

Given the potential application of section 21(1)(b) of the Limitation Act 1980, it cannot be said to be clear that any claim to substantive relief following from the taking of an account will be statute-barred. I will therefore allow the amendment proposed to paragraph 10; but the second paragraph of the proposed amendment will be qualified so as to read that “… on the taking of the account, the applicant shall be entitled to apply for an order that the respondents do jointly and severally restore or account to MSD, acting through the liquidator, for any profits made in respect of such receipt and payment of MSD’s monies …”, etc. The issue of whether any consequential order for payment would be statute-barred can be argued out at the hearing of that application, and in the light of the state of affairs determined on the taking of the account.

I reject Mr Cousins’s procedural objections to the amendments to paragraphs 1, 8, and 10. I accept that the amendments have been sought at a very late stage in the proceedings, and that they are inexcusably late; but I am entirely satisfied that Mohinder and the other respondents have suffered, and will suffer, no prejudice from these late amendments due to what I will find to be his self-imposed absence from the trial. Mohinder has known throughout the case that was being advanced against him by the amended claim since, as Mr Cousins recognised, it is upon information provided to the liquidator by the respondents that the liquidator now seeks to base his claim.

I am entirely satisfied that Mohinder, and the other respondents, have had ample opportunity to advance a defence to the amended case, and that the evidence that they would have adduced would have been no different had the amended case been formulated prior to the commencement of this hearing on 16 January 2018. Indeed, without intending any disrespect to Mr Cousins, I regard the suggestion that Mohinder, or any of the respondents, have suffered any prejudice as a result of the late amendments as fanciful.

Subject then to the qualification indicated in relation to paragraph 10, I therefore allow the amendments sought by the liquidator.

The hearing commenced at two o’clock on Tuesday 16 January 2018. It was, so far as I can recall, set down for seven days. At the commencement of the hearing, Mr Cousins announced that Mohinder would not be attending the trial; and he produced a letter, dated 11 January 2018, from Dr Sahota, a doctor in India. Mohinder was said to be staying in a remote village in the Punjab in Northern India. He had been examined on 11 January and was said to be suffering from severe backache due to a prolapse of an intervertebral disc. The doctor had prescribed complete bed rest for six weeks and had certified Mohinder as unable to travel during this period. I note that Mohinder’s third witness statement, apparently drafted on 9 January 2018, is dated the day following the doctor’s letter, 12 January 2018. The witness statement gives an address for Mohinder in Chatham, Kent. The witness statement does not refer to Mohinder’s state of health, or his presence in India, or to his non-attendance at the trial.

Mr Cousins expressly indicated that he was seeking no adjournment of the hearing on account of Mohinder’s non-attendance. Both Mr Briggs, and Mr Cousins and his junior, had produced detailed written skeleton arguments in advance of the trial, extending to 23 and 39 pages in length respectively. Mr Briggs had also produced a detailed written chronology, extending to some 39 pages. The chronological documentation extends to some 2,000 pages, packed into six densely packed lever arch files, to which a further 160 pages were added by way of an additional volume during the course of the hearing. There were also some 85 pages of schedules. Mr Briggs proceeded to open the application for about eleven hours, concluding at the luncheon adjournment on Day 3. Mr Cousins then addressed me, identifying the issues in the case, for about an hour.

I then heard from the following live witnesses of fact: First, the liquidator, Mr Ingram, for some 2 hours and 50 minutes, between 3.25 on Day 3 and 12.45 on Day 4. Secondly, from the second respondent, Surjit, for some on 9½ hours, beginning at 2 o’clock on Day 4 and extending to 12.45 on Day 6. Thirdly, from the fourth respondent, Mrs Kuman, for some 7½ hours, beginning at 2 o’clock on Day 6 and concluding at 4.35 on Day 7. Fourthly, and finally, from the third respondent, Mrs Basi, for some 1¾ hours on the morning of Day 8. There was no expert evidence, for example, in relation to accounting practice.

Due to their existing professional commitments, and my pre-existing listing, counsel wanted an extended period of time for sequential written closing submissions, and on the afternoon of Day 8 a timetable was agreed, with Mr Briggs and Mr Cousins exchanging written closing submissions between dates in March and April, with a two-day hearing for oral closing submissions being fixed for Monday 30 April and Tuesday 1 May.

When the trial resumed in London on Monday 30 April, Mr Briggs addressed me for about 4½ hours, Mr Cousins for 4 hours and 20 minutes, and Mr Briggs in reply for about 1 hour and 20 minutes. At the conclusion of oral submissions, shortly after 5 o’clock on the afternoon of Day 10 of the trial, I adjourned in order to prepare this judgment for an oral delivery at 10.30 this morning, Friday 4 May. Whilst I would have liked longer to prepare this judgment, there was simply no more time available to me. There had already been an unavoidable three months break since the conclusion of the evidence in this case, and the next day I have available in my busy diary is not until Thursday 28 June. Inevitably, this judgment is less polished than it would have been if I had had more time to prepare it.

Many arguments were presented to me. The fact that certain of them may not have been mentioned in this judgment does not mean that they have been in any way overlooked. I should add that my task in preparing this judgment has been made even more difficult by the apparent destruction of the original hearing bundles that I had left, clearly marked for retention, in my temporary chambers in the Rolls Building. Substitute bundles had to be provided, which had been done by the time the hearing resumed this last Monday; but it was evident that not all the additions to the bundles had been included, and these were handed up before I adjourned to consider my judgment.

By the end of the hearing, over 40 case law authorities had been presented to me, although happily I was not taken to the majority of them.

There was no challenge to the honesty, integrity, or the professional competence of Mr Ingram. Indeed, Mrs Kuman expressly acknowledged in cross-examination, very fairly, that she was not doubting Mr Ingram’s integrity. Mr Ingram made appropriate concessions during the course of his cross-examination. I will give a few examples: First, he accepted that the invoice from MSD to Dale for £61,000-odd, the subject of one of the three disputed credit notes at C2/563, would appear to have been the subject of a genuine commercial transaction in respect of which it was reasonable to assume that Dale had put MSD in funds to pay the ultimate supplier, H.U.L. Limited, direct, just as it had clearly paid the duty to Seabrook Warehousing. Mr Ingram also acknowledged that he was happy with his calculation of the gross profit figure from trading by MSD of £79,000-odd. He went on readily to acknowledge that he had not taken account of trading expenses of some £77,000-odd, which produced a net profit figure in the order of only some £2,000, against which further sums had to be set-off. Mr Ingram also accepted that in a normal arms’-length commercial trading relationship, a 5% discount on sales to reflect out of date, short or near end date stock would not be unreasonable, although he went on to point out that the relationship between MSD and Dale was not a normal arms’-length commercial relationship.

I accept Mr Ingram as a reliable, and truthful, witness; but inevitably, like any other insolvency office-holder, his knowledge was second-hand and restricted to that reasonably to be gleaned from the company records and other documents and information provided to him. In the instant case, these were palpably, and woefully, deficient.

In his written closing, Mr Briggs submitted that the written and oral evidence of the individual respondents was, in many respects, unreliable. He elaborated upon this at paragraphs 11 to 20 of his written closing. I accept Mr Briggs’s descriptions of the individual respondents, and his criticisms of their evidence; and I note that in his written closing, Mr Cousins rightly described the applicant’s criticisms of the respondents’ witnesses as “trenchant”, and he did not seek to counter Mr Briggs’s submissions beyond referring to the liquidator’s abandonment of the entirety of his claims against Mrs Basi and Mrs Kuman, and also the abandonment of the liquidator’s case on the three credit notes.

Mr Cousins also pointed out that in the course of the trial, the respondents had very properly disclosed additional documents on the preference claim which, if anything, had been of assistance to the liquidator. However, I accept Mr Briggs’s riposte that, in producing those documents, Mrs Kuman had not considered or appreciated that they in fact tended to support the liquidator’s case, rather than the respondents’ own case.

I turn first to consider Surjit’s evidence. On 11 January 1999, Surjit was convicted at the Crown Court at Wood Green of conspiring to commit excise duty fraud in relation to the importation of goods and was sentenced to three years’ imprisonment and was disqualified from being a company director for five years. Surjit’s brother, Manjit, was also convicted on that occasion. Some seven years later, on 19 January 2006, Surjit and Manjit were both convicted in the Crown Court at Southwark of being knowingly concerned in attempting to evade the duty chargeable on four consignments of alcohol.

On 15 May 2006, both men were made the subject of confiscation orders, in the case of Surjit for some £196,000, with 33 months imprisonment in default of payment. Each of the brothers was also ordered to pay £15,000 towards prosecution costs. On the last day of this hearing, in response to a question from the Bench, Mr Cousins confirmed that there was no suggestion that these convictions were spent. It is to Surjit’s credit that he had pleaded guilty on both occasions, and I take that into account; but these convictions do mean that I cannot treat Surjit as an honest individual who can present himself to the court as a person of good character.

In his written closing, Mr Briggs submitted that Surjit had shown himself to be an evasive witness, and needlessly aggressive and arrogant. Mr Briggs gave two specific instances of Surjit attempting to mislead the court. The first was that he had suggested that an msd@group.co.uk email had come from Seabrook Warehousing. When the Bench pointed out that since the name “Raminder” was at the top of the page, it must have come from her, Surjit then had to admit that the email had come from Raminder’s iPad.

In his written evidence, Surjit had also suggested that the undelivered but invoiced goods might not have been supplied because of the freezing of MSD’s bank account when Devon Cider’s winding up petition had been advertised on 2 June 2010. At that stage, the liquidator had been unaware of the identity of the supplier and only knew that the MSD invoices addressed to Dale had all been dated in June 2010. Investigations thereafter had revealed the supplier to be Northrend, which had rendered the invoices in March and April 2010. It followed that the later freezing of the bank account could have had nothing to do with non-delivery of the goods, particularly since Northrend was a supplier which had habitually been paid in cash. Mr Briggs points out that Surjit would surely have known that Northrend was the supplier; and he says that the excuse that his solicitor had told him not to say who he thought the supplier was if he was unsure beggars belief. Mr Briggs describes as “arrogant” Surjit’s suggestion that the liquidator himself had known the identity of the supplier, or should have found out for himself by trawling through the boxes handed over to the Official Receiver. In my judgment, there is force in both of those criticisms.

Mr Briggs submits that the court should be very cautious before accepting anything that Surjit says. He submits that, typically of someone who is economical with the truth, Surjit has produced in evidence as little documentation as possible, and only such documentation as will assist the respondents’ case, even though there must have been other relevant documentation which would have provided a complete picture. He instances the lack of any Dale VAT returns, Dale accounting information or records, few MSD emails (having previously asserted that there were none), and no MSD computer records, allegedly on the grounds of there having been a corrupted server, and also no MSD audit papers, although these had been collected from Mr Alinek by Manjit.

I accept these criticisms. I cannot accept Surjit as an honest or a reliable witness. I found his various explanations for the £996,000-odd credit note to be lame and unconvincing. His first explanation, that, consistently with its terms, it related to stock supplied that was damaged, out of date, short date, and overcharged, was wholly unconvincing in view of the amount of the credit, as was implicitly acknowledged by the respondents’ later assertion that this, in fact, accounted for less than 10% of the credit note’s face value. Surjit’s later explanation that some £924,000 related to goods that had never been delivered is, in my judgment, equally unconvincing.

Surjit accepts from its terms that the credit note must have been issued after 7 June 2010 because it refers to stock delivered up to that date; but beyond the fact that it must have been created before 6 June 2011, when his mother resigned as a director of Dale (because it was she who, Surjit claimed, had been involved with Mohinder in agreeing the credit note), Surjit was unable to say when it had been created or why it had not been entered into Dale’s purchase ledger until 5 November 2011, less than a fortnight before the service of the winding up petition, and some three months after the service of the statutory demand.

From the terms of MSD’s sale ledger at C2/452, relied upon by Mr Cousins in closing, the credit note can only have been created after 30 September 2010. However, Northrend had raised the ten invoices for sales of stock to MSD to which it is now said that the credit note relates between 22 March and 22 April 2010: see C2/305 to 323. From the manuscript annotations on all of those invoices, all of them would appear to have been entered into MSD’s SAGE records, although these have not been produced in evidence.

MSD had raised corresponding invoices to Dale between 1 June 2010 and 7 June 2010: see C4/946 to 955. These invoices, both from Northrend and from MSD, are all helpfully analysed by the liquidator in his schedule at E5. Those invoices from MSD to Dale all appear in MSD’s sales ledger dated 30 September 2010, with the same transaction date of 5 August 2010. They also appear in Dale’s purchase ledger, with transaction dates between 1 and 7 June 2010. From the transaction dates of the entries either side of these ten invoices, they would appear to have been posted in Dale’s purchase ledger between 3 and 10 August 2010. Surjit asserted in cross-examination that the MSD invoices to Dale must have been raised by mistake. He had no satisfactory explanation for why they had been raised, why they had been posted to MSD’s sales ledger, why they had been posted to Dale’s purchase ledger, or why they had remained in Dale’s purchase ledger until 5 November 2011.

In closing, Mr Cousins pointed out that the stock had been delivered to Dale’s premises at Second Avenue Industrial Estate and not to MSD’s premises at Bowen House. But Surjit had accepted in cross-examination that, as the buyer, he would have known that the stock had not been delivered to MSD. Surjit also accepted in cross-examination that it was unique for MSD to have invoiced for undelivered stock. In his first witness statement, Surjit had speculated as to the reasons why the stock had not been delivered; but, as I have already pointed out, that explanation cannot be correct.

At the end of his cross-examination, I asked Surjit whether he could recall Northrend refusing to accept payment for any goods and he said: “No”. I asked him whether anyone from Northrend had ever said: “I cannot accept payment because Devon Cider have presented a winding up petition against MSD”. Surjit’s answer was: “No”. In cross-examination, Surjit said that he had thought that Northrend might have been the supplier but he had not been sure so he had not identified Northrend to the liquidator.

In the light of Surjit’s failure to communicate this information to the liquidator, I cannot accept Surjit’s assertion in cross-examination that he had been trying to help the liquidator as much as he could. I find that the opposite was the case. I find that Surjit was supplying as little information to the liquidator as possible, and that his motive for this was to make it as difficult as possible for the liquidator to establish the truth. I infer that the reason for this was that Surjit did not want the liquidator to establish the true position because he knew that it would not support the respondents’ case that the credit note was a valid and genuine one. When asked why there were no credit notes from Northrend, Surjit’s explanation was that there had been no need for any credit notes because MSD had stopped trading with Northrend by this time. I find this explanation to be unsatisfactory and unconvincing.

I note that Northrend was wound up by order of the court on 8 December 2010, on a petition presented by HMRC on 23 October. I am satisfied that Surjit would have appreciated the need for an appropriate credit note or notes from Northrend to guard against claims for non-payment of the Northrend invoices by Dale from the directors of Northrend or from any liquidator. At the end of Surjit’s cross-examination, I asked him whether he had made any enquiries of Northrend as to why the goods had not been delivered. His answer was that the company had just seemed to disappear. It was possible that he had done so, but he could not recall now enquiring of anyone. I note that MSD had the email address for Northrend on its invoices, and that it also had Paul Barnett’s home address, in his capacity as Northrend’s director, as part of its due diligence on Northrend.

In cross-examination, Surjit accepted that Northrend had been paid for its first five consignments of goods at C2/295 to 304, between 1 and 19 March 2010, even though there was no supporting documentary evidence. Mr Briggs suggested to Surjit in cross-examination that the same applied to the other ten transactions. Surjit’s reply was: “You are entitled to your opinion.” When Surjit was asked to identify the other creditors falling due after more than one year of £1,011,035 in Dale’s accounts for the period ended 31 March 2011 at C2/511 and 513, Surjit was unable to do so, indicating that he thought that his mother would have known at the time. It was she who had signed the accounts, even though she was no longer a director of Dale, on 13 June 2011. The court has heard no evidence from Surjit’s mother or from the accountant who had prepared those unaudited accounts for Dale.

In relation to the alleged cash payments, Surjit accepted that he had no proof that the two alleged cash payments of £15,000 and £60,000 asserted in his schedule at E40 had been made on 27 April and 20 May 2011. When I asked where Surjit had got the dates from, Surjit’s reply was that: “We had remembered the dates”, prompting Mr Briggs to suggest that if he had remembered the dates, he must have other records which he had not disclosed to the liquidator or to the court. I find Surjit’s assertion that he had remembered the dates of payment utterly unconvincing.

After listening to Surjit in evidence for some 9½ hours, I find that I cannot accept his evidence except where it is corroborated by other independent evidence which I accept as reliable, or to the extent that it constitutes admissions against the respondents’ interests. I am satisfied that Surjit is, and has been, prepared to say anything to support the respondents’ case, whether or not it is true.

I turn next to Mrs Kuman. Mr Briggs submitted in closing that she was likewise, overall, an unreliable and unimpressive witness. By way of example, it was said that her evidence over tax advice relating to the ownership of motor vehicles by a non-trading company was confused and contradictory and frankly unbelievable. The case for that unbelievable tax advice is said to be unsupported by any documents. Her whole case for there being a transfer of the vehicles in 2009 is said simply not to be supported by the documents she had belatedly produced during the hearing and referred to in her fourth witness statement of 23 January 2018. Despite her denials, her own motor vehicle was not transferred to Lionheart, as is clear from its 2010 accounts, nor was the RAV4 vehicle bought by her father in 2008.

Apart from the need to transfer MSD vehicles and cherished registration numbers to Lionheart in order to keep them out of the clutches of HMRC, Mr Briggs suggests that the only advantage in having Lionheart as the registered keeper of the vehicles was cheaper fleet insurance. Mrs Kuman was said to have devoted almost 30 paragraphs of her third witness statement of 2 May 2017 to dealing with the other MSD claims, but she accepted in oral evidence that she was only told of such matters by Surjit during the course of these proceedings (importantly including the reasons for the credit note). How little Mrs Kuman really understood and knew of MSD’s affairs on these matters is said to be apparent from her vague and uncertain information of 15 March 2012 to the Official Receiver’s examiner, supplementing her preliminary information questionnaire. Again, I accept these submissions.

Over the course of her 7½ hours in the witness box, I found Mrs Kuman to be an argumentative and combative witness. She told me that she knew that MSD had needed a director in June 2011. She said that there had been no discussions about anyone else being made a director of the company after Mohinder’s resignation on 6 June 2011 and, in particular, she said that there had been no suggestion that Surjit should be appointed director. Yet, nothing was done about appointing Mrs Kuman as a director until the visit to Mr Kelmanson’s offices, with a view to putting MSD into creditors’ voluntary liquidation following the service of the BDO winding up petition on 14 November 2011.

Mrs Kuman’s evidence had been that she had assumed responsibility for all of MSD’s direction after her father resigned. However, she later said that she had not been involved in the operational side of the businesses. Mrs Kuman said that she had had no personal first-hand knowledge of the disputed cash payments, and that she had known nothing about the credit note at the time it was issued.

I found Mrs Kuman’s developing evidence, both written and oral, about the transfer of the motor vehicles from MSD to Lionheart to be contradictory, confused, and confusing. The evidence that she had previously given to the liquidator was inadequate and incomplete, and was inconsistent with her fourth witness statement. I found Mrs Kuman’s oral evidence on this point to be wholly unconvincing and unsatisfactory. It was not supported by any evidence from Mohinder. Mrs Kuman was wholly unable to explain why only the motor vehicles formerly owned by MSD should have been shown as assets in Lionheart’s accounts, and not also the other family company motor vehicles.

When asked for the date on which the vehicles had been transferred to Lionheart, which was relevant to an aspect of the case then being advanced by Mr Cousins that there was no proof that this had been within the two-year period before the presentation of the winding up petition on 12 September 2011 on which the winding up order had been founded, all that Mrs Kuman could say was that the intention had been to transfer the vehicles when Lionheart was formed. She said that it had been the whole purpose of forming Lionheart. However, I find that there had been no objective reason not to transfer MSD’s motor vehicles to Lionheart at the time the fleet insurance policy was renewed in March 2009 at the latest, and no reason was suggested by Mrs Kuman. In her fourth witness statement, at paragraph 9, Mrs Kuman was still seeking to suggest that the cars had been transferred to Lionheart before March 2010. I am satisfied that I can attach no credence whatsoever to Mrs Kuman’s fourth witness statement, or to her evidence about the transfer of the motor vehicles from MSD to Lionheart.

As with Surjit, having listened to Mrs Kuman in the witness box, in her case for some 7½ hours, I am satisfied that I cannot accept her evidence except where it is corroborated by other independent evidence which I accept as reliable. I am satisfied that she is, and was, prepared to say anything to support the respondents’ case, irrespective of its truth. However, I do accept her evidence that she knew nothing about the credit note at the time it was issued, and that she had no first-hand knowledge of the cash payments, and also that she was not involved in the operational side of the businesses of either Dale or MSD. I find that to be consistent with other reliable evidence.

Finally, I turn to Mrs Basi. She accepted that she had been mistaken in describing herself as the managing director of MSD. She said that her appointment as a director at all material times had merely been “a statutory requirement”. She had undertaken no duties as a director other than of a purely formal kind. She said that she knew nothing about the financial state of MSD, and that she had only signed the 2008 accounts in the absence of her father in India for an extended winter stay. She said that she had had no involvement in matters the subject of, or relevant to, this litigation. She said that she was not aware of the transfer of assets to Dale, or of the transfer of the motor vehicles to Lionheart. She had simply been a nominal director of MSD. She told the court that she had resigned on 9 March 2011 because she had been informed by Mr Alinek that MSD no longer required or needed her as a director. I accept all of that evidence.

In his closing, Mr Briggs acknowledged that Mrs Basi had been the most straightforward of the respondents’ three live witnesses. He pointed out that whilst professing to have been a nominal director, she had still been willing, if the need arose, to sign MSD’s annual accounts.

In evidence, Mrs Basi had said that she had presumed that Surjit’s office, when he worked for Dale, had been in Bowen House. Mr Briggs points out that that is rather strange, and difficult to believe, given that she is a close member of the family and had occupied part of the Second Avenue premises from which Dale was trading for the purposes of her own business, Medway Soft Drinks. Mr Briggs also points out that despite having confirmed the evidence of her sister in her witness statement, Mrs Basi had said in evidence that she had no information regarding these matters, and that she had just believed that what her sister had said would be correct. In these circumstances, I find that I can derive no support for the respondents’ case from Mrs Basi’s evidence.

Mr Briggs considered the weight to be given, and the reliance, if any, to be placed on Mohinder’s evidence at paragraphs 21 to 24 of his written closing. He points out that despite Mohinder’s role of decision-making or authority being avowedly pivotal, all the information from him had come through, or with the assistance of, others. Whether it was through ill-health or age, or a combination of those, or a desire to conceal a more restricted involvement in recent times, was said to be hard to tell. Mr Briggs invites the court to note the evidence of Mohinder’s limited involvement in MSD in later times given by Ms Dalby, the company’s bookkeeper, at her private examination.

Mohinder had been accompanied to the Official Receiver’s offices in 2012 by Surjit, and it was Surjit who had asked if he could assist his father during Mohinder’s interview with the liquidator at Grant Thornton’s offices in 2013. Mr Briggs points to the fact that in an email of 23 November 2017, the respondents’ solicitors, Rainer Hughes, had referred to the fact that Mohinder was ill and that they were awaiting an up to date prognosis. That was never produced. At an inspection of documents on 1 December 2017, when Mr Dodia of Boyes Turner, the applicant’s solicitors, had mentioned that he was still awaiting a response on that matter, Surjit had mentioned to Rainer Hughes’s Mr Smith that Mohinder would not be attending the trial in any case.

At the end of Mr Ingram’s evidence, and after that evidence of what Mr Dodia had overheard had been put before the court in the form of a witness statement from Mr Dodia dated 17 January 2018, the court had adjourned early for lunch to enable Mr Cousins to take express instructions on whether he wished Mr Dodia to attend court for cross-examination. When the court resumed after lunch, Mr Cousins had indicated that he did not require Mr Dodia to attend court. His evidence is therefore unchallenged.

I find as a fact that as from 1 December 2017 (at the latest), there was no intention on the part of the respondents that Mohinder would ever attend trial to give evidence for the respondents. Indeed, as recorded at paragraph 35 of Mr Briggs’s opening skeleton argument, Rainer Hughes were claiming, as late as 9 January 2018, that arrangements would need to be made for an interpreter for Mohinder. At the resumption of the hearing for closing speeches on Monday of this week, I was told that Mohinder was still in India, although no update on his medical progress was provided.

Mr Briggs submits that Mohinder could and should have attended the trial and that his written evidence, for what it is worth, should be excluded. I accept that Mohinder could have attended the trial. The hearing had been fixed for over six months. There is no reason why Mohinder could not have stayed in the UK to attend the trial had he wished to do so. I do not exclude Mohinder’s hearsay evidence; but without the benefit of cross-examination, I find that I can attach no weight to it save to the extent that it is supported by other independent evidence which I accept as reliable or in so far as it consists of admissions against Mohinder’s interest, such as Mohinder’s acceptance that it was he who had agreed to issue the undated credit note for £996,000-odd.

At paragraph 31 of his written closing submissions, Mr Briggs identified four potential witnesses who could have been called by the respondents to give evidence in support of their case in relation, in particular, to the credit note, but who were not called. First, there is Mrs Raminder Deol, Surjit’s wife and Dale’s director, who, according to Surjit, had been involved in producing the MSD invoices to Dale, apparently as an accounts assistant for MSD as well as Dale. It was Raminder who had written to the liquidator on behalf of Dale, although she had not been involved in the discussions regarding the credit note. She gave no evidence in these proceedings although she did answer a number of relevant pre-hearing questions.

The second missing witness is Mrs Bakshish Kaur, Mohinder’s wife and a director of Dale during the relevant time. She was said by Mohinder to have been involved in the discussions regarding the credit note as Dale’s director. She also was the former director who had signed Dale’s first accounts for 2011. She was said by Surjit to have been the person who could have identified the other long-term liabilities in those accounts. Again, she was not called to give evidence.

The third potential witness is Ms Nicky Dalby, MSD’s in-house accountant or bookkeeper, who was said to be responsible for preparing and submitting MSD’s VAT returns and who appears to have had a similar role at Dale. Again, she has not given evidence in these proceedings.

Finally, there is Mr Michael Alinek who was the accountant to, and responsible for preparing the annual accounts for, both MSD and Dale. He was also the person from whom Manjit had collected various company papers. It was upon a letter from him that reliance is placed by Mr Cousins in support of the respondents’ evidence and case on the transfer of the motor vehicles from MSD to Lionheart. Again, he has not been called to give evidence in this case.

To those four witnesses identified by Mr Briggs, there is also potentially Mr Paul Barnett of Northrend. He could have given relevant evidence about the non-delivery, if such it was, of the Northrend consignments of goods to MSD.

The absence of these potential witnesses is not satisfactorily explained. I can only infer that the respondents did not consider that they could or would give evidence that would assist the respondents’ case. I do not speculate upon what evidence they might have given if they had been called. I simply note the absence of any evidence from them.

One of the critical generic issues in the present case is whether Surjit was a de facto director of MSD. The liquidator relies on a finding by the Staines Magistrates’ Court in forfeiture proceedings involving MSD and Mohinder in October 2006 (to which Surjit would not appear to have been a party) that Surjit had played what was described as a “pivotal role” in, and had effectively been a principal executive of, MSD.

In my judgment, such a finding, directed to a wholly different period of time and a wholly different issue, namely whether cash seized by HMRC as the proceeds of crime was indeed the proceeds of crime, and apparently reached without reference to any of the relevant case law authority (which in any event postdates the Magistrates’ Court’s decision), is of no assistance to me whatsoever in determining the issue of de facto directorship.

The leading authorities which, as I have said, postdate the decision of the Staines Magistrates’ Court, are the decisions of the Supreme Court in the case of Revenue and Customs Commissioners v Holland [2010] UKSC 51, [2010] 1 WLR 2793 and the Court of Appeal in Re Mumtaz Properties Limited [2011] EWCA Civ 610, [2012] 2 BCLC 109. Mr Cousins addresses these authorities at paragraphs 25 to 28 of his written closing and Mr Briggs took no issue in his response with Mr Cousins’s analysis of the authorities.

In Revenue and Customs Commissioners v Holland the Supreme Court considered what had to be established against an individual to impose upon him liability for acting as a de facto director. In that case, the issue had arisen in the context of whether an individual who was a director of a corporate director of composite companies had become a de facto director of the composite companies by acting simply in the capacity of director of the corporate director. By a majority (Lord Hope, Lord Collins and Lord Saville JJSC with Lord Walker and Lord Clarke JJSC dissenting) the Supreme Court held that he had not. The majority of their Lordships concluded that in order for such liability to be imposed upon an individual, he must have accepted or assumed the role of a director. Lord Collins exhaustively analysed the authorities dealing with the nature of de facto directorship, and liability in connection therewith, and his conclusions are to be found at [91] through to [93].

At [91], Lord Collins addressed the two consequences of the divorce of the concept of de facto director from the unlawful holding of office. The second of those consequences was that the courts had been confronted with the very difficult problem of identifying what functions were, in essence, the sole responsibility of a director or board of directors. A number of tests had been suggested of which the following were said by Lord Collins to be the most relevant: First, whether the person was the sole person directing the affairs of the company (or acting with others equally lacking in a valid appointment), or if there were others who were true directors, whether he was acting on an equal footing with the others in directing its affairs. Second, whether there was a holding out by the company of the individual as a director, and whether the individual used the title. Third, taking all the circumstances into account, whether the individual was part of “the corporate governing structure”.

The concept of a de facto director was said to have borne the feature that an individual who was not a de jure director was alleged to have exercised real influence (otherwise than as a professional advisor) in the corporate governance of a company. Lord Collins recognised that it was just as difficult to define “corporate governance” as it was to identify those activities which were essentially the sole responsibility of a director or board of directors, although he acknowledged that perhaps the most quoted definition was that of the Cadbury Report: “Corporate governance is the system by which companies are directed and controlled.”

At paragraph 93, Lord Collins recognised that it did not follow that the expression ‘de facto director’ was to be given the same meaning in all of the different contexts in which a ‘director’ might be liable. It seemed to Lord Collins that in the present context of the fiduciary duty of a director not to dispose wrongfully of the company’s assets, the crucial question was whether the person had assumed the duties of a director.

Lord Collins referred to an earlier holding by Patten J that in order to make someone liable for misfeasance as a de facto director, the person must be part of the governing corporate structure, and the claimants had to prove that he had assumed a role in the company sufficient to impose on him a fiduciary duty to the company and to make him responsible for the misuse of its assets. It seemed to Lord Collins that that was the correct formulation in a case of the present kind.

Mr Cousins submits that the focus has been upon participation in corporate governance. He goes on to point out that the principles emerging from the decision in the Holland case were considered and applied by the Court of Appeal in Re Mumtaz Properties Limited in a judgment of Arden LJ with which both Aikens and Patten LJJ had agreed. In that case, one family member (Zafar) had been held to have been a de facto director because he was “one of the nerve centres from which the activities of the company radiated”. In that case, there had been evidence of his ability to use a company credit card for his own purposes, and his leaving money in the company for investment in his own properties at a later date. Arden LJ had emphasised the importance of examining the governance structure of the company concerned, referring to the facts that Zafar could act on his own authority, and that he had had a loan account in the company’s records which had been denominated as a director’s loan account, and that he had been listed as a director in its statement of affairs. The trial judge had expressly rejected Zafar’s contention that he had been unaware of his director’s loan account. Mr Cousins emphasises that features such as these are entirely absent from the instant case.

In the present case, only one of the three tests identified by Lord Collins at paragraph 91 of his judgment is directly relevant. That, it seems to me, is the first of those tests. Here, there was never any holding out by the company of Surjit as a director, and he never used the title. However, I find that that is explicable by reference to Surjit’s past criminal convictions and disqualification from acting as a company director. Here, there was no formal corporate governing structure. Mrs Basi was only ever a director in name only. After 6 June 2011, MSD had no director at all, and there was no corporate governing structure. The focus upon participation in corporate governance is understandable in Holland, where the relevant defendant had done no more than discharge his duties and responsibilities as a director of the corporate director. The facts of the Holland case are very different from those of the instant case.

In the context of the present case, where there was never any observed formal corporate governing structure, and where, after 6 June 2011, there were no directors at all for MSD, I find a focus on corporate governance to be of less relevance and assistance. I find some assistance from Arden LJ’s focus in the Mumtaz case upon the identification of one or more “nerve centres” from which “the activities of the company radiated”.

Mr Cousins submits that neither the application, nor the evidence in this case, begin to address the tests posed by Lord Collins in [91] of his judgment in Holland so as to demonstrate that Surjit had assumed the duties of a director or was part of MSD’s corporate governing structure. It was for the liquidator to prove that Surjit had assumed such a role sufficient to impose such a responsibility upon him, and that he had used his position to misuse MSD’s assets.

Mr Cousins points out that the findings of the Staines Magistrates’ Court were made many years before the events in question. Since then, in April 2010, Surjit had ceased to hold a remunerated position in MSD, and he had worked for Dale. In fact, there were no remunerated employees of MSD after February 2010. Surjit had been a buyer for MSD at an average salary of some £30,000 per annum. Much of the evidence upon which the liquidator relies for the assertion of Surjit’s functions within MSD in relation to employment of staff and payment of invoices is said by Mr Cousins to be based upon interviews with Mr Alinek, who had ceased to be MSD’s auditor in 2009 and whose involvement with the company’s accounts had ended in 2010. With effect from December 2004, Surjit had had no authority as a signatory for MSD’s bank. I find that that was a result of the criminal proceedings which, at that time, were pending against Surjit, and for which he was later convicted on his own plea of guilty.

Surjit and his wife, Mrs Raminder Deol, had become employees of Dale in about April 2010 when MSD’s cash and carry business ended, although Mr Cousins acknowledges that Surjit accepts that he did continue to assist MSD in relation to under bond trading, although that is said not to be relevant to the material allegations in this case. Mr Cousins points out that it was Mohinder who was the sole handler of cash payments.

Mr Briggs, for the liquidator, submits that in more recent years, Ms Dalby had taken instructions from Surjit, and that it was he who had hired and fired staff at MSD and who, with his wife, had decided who to pay and who got paid. It was Surjit with whom Mr Alinek was said to have discussed matters from time to time. Mr Briggs acknowledges that whilst the role of buyer in a company can be a subordinate role, he submits that in the context of a family owned and run cash and carry and under bond business, dealing with suppliers and customers, the role of buyer is critically important. He submits that Surjit was what he describes as clearly the “Mr Big” at MSD, driving a Bentley with the registration number 1SOG. Mr Briggs points out that it was Surjit’s home that was specifically the subject of HMRC raids on MSD.

It was Surjit who in these proceedings has been put forward as the principal witness in relation to MSD’s affairs and its dealings with Dale. It was he who was responsible for the disclosure of documents. By way of contrast, MSD’s other officers, Mrs Kuman and Mrs Basi, knew little by comparison, in particular with regard to MSD’s actual business, and they were not involved in that business. Mr Briggs submits that Surjit could hardly be said to be subordinate to Mrs Basi or Mrs Kuman. He also submits that no one listening to Surjit’s oral evidence in these proceedings could have thought that he was anything other than someone who had a governing position and influence at MSD, and then at Dale.

In his reply, Mr Briggs submits that Surjit’s pivotal role as effectively a principal executive officer of MSD was even more likely to have been the case in the years after 2005. He points out that by 2010, Mohinder was 78 years old, apparently in ill-health, and fed up with the business and the harassment he had been enduring for years at the hands of HMRC. Mr Briggs points out that Mohinder resigned formally as a director of MSD in June 2011 and was never a director of Dale, or it seems thereafter of any active trading company. From what the liquidator has been told by Mr Alinek and Ms Dalby, by 2009 they looked to Surjit for information and instructions regarding MSD’s affairs. Neither was called by the respondents to contradict what they had said, and what they have said was put to Surjit.

Mr Briggs refers to Surjit’s acceptance that even after he ceased to hold a remunerated position in MSD, he did continue to assist that company in relation to under bond trading. On the respondents’ case, under bond trading was thereafter MSD’s sole business. Rhetorically, Mr Briggs asks: Why would Surjit do that if he was an employee of Dale? Why work for nothing for MSD? Surely, Mr Briggs answers, the inference must be that Surjit had a director-type role in MSD, and possibly stood to benefit, and was involved fully in its remaining operations, or he would not have continued to work in MSD’s business. If, as alleged by the respondents, Mohinder was the sole handler of cash, what did he have to do other than count the money, given Surjit’s role as buyer? Surjit must have handled money, receiving cash from customers and paying it out to suppliers.

In his oral closing, Mr Cousins sought to turn the absence of any formal corporate governing structure to the respondents’ advantage by submitting that there was no corporate governing structure for Surjit to have participated in. In my judgment, the consequence of the lack of any formal corporate governing structure means that in deciding whether the liquidator has discharged the burden of proving that Surjit was a de facto director of MSD, the focus has to be on the other incidents of that status.

In my judgment, having considered all of the evidence, and having heard and observed Surjit closely in the witness box over some nine hours, I prefer the submissions of Mr Briggs to those of Mr Cousins. In my judgment, Surjit had assumed a role in the company, MSD, sufficient to impose upon him a fiduciary duty to MSD, and to make him responsible for the misuse of its assets. I am satisfied that Surjit would act on his own authority in relation to MSD and its continuing business, and that he was one of the nerve centres from which the activities of MSD radiated. I have no doubt that Surjit was acting on a superior footing to Mrs Kuman, and it was Surjit, rather than she or Mohinder, who was conducting MSD’s business. At the very least, he was on an equal footing, and not subordinate, to Mrs Kuman; but I find that, in fact, he was the person running the business. In my judgment, that is demonstrated by what happened when the winding up petition was served on MSD on 14 November 2011. It was Surjit and Mrs Kuman, and not Mohinder, who went to see Mr Kelmanson with a view to putting MSD into creditors’ voluntary liquidation. Mohinder did not accompany them.

When Mrs Kuman came to complete the Insolvency Service’s preliminary information questionnaire on 8 March 2012 at C3/631, she said that no one had assumed Mohinder’s former role of managing director after 6 June 2011. If anyone qualified for that description, I am satisfied that it was Surjit. According to Mohinder, MSD was still operating until 23 November 2011. On the evidence, I am satisfied that the person responsible for the operations of MSD was Surjit, and not Mohinder or Mrs Kuman.

If Mohinder was still assuming a responsibility for the direction of MSD after 6 June 2011, I ask rhetorically: why had he resigned as a director? He still remained the majority shareholder. If Mohinder was no longer responsible for the direction of MSD after 6 June 2011, I ask rhetorically: who was? The only sensible candidate, on the evidence, is clearly Surjit. I therefore find that Surjit was a de facto director of MSD.

As Mr Cousins pointed out in closing, the mere fact that Surjit was a de facto director of MSD does not mean that he bears a responsibility, or a liability, for breaches committed by another director acting independently. If I were to find that Mohinder had negotiated the credit note with Dale without any involvement on the part of Surjit, then the latter’s de facto directorship would not assist the liquidator. I accept that the liquidator must establish a relevant breach of duty by Surjit when acting as a de facto director of MSD. However, in this connection, it will be necessary for me to bear in mind the evidence of Mrs Kuman, accepted by the liquidator, that she had no involvement in, or contemporaneous knowledge of, that credit note. That involvement and knowledge can, in my judgment, have been supplied and entertained only by Surjit.

By section 239 of the Insolvency Act 1986, when a company has at a ‘relevant time’ (as defined in section 240) given a preference to any person, an insolvency office holder may apply to the court for an order under this section 239. On such an application, the court will make such order as it thinks fit for restoring the position to what it would have been if the company had not given that preference. By section 239(4):

By section 239(5):

By section 239(6);

Section 239(6), in terms, looks to the time the preference was given when deciding whether the preference was given to a person connected with the company. In my judgment, it is implicit in section 239, when read as a whole, that it is also the time when the preference is given that is the relevant time for assessing whether the company was influenced by a desire to produce the relevant effect in deciding to give the preference, and in applying the presumption under section 239(6).

In the present case, the relevant transaction was the transfer of the motor vehicles from MSD to Lionheart and the consequential writing-off of their value against Mohinder’s director’s loan account recording the monies owed to him by MSD. The relevant invoice, on MSD’s headed notepaper at its Second Avenue Industrial Estate address and addressed to Lionheart, is dated 16 March 2010 and is headed: “Invoice for Motor Vehicles and Cherished Registrations”. It is to be found at C2/334. It relates to nine motor vehicles, including two Bentley Continentals, a Range Rover Sport, a BMW X3, and a Mercedes CL55. It also includes six cherished registrations. Three of them - 1SOG, 2MSD, and 11SOG - were on three of the vehicles being transferred to Lionheart. The other three - X5SOG, SOG6S and X600MSD - were all apparently held on retention.

The effect of the transaction was that the motor vehicles and cherished registration numbers were moved from one company, owned and controlled by Mohinder and his wife, which was an insolvent trading company, to another company, also owned and controlled by Mohinder and his wife, which was dormant but solvent. Instead of looking to MSD for repayment of that element of his director’s loan account, Mohinder could now look to the solvent Lionheart. The transaction had the effect of putting Mohinder into a better position in the event of MSD going into insolvent liquidation than he would have been in if the transfer of the motor vehicles had not taken place, and I so find as a fact. The vehicles and cherished registrations were now immune from any potential creditor claims in MSD’s insolvent liquidation. Mrs Kuman expressly accepted in cross-examination - and I accept since the acceptance was contrary to the respondents’ interests - that none of MSD’s other creditors benefited from this transfer.

In closing, Mr Cousins rightly accepted: (1) that the insolvency of MSD had been established, and (2) that the relevant transaction had occurred at a ‘relevant time’. On the evidence, that is clearly the case; and I so find as facts. Mr Cousins accepted that the sole relevant factual issue was simply this: What was the motivation behind, and the real purpose, of the transaction? On that issue, he accepted that the burden was on Mohinder because he was clearly a person ‘connected with’ the company within the definition in section 249, and I so find as a fact.

Mr Cousins submits that the driving consideration behind, the motivation for, and the purpose of, the transaction was the fact that Mohinder had long planned that Lionheart would be the vehicle holding company in the family group of companies. The transfer was to bring that plan to fruition. Mr Cousins says that this is demonstrated by two things. First, in Lionheart’s own company formation documents, the holding of motor vehicles, or the sale of motor cars (which was the closest specified category of permitted business), was identified as the nature of Lionheart’s business. In this connection, I pause to observe that that was not replicated in Lionheart’s own report and accounts for the year ending 30 April 2010 (at C/350) where (under the heading “Activities”) it is merely said that the company was dormant throughout the full year. There was no reference to the holding of motor vehicles as an, or the, object of Lionheart.

Secondly, Mr Cousins relies upon Mr Alinek’s letter to the Official Receiver’s office of 2 April 2012 at C3/701. This letter is headed “MSD Cash & Carry Plc (In Liquidation)”. It reads:

It will be noted that there is no reference there to any tax advice having apparently been given by the accountant to any of the companies or its directors or family members.

Mr Cousins submits that if, in 2009 to 2010, Mohinder was simply implementing a decision taken on Lionheart’s incorporation in April 2007, at a time when MSD’s insolvency was not on the horizon, and which had nothing to do with any preference, then Mohinder has discharged the burden of rebutting the statutory inference that MSD was influenced in deciding to transfer the vehicles by a desire to improve Mohinder’s personal position.

I reject this submission. Despite Mrs Kuman’s attempts at obfuscation, in a hopeless attempt to bring forward the time of the vehicle transfer to a date before 12 September 2009 (which does Mrs Kuman no credit), I am entirely satisfied that the transfer took place on or about 16 March 2010. That is the date of the invoice, and it is consistent with the relevant form V5C DVLA registration certificates, and also the insurer’s motor fleet experience form.

I am also satisfied that the true motivation for the transfer of the motor vehicles and cherished registration numbers was to move the vehicles from an insolvent trading company to a dormant, but solvent, family company, where they would be safe from attack by creditors. I reject the explanation for the transaction provided by the respondents. If the true motivation was simply the desire to have the cars in a non-trading company, they could, and would, have been transferred the previous year, when the vehicle insurance had previously last come up for renewal. Mrs Kuman accepted in cross-examination that there was no reason not to transfer the vehicles at the time of the previous fleet insurance policy renewal in 2009. Indeed, it is not clear why the vehicles were ever transferred from Mansur, described by Mr Alinek as a company set up purely to hold assets, to MSD in the first place.

Further, it is clear from Lionheart’s accounts for the year ended 30 April 2010, at C/353 and 355, that, contrary to Mrs Kuman’s evidence, the only vehicles transferred into Lionheart’s ownership at this time were the MSD vehicles. Other vehicles owned by family companies were not treated in the same way.

I totally reject Mrs Kuman’s evidence on this point. Even if I were to accept the respondents’ case on the facts, I would still have rejected Mr Cousins’s submission because I would have found that the timing of the decision was influenced by the perceived likely insolvency and winding up of MSD, hence the contemporaneous transfer of MSD’s cash and carry business to Dale. In my judgment, that is sufficient, of itself, to satisfy the requirements of section 239(5); but in the light of my earlier finding of fact, my decision does not need to turn on that particular point. I make it clear that not only has Mohinder failed to discharge the burden upon him under section 239(5), but if the burden rested with the liquidator, then I would unhesitatingly have found that he had discharged it.

As for the balance of £50,251, the motivation for this was not addressed in the respondents’ evidence. £45,000 had been paid over to Mohinder by way of an intended dividend. When it became apparent that this dividend could not lawfully have been declared or paid, the payment was credited against Mohinder’s loan account. Clearly, he benefited from receiving this sum in cash rather than leaving it outstanding as a debt from an insolvent company. Mrs Kuman accepted in cross-examination that there had been no pressure to repay her father’s borrowings at the time. As I have indicated, I accept that evidence.

So far as the £5,251 balance adjustment is concerned, there is no real explanation about this; but since it operated to reduce the amount outstanding to Mohinder on his loan account, the clear inference is that he benefited from it in some way. In relation to both payments, Mohinder has not sought to discharge the burden upon him under section 239(6). I therefore uphold the liquidator’s preference claim in its entirety, and I will grant the relief sought under paragraph 2 of the application notice as the appropriate restorative relief.

This can be found at C4/1075. It is on MSD’s headed paper at its Second Avenue Industrial Estate address. It is addressed to Dale at the same address. It is headed “Ref: Credit Note”. The description is:

During closing submissions, there was much debate about the applicable burden of proof. I was taken by Mr Cousins to two authorities: The first is the case of GHLM Trading Limited v Maroo and others [2012] EWHC 61 (Ch), [2012] 2 BCLC 369. In particular, I was taken to the judgment of Newey J at [149]:

The second authority is the decision of Miss Lesley Anderson QC, sitting as a Deputy Judge of the Chancery Division, in the case of Re Idessa (UK) Ltd, Burke v Morrison [2011] EWHC 804 (Ch), [2012] BCC 315.

Mr Cousins distinguished those two cases on the basis that they were concerned with the evidential burden resting upon a director or other fiduciary to account for dealings with trust property that had come into his possession. Mr Cousins submitted that as to the credit note, the issue in the case is not what any director or de facto director or officer of MSD did with an asset but whether there was an asset of MSD at all. This issue turns, as the liquidator is said to have accepted in cross-examination, upon whether goods to that value had been delivered by Northrend. The burden of proof in relation to that aspect of the credit note claim is upon the liquidator to establish that the goods were delivered by Northrend. If they were not delivered, there was no chose in action of any value subsisting in favour of MSD.

With regard to the claim for £72,082.50, which is the balance of the credit note sum, the position is said to be different, in the sense that there is no issue as to delivery. On Surjit’s evidence, however, Mr Cousins submits that the invoices for the relevant supplies were subject to an agreed discount because of the condition of the goods concerned, a discount of about 5%. There is said to be good evidence in the case in relation to the three credit notes which are no longer in issue that it did indeed happen that out of date and short dated stock was supplied from time to time by MSD to Dale. So Surjit’s evidence is said to be corroborated. The applicant has to establish that there was an asset and its extent. It is for him to prove that this was so and that the quality of the merchandise was such that the value of the chose in action in respect of non-payment was in the sum alleged by the liquidator, that is to say the full non-discounted price.

In his oral submissions, Mr Briggs relied on observations by Harman J in the case of Re Barton Manufacturing Company Limited [1998] BCC 827 at 829G to 830B, 831D to E, and 832F to G in support of Mr Briggs’s submissions that the burden is very firmly upon the respondents to justify the credit note. In my judgment, the true position is as set out in the judgment of Miss Anderson QC in the case of Burke v Morrison at [28]:

In my judgment, the ultimate burden of proving misfeasance in this case on this aspect of the claim lies on the applicant liquidator. It is for the liquidator to satisfy the court that the goods were delivered; but there comes a stage in the case, and the evidence in the case, when the liquidator can be said to have adduced sufficiently cogent evidence that the court is entitled to say that, without any more evidence, that the liquidator has discharged the burden which rests upon him, and the burden then shifts to the respondents to rebut the evidence tending to show that the goods were delivered.

In the present case, the liquidator has produced the ten invoices from Northrend to MSD dated 22 March to 22 April 2010. From the annotations made on these invoices, they were entered in MSD’s SAGE records. MSD then raised mirror invoices to Dale between 1 and 7 June 2010. These were all entered into both MSD’s sales ledger and Dale’s purchase ledger. Mr Briggs relies on the fact that an invoice is a document delivered by a seller to a buyer listing the goods supplied and stating the sums due. Those invoices are evidence of delivery. There is no documentary evidence of any complaint ever having been made to Northrend that these goods were not delivered.

In answer to questions from the Bench at the end of his cross-examination, Surjit said that he could not recall directing any enquiry to Northrend about non-delivery. The credit note is undated and comes apparently out of the blue. It was entered on Dale’s purchase ledger only on 5 November 2011, some 15 months after the invoices were apparently first entered in the same purchase ledger. The credit note contains no reference to any goods not having been delivered.

Against this factual background, I accept Mr Briggs’s submission that the liquidator has raised a powerful inference, amounting to sufficient to discharge the burden of proving that the goods were, in fact, delivered as invoiced, first by Northrend and then by MSD. An undated credit note for about £1 million, entered on Dale’s purchase ledger some 15 months later, and at a time when MSD, the apparent creditor, is the subject of a statutory demand, and when a winding up petition had been presented and was shortly to be served upon the company, certainly calls for real justification from the respondents.

In closing, Mr Cousins developed the submission by reference to inferences which he said should be drawn from MSD’s sale ledger at C2/451, that the Northrend goods could not have been delivered because the monies to pay for them could only have come from Dale, yet no cash could have been, or was, forthcoming from Dale in an amount anywhere near sufficient to satisfy the Northrend invoices. So, it is said, Northrend could not have been paid for the goods. Despite that, Northrend had never raised any complaint about non-payment, even after it entered into compulsory liquidation on 8 December 2010. Mr Cousins therefore invites the court to find that the goods had not been paid for, and the reason was that they had not been delivered.

Mr Cousins also relies upon a forensic analysis of Dale’s accounts for the years 2011 and 2012 as showing that there was nothing due to MSD at any material time in respect of the Northrend goods. The inescapable inference to be drawn from MSD’s sales ledger, and from the Dale accounts, Mr Cousins submits, is that nothing had been paid, and that nothing was due in respect of the Northrend goods precisely because they had never been delivered.

Mr Briggs submits that Mr Cousins is reading far too much into what, on analysis, is merely a ledger recording sales of goods by MSD, and that Dale’s accounts are susceptible to more than one analysis and interpretation. He points out that no evidence of delivery has ever been found in relation to the goods which were the subject matter of the five invoices that are accepted as having been delivered to MSD by Northrend; and, as Surjit accepted in cross-examination, there is no documentary evidence that Northrend was ever paid for these goods, yet clearly it was.

I have borne the competing submissions of Mr Cousins and Mr Briggs, both written and developed orally in closing, firmly in mind, and I have come to the clear conclusion that the credit note was not justified by reference to the non-supply of goods to the value of some £924,000-odd. The respondents have not persuaded me that it was justified by the non-delivery of goods. Indeed, the liquidator has persuaded me that it was not so justified. Thus, I arrive at that conclusion irrespective of the incidence of the burden of proof.

I reach that conclusion for the following principal reasons. First, consistently with the terms of the credit note, the respondents’ original explanation for it contained no suggestion that its primary justification was the non-supply of goods to a value of over £924,000. The credit note, on its face, says nothing about goods not delivered.

Secondly, even when that new justification was advanced, the identity of the supplier was not disclosed to the liquidator, even though I am satisfied that it was known to Surjit. I am satisfied that this was done with a view to making it more difficult for the liquidator to investigate and interrogate the respondents’ explanation for the credit notes. It was left to the liquidator to uncover that which should have been disclosed by the respondents, consistently with their duty to co-operate with the liquidator under section 235 of the Insolvency Act 1986.

Thirdly, even now the respondents have failed to produce any witnesses (such as Mr Alinek, Ms Dalby, and even Mrs Raminder Deol, Mrs Bakshish Kaur and, above all, Mohinder) who might have been expected to support the respondents’ case if there was any truth in it. Further, the respondents have failed to produce documents such as Dale’s VAT returns and the SAGE records for both MSD and Dale, including MSD’s purchase ledgers, which might have been expected to support the respondents’ case if there was any truth in it. Dale’s VAT returns in particular should have been readily available to the respondents.

Fourthly, I have found Surjit to be a thoroughly unreliable, incredible, and dishonest witness. His account simply does not hang together, as I have already indicated when dealing with his evidence. I simply cannot accept that Northrend would have invoiced MSD for goods that had not been delivered, that MSD would have entered those invoices into its sales records, that MSD would have invoiced Dale for goods in June, and that Dale would have entered those invoices into its purchase ledger, if the goods in question had never existed because they had never been delivered. Surjit could not identify any reason why none of the ten consignments of goods invoiced by Northrend over a period of one month should never have been delivered. The only explanation that was ever offered for the non-delivery of the goods, namely the presentation of the Devon Cider winding up petition, simply does not withstand any scrutiny in terms of the chronology. I cannot accept that there would have been no discussions between Surjit and Northrend if the goods had never been delivered. Surjit accepted that he would have known if the goods had not been delivered. There is no evidence of any such discussions. Mohinder’s evidence was unable to be tested in the witness box. Mrs Kuman and Mrs Basi were unable to assist despite the evidence previously proffered by the former suggesting knowledge of the relevant dealings on her part.

Fifthly, both the circumstances surrounding the creation of the credit note and its terms point to it not having been a genuine document, for the reasons advanced by Mr Briggs in his written closing.

Sixthly, the documents relied upon by Mr Cousins are, in my judgment, capable of alternative analyses and explanation. Dale’s accounts are consistent with a ‘soft’ debt owed to a connected company (MSD) having been recorded in the entry “other creditors” in 2011 and then either written off due to the credit note or transferred to “current trade creditors” as a result of the liquidation of MSD in 2012. The accounts were unaudited, and one simply does not know what information was provided to Mr Alinek. There was no evidence from him. One does not know whether he saw the credit note or the MSD sales ledger which, by the time the accounts were drawn up, showed nothing owing in any event, when he came to prepare the 2012 accounts. Mr Alinek (who prepared the accounts), Mrs Kaur (who signed the 2011 accounts), and Mrs Deol (who signed the 2012 accounts) might all have provided assistance on these points, but they have supplied no evidence.

As for MSD’s sales ledger, there is no reason why cash payments from Dale should not have been applied to pay for all of Northrend’s goods rather than for MSD’s existing stock. As Mr Briggs points out, it is much more likely that payments by Dale to its connected company, MSD, would have been applied to paying outside suppliers to bring in more stock, and generate more sales, and thus more profit, than in paying for existing stock. In any event, the sales ledger was just that. It was not purporting to record payments.

I find that the ‘re-writing’ of the credit note to refer to undelivered stock was conceived and advanced because it was appreciated by the respondents that no court would accept the validity of a credit note for about £1 million as a price adjustment for stock that was delivered out of date, short date, or overcharged. In my judgment, no criticism can be attached to the liquidator for failing to establish any earlier than he did that the ‘non-supplier’ of the allegedly relevant stock was Northrend, or for failing to have obtained documents from that company when it had been wound up as long ago as December 2010.

As for the remaining balance of £72,082.50 now said to represent the subject matter of the actual description in the credit note, the liquidator very fairly accepted in cross-examination that a discount representing about 5% of the value of stock transferred could represent a bona fide arms’-length commercial solution to the problem of out of date or near date stock; but he added that this was not an arms’-length commercial relationship between MSD and Dale because they were connected companies with the same common family ownership.

Mr Cousins relies on the liquidator’s belated acceptance of the respondents’ case in relation to the three credit notes originally challenged by paragraph 5 of the application notice; but in relation to those three credit notes, the liquidator had conceded the respondents’ position because he accepts that the respondents have produced compelling evidence to support their case. There is no such evidence in relation to this element, indeed the only element appearing on the face of the credit note.

In my judgment, and for the reasons already stated, the burden of justifying this element of the credit note, which self-evidently relates to stock actually supplied and invoiced, falls on the respondents. In my judgment, that burden has not been discharged. On the contrary, I find that the liquidator has made out a positive case that this element of the credit note is not justified. The price to be paid for existing stock had been negotiated and agreed by Surjit. On its face, the credit note must have been created after 7 June 2010, some months after the price had been agreed and the existing stock transferred. On the respondents’ own case, the credit note does not record a genuine price adjustment for stock of about £1 million as it purports to do. On the respondents’ case, it is a misstatement of the true position because it is now said that the bulk of it relates to goods not delivered, a claim I have already rejected.

In my judgment, the liquidator has made out his case that this was a document created on the date it was entered on to Dale’s purchase ledger, 5 November 2011, in order to ‘net-off’ the outstanding balance owed to a connected company when it was on the verge of entering into insolvent liquidation. I am satisfied that it constituted a void disposition of MSD’s property, namely the chose in action constituted by the debt owed to MSD from Dale. It was manifestly a purported transaction for nil value. I am satisfied that the credit note was agreed between Mohinder and Surjit. Mrs Kuman, as she said, had no part in the creation of the credit note, and knew nothing about it at the time. Mohinder had, by then, ceased to be a director of MSD, which was without any de jure directors, but he is said still to have been receiving money for MSD.

In his third witness statement, dated 9 January 2018, Mohinder stated that it was he who had authority to issue credit notes and authorise payments and that no one else within MSD had the authority to do this unless Mohinder had specifically given it to them. I have some reservations about this evidence; but in the absence of any challenge due to Mohinder’s absence from the witness box, Mohinder cannot go behind that admission. In issuing the credit note on behalf of MSD, he could only have been so acting as a de facto director of MSD, bearing in mind that at that point in time, MSD had no formally appointed director, and Mrs Kuman had no involvement in the issuing of the credit note. But even though Mohinder was involved, I have no doubt that Surjit was also actively involved in the issuing of the credit note. He had been the buyer for both Dale and MSD in relation to the transactions to which the credit note purported to relate. He must have supplied the detail and the figures for the credit note. In doing so, I do not consider that he was acting solely for Dale, but also for MSD.

I am satisfied that even if Mohinder’s authority was required to endorse the decision about the credit note (for he was the majority shareholder in MSD), Surjit was nevertheless actively involved in the decision to issue the credit note and, in doing so, he was acting for MSD, just as much as for Dale. Mohinder could not have issued a credit note without the involvement and engagement of Surjit. This was done to ensure that no monies appeared to be due to MSD from Dale in the run up to MSD’s inevitable liquidation. Given MSD’s insolvency, and their connections with both companies, both Mohinder and Surjit were in a clear situation of conflict of interest. They acted to benefit Dale, and in a way so as to prejudice MSD and its creditors. This was all done less than a fortnight before Surjit was to accompany his sister, Mrs Kuman, to see Mr Kelmanson with a view to putting MSD into creditors’ voluntary liquidation.

At this hearing, and despite the earlier written evidence, it was clear that Surjit was the man responsible for the business of, and the affairs and dealings between, MSD and Dale. MSD’s other former officers knew very little by comparison, and they were certainly not subordinate to Surjit. It was clear from Surjit’s evidence that he was someone with a governing position and influence at MSD as well as Dale. I find that he was, at the very least, one of the nerve centres from the which the activities of MSD radiated at this time, and that he assumed a role in MSD sufficient to impose upon him a fiduciary duty to MSD, and to make him responsible for any misuse of MSD’s assets.

In the light of my finding that the credit note was not a genuine document, there can be no basis for any claim or relief under section 1157 of the Companies Act 2006, and Mr Cousins did not seek to advance any such claim. He was, in my judgment, right not to do so.

In his reply, Mr Cousins submitted that the liquidator has failed to show that the breach of duty of which he complains has caused loss or damage. It is said to be illusory to suggest that the issue of the credit note prevents MSD’s creditors from recovering monies from Dale, whose resources were said to be always completely inadequate to meet the alleged liability. Mr Cousins founds this submission upon the net asset position for Dale, as set out in its accounts for the years ending 31 March 2011, 2012, 2013, 2014, 2015, 2016, and 2017. These show respectively net asset positions of £458, £2,395, £13,002, £47,428, £206,113, £12,168, and £46,527.

It is said that if the credit note had not been issued, Dale would never have been able to pay the sums which are its subject matter. To seek to make the respondents liable for the loss of monies that MSD could not have recovered from Dale would be penal and wrong in principle, whether liability is analysed in terms of equitable compensation or damages. Mr Cousins submits that from his evidence, the liquidator seems not to have appreciated this point, although he accepted that the very best that he could hope to recover from Dale would have been the sum of £206,000, representing the most favourable asset position according to the company’s accounts, less at least £25,000 for winding up costs, leaving no more than a net recovery of £180,000.

On this point, Mr Cousins relied upon the judgment of Lord Toulson, which commanded the support of all the other members of the Supreme Court, in the case of AIB Group (UK) Plc v Mark Redler & Co Solicitors [2014] UKSC 58, [2015] AC 1503 at [62] and [64]. At [62], Lord Toulson said that it would not, in his opinion, be right to impose or maintain a rule that gave redress to a beneficiary for loss which would have been suffered if the trustee had properly performed its duties. At [64], Lord Toulson said this:

This was not an argument foreshadowed by anything in the evidence. It apparently first surfaced in Mr Cousins’s skeleton argument for this hearing, produced a couple of days in advance in January of this year.

In his closing reply, Mr Briggs made two broad points. First, he says, if the court finds that the credit note was effectively a sham, the actions of Mohinder and Surjit have been deliberate and dishonest and designed to prejudice the creditors of MSD to whom they owned fiduciary duties. Secondly, they would not have done this if all that the creditors of MSD, in the main HMRC, had stood to gain had been £458, or even £2,395. Dale’s accounts are not audited and cannot be relied upon, either as a measure of the loss suffered by the creditors, or as to what Mohinder and Surjit stood to gain, directly or indirectly, by acting in breach of duty, given their interests in Dale. Dale had stock of some £996,000-odd for which it has not paid. From the sale of this stock, Dale should have been able to pay the debt. Without a proper analysis of Dale’s books, records, and accounts, Mr Briggs submits that it is not possible to say what has happened to the stock or the proceeds of sale, or what Dale’s true financial position is, or whether there would have been similar claims for recovery by preference or misfeasance as we have seen in the case with MSD, and which may have enabled full recovery. The liability to MSD may have been included in the category of ‘other creditors’ in the 2011 accounts, in which case, Mr Briggs submits, the net assets of Dale would have been sufficient to discharge the claim in full.

In these circumstances, Mr Briggs submits that it is not possible for the court accurately to gauge the loss, and it is therefore fair for the court to award a measure of equitable compensation which includes an element of deterrence. He makes reference to the case of Murad & Anor v Al-Saraj & Anor [2005] EWCA Civ 959, especially at [76] and [77]. Giving the leading judgment in the Court of Appeal, Arden LJ said:

To formulate the court’s approach somewhat differently, and relying upon the decision of the New South Wales Court of Appeal in the case of Houghton v Immer (No. 155) Pty Limited (1997) 44 NSWLR 46, Mr Briggs submits that if a trustee’s actions have made the assessment of damages difficult and doubtful, questions will be resolved against him. He refers to the judgment of Handley JA at page 49:

Mr Briggs submits that, for those reasons, it would be wrong to restrict the compensation to £180,000. He also asks why it should be assumed, in any event, that Dale would have gone into liquidation, as opposed to paying up its assets value, and he therefore questions the deduction of £25,000 for liquidation costs, which he stigmatises as a figure taken from the air. Mr Briggs submits that the liquidator should be entitled on behalf of MSD to compensation in the full amount of £996,000-odd. He points out that there has been no disclosure by Dale, or any of the respondents, of matters germane to this aspect of the case.

In my judgment, the liquidator has sufficiently established that the issue of the credit note has prevented the liquidator from recovering monies from Dale. The respondents have not sufficiently established that there was no prospect of any actual recovery of any part of this sum at any material time. If the true amount of the loss cannot be agreed between the parties, it will have to be determined on an inquiry. In his oral reply, I understood Mr Briggs to accept that the quantum of loss to MSD could only be established on an inquiry unless the court felt able to take a robust approach and to quantify that loss now. I do not feel able to take such a robust approach in the present state of the evidence. However much I may regret that conclusion, in my judgment, there must be an inquiry as to loss.

I can deal with the third of these payments very shortly. The last two entries in Dale’s purchase ledger are an invoice with transaction date 16.08.11 for £61,478.23 and a cash payment with transaction date of 27 October 2011 which reduced the account to a nil balance. The invoice from MSD to Dale dated 16 August 2011 is at C2/563. It matches an invoice for exactly the same goods from H.U.L. Limited to MSD also dated 16 August 2011 at C2/566. The corresponding delivery note from H.U.L. dated 15 August 2011 for delivery to MSD at Dale’s trading address of Second Avenue Industrial Estate on 16 August 2011 is at C2/564. Seabrook Warehousing’s despatch note dated 15 August 2011 is at C2/565a. Seabrook would not have released the goods unless the duty and VAT had been paid. There is documentary evidence of the payment of these by Dale (in the sum of £17,888.62) at C2/567. Clearly, the goods were paid for because no claim for payment was ever made by either H.U.L. or Seabrook.

In cross-examination, Mr Ingram properly conceded that H.U.L. was likely to have been paid in full. I accept the respondents’ evidence and case on this aspect of the liquidator’s claim. The liquidator has failed to make out a case that the cash payment was not made by Dale for these goods. The liquidator has failed to make out his alternative case that Mohinder received but retained the cash payment. Rather, the respondents have satisfied me that Dale paid cash for these goods to H.U.L. I find as a fact that the last two entries in Dale’s sales ledger were simultaneous late postings of an invoice and a corresponding cash payment made on 16 August 2015. This pre-dated the presentation of the winding up petition on 12 September 2011. There was no void disposition of MSD’s property. There was no misfeasance on the part of Mohinder, or indeed of Surjit. This aspect of the liquidator’s claim is dismissed.

However, the position is different in relation to the two other cash payments, for £15,000 on 13 November 2011 and for £60,000 on 26 October 2011. No invoices have been produced corresponding to those two cash payments. In closing, Mr Cousins accepted, in relation to these other two cash payments, that we do not have the same documentation. There is no documentary evidence of any transaction to which the cash payments relate. Surjit has produced a table of invoices, credit notes, and payments at E40 which, he says, represents the totality of trading between Dale and MSD in 2011. I was taken to each of the ten invoices and the corresponding delivery notes by Mr Cousins in closing. The invoice totals are said to match the total sums paid, leaving nothing outstanding.

I am not sure that this is strictly correct because £17,888.62 is shown as having been paid to Seabrook for duty on goods invoiced by invoice D10 yet that invoice does not include the duty. So that there would seem to me a shortfall in this amount of just under £18,000. Leaving that point aside, however, the real difficulty facing the respondents is that there is no documentary evidence of the payments of £15,000 alleged by Surjit on 27 April and of £60,000 on 20 May 2011. These payments do not match any invoice. They pre-date the cash payment entries in Dale’s sales ledger by over five months.

In cross-examination, Surjit was asked about the two cash payments and he accepted that he had no documentary evidence that the cash payments were made on the dates he asserts. I asked Surjit where he had got the dates from and his response was that he had remembered the dates. He had not been able to identify precisely to whom the payments were made or for what invoices. I cannot accept Surjit’s evidence about these payments. The existence of a liability on the part of Dale to MSD has been established. The burden is, in my judgment, on the respondents to establish that the two cash payments were made. In my judgment, they have not discharged that burden. I therefore find that Dale is indebted to MSD in the total sum of £75,000.

In the light of that finding, there is no question of Mohinder being liable on any basis to account for this sum to MSD because I am not satisfied that these sums were ever paid over to him. I therefore dismiss the claim against Mohinder under this particular head of claim. The claim in relation to Dale, however, is upheld for non-payment.

Had I accepted Surjit’s evidence on this aspect of the case, then it seems to me that the claim against all three respondents would have fallen to be dismissed. On this hypothesis, which is contrary to my finding of non-payment by Dale, Dale would have paid the suppliers of goods purchased by MSD and sold on to Dale in April and May 2011, prior to the presentation of the winding up petition. Therefore, section 127 would not have been engaged, and there would have been no basis for any claim in misfeasance or breach of duty against Mohinder.

The claim for an account was addressed at paragraphs 68 to 74 of Mr Cousins’s written closing. In the course of his submissions, I was taken to observations of Lord Millett in the Hong Kong Court of Final Appeal in the case of Libertarian Investments Limited v Hall [2003] HKCFA 93 at [167] to [175]. Mr Cousins submits that where further accounts and inquiries are not likely to be productive, they should be refused. He submits that the liquidator has been able to resort to the principles identified by Lord Millett. He has done so, and has been able to carry out a calculation. There is said to be no reason to suppose, in relation to each and any of the individual respondents, that further inquiry will be either productive or fruitful. It will be time consuming and costly and advance matters no further. It should therefore be refused. Mr Cousins submits that the account has effectively been carried out as best it can and the respondents accept the calculation that the liquidator has undertaken. An order for an account should therefore be refused.

In his oral closing, Mr Cousins accepted that a claim for an account in common form made against a trustee or other fiduciary does not become the subject of a statutory bar after any time. Limitation only becomes relevant when a claim is made for payment of what is found to be due on the taking of the account. It is at that point that section 23 of the Limitation Act 1980 is engaged. He submits that the dealings with the assets in MSD have been subject to protracted investigation and cross-examination. The liquidator has felt able to prepare a detailed calculation of the amount of revenue he suspects was generated by trading in the period during which the account is claimed. That has produced a profit of some £79,000, against which have to be set costs of some £77,000, producing a net balance of less than £2,000.

The liquidator is said to have accepted that this net profit would be extinguished when other expenses were taken into account. Mr Ingram is said to have concluded that MSD’s trading had produced no profit after a detailed investigation. There is no reason to believe that any further inquiry, at great cost, will advance the liquidator’s case any further.

The court should ask itself: Is an account likely to be productive, or is there sufficient material already before the court to determine what may be due? The liquidator is said to have undertaken the exercise as fairly as he could. There is said to be no reason to suppose that a further series of protracted inquiries will advance the liquidator’s case any further. An account should therefore be refused.

In his closing, Mr Briggs submitted that the liquidator does not accept that his own workings, from inadequate records, are the beginning and end of the matter, as the respondents would wish to argue. The liquidator has tried to do his best, but only from incomplete and inexplicable documentation. Mr Briggs points to MSD’s sales ledger dated 30 September 2010 at C2/452, which indicates sales to Focus SARL about which the liquidator holds no documentation. He points out that the purchase ledgers from Mrs Basi’s company, Medway Soft Drinks Limited, at C4/886-7, indicate sales from MSD to that company after 2 June 2010.

Mr Briggs indicates that the liquidator does not accept that there was no trading after 5 September 2011. He does not know whether there was trading or not since he has had no proper account of the company’s affairs. This date for cessation of trading is said to be the date given by Mrs Kuman. Mohinder has said that MSD did not do any under bond trading after 23 November 2011, when Mrs Kuman became a director with a view to winding up the company. Mohinder has also said that MSD was still operating until 23 November 2011 and could have undertaken more sales and purchases. Mr Briggs submits that it is plain beyond argument that the respondents have given no proper account and have failed and refused to do so. The fact that MSD was dealing in cash after 2 June 2010 is said by Mr Briggs to cry out for an order for an account.

I accept Mr Briggs’s submission in preference to those of Mr Cousins. I will order an account in the terms claimed. I record that I do so with some regret, but it does seem to me that there should be a proper account. I say nothing about the costs of that exercise, and I would invite the liquidator to consider, particularly in the light of what happens when he comes to enforce any judgment in these proceedings, whether any such account is likely to prove cost effective or beneficial for the creditors in MSD’s liquidation.

That is the conclusion of my judgment. I should, however, conclude by thanking both counsel, and Mr Cousins in particular, for his submissions and assistance. On one narrow aspect of the claim, he has been successful. Although unsuccessful on the remainder of the claim, his clients should have the satisfaction of knowing that Mr Cousins has said all that could possibly have been said on their behalf, and in support of their case.

So that concludes this judgment.