Ingram v Singh & Ors

Factual and Procedural Background

This judgment concerns an application by the liquidator of Company A ("MSD"), dated 20 September 2016 and issued on 27 September 2016, relating to the affairs of MSD, a wholesale alcohol cash and carry business incorporated in 1995 and wound up in January 2012 following a petition presented in September 2011 for unpaid professional fees. The liquidator was appointed on 27 January 2012. From 2002, MSD traded in excise duty-suspended alcohol products held in bonded warehouses. Around March 2010, MSD largely ceased its own cash and carry trade but continued to purchase some alcohol goods on behalf of another family-owned company ("Company B" or "Dale"), which had taken over the cash and carry business.

MSD was part of a family group of companies operated by a family headed by the first respondent ("Mohinder"), who owned the majority of MSD’s shares and was managing director until his resignation in June 2011 due to health issues. The third respondent ("Mrs Basi") was a nominal director with little involvement. The fourth respondent ("Mrs Kuman") served as company secretary and briefly as director after Mohinder’s resignation. The second respondent ("Surjit"), Mohinder’s son, was employed as a buyer and manager but was alleged by the liquidator to be a de facto director of MSD.

Company B ("Dale") was incorporated in 2009, specializing in wholesale cash and carry alcohol trade, with shares held by Mohinder and his wife, and later controlled by Surjit’s wife. Dale took over MSD’s cash and carry warehouse and business in 2010, while MSD moved premises and continued under bond trading. Another family company, Lionheart Limited, was incorporated in 2007 to hold family motor vehicles and was dormant but solvent.

The liquidator’s application advanced claims relating to a preference given by MSD to Mohinder, an undated credit note issued by MSD to Dale, three disputed cash payments, and a claim for an account of cash sums and profits. The respondents contested all claims, defending the validity of transactions and denying misfeasance or breach of fiduciary duty.

Legal Issues Presented

1. Whether MSD gave a preference to Mohinder by setting off a director’s loan account against assets transferred to a connected company and paying a balance to him.
2. Whether an undated credit note issued by MSD to Dale constituted a void disposition, a transaction at undervalue, or a transaction defrauding creditors, and whether misfeasance occurred by certain respondents as directors or de facto directors.
3. Whether three cash payments recorded in Dale’s ledger were made, or were void transactions recoverable by the liquidator.
4. Whether the liquidator is entitled to a general account of cash sums received on behalf of MSD and of profits made by Mohinder for a specified period.
5. Whether proposed late amendments to the liquidator’s application should be allowed considering limitation periods and procedural fairness.
6. Whether Surjit was a de facto director of MSD, thereby potentially liable for breaches of duty.

Arguments of the Parties

Applicant Liquidator's Arguments

• MSD gave a preference to Mohinder by setting off part of the director’s loan account against assets transferred to Lionheart and paying a balance in cash or account adjustments.
• The undated credit note issued to Dale was a void disposition and a sham designed to prejudice MSD’s creditors, involving misfeasance by Mohinder, Surjit, and Mrs Kuman.
• The three cash payments recorded in Dale’s ledger were either never made or were void transactions recoverable by the liquidator.
• The liquidator sought a general account of cash sums and profits made by Mohinder, asserting incomplete and deficient company records.
• Proposed amendments to claims were necessary to reflect true factual bases and should be allowed despite lateness.
• Surjit acted as a de facto director, assuming fiduciary duties and controlling MSD’s business operations, responsible for misuse of assets.

Respondents' Arguments

• No preference was given to Mohinder as MSD was not influenced by a desire to prefer him; the transaction was part of a long-standing plan to hold vehicles in Lionheart.
• The credit note was issued before the winding up petition and reflected legitimate adjustments due to non-delivery, damaged, or out-of-date stock; no misfeasance was demonstrated.
• The three cash payments were made prior to the petition and were used to pay suppliers; ledger entries were delayed record-keeping.
• The claim for an account was unnecessary as the respondents had given the best possible account and no profits were shown.
• The proposed amendments were time-barred, introduced new facts, and were sought too late, causing prejudice, especially as Mohinder was absent from trial.
• Surjit was merely an employee without control over MSD’s administration and did not assume duties of a director or participate in corporate governance; no breach of fiduciary duty was established.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed factual and legal analysis of the liquidator’s claims and the respondents’ defences. It examined the nature of the alleged preference, concluding that the transfer of motor vehicles and registration plates from MSD to Lionheart and the set-off against Mohinder’s director’s loan account constituted a preference under section 239 of the Insolvency Act 1986. The court found that the transfer was motivated by a desire to improve Mohinder’s position ahead of MSD’s insolvency, rejecting the respondents’ explanation that it was part of a pre-existing plan unrelated to insolvency.

Regarding the undated credit note for £996,494.63 issued by MSD to Dale, the court found that the credit note was not justified by the non-delivery of goods as claimed by the respondents. It concluded that the credit note was a sham document created to reduce the debt owed to MSD by Dale shortly before the winding up petition, constituting a void disposition of MSD’s property and a transaction at undervalue. The court found Surjit and Mohinder responsible for issuing the credit note, acting with conflict of interest and prejudice to MSD’s creditors. The respondents failed to discharge the burden of justifying the credit note.

The court examined the three disputed cash payments. It accepted that one payment of £61,478.23 was properly made by Dale for goods supplied, dismissing the liquidator’s claim on that head. However, for the two other payments (£15,000 and £60,000), the court found no documentary evidence supporting their existence or payment and rejected Surjit’s unconvincing evidence. It held that Dale owed MSD £75,000 for these sums and dismissed any claim against Mohinder for these payments.

On the claim for an account, the court found that the respondents had failed to provide a proper account of MSD’s affairs and that further inquiry was necessary despite the liquidator’s calculations indicating minimal net profit. The court ordered an account to be taken to ascertain the true financial position and any profits made by Mohinder.

Regarding the status of Surjit, the court applied the legal tests from leading authorities to find that Surjit had assumed the role of a de facto director of MSD. It found that Surjit exercised real influence, acted on his own authority, and was effectively running MSD’s business after Mohinder’s resignation, thereby incurring fiduciary duties and responsibility for misuse of assets.

The court allowed the liquidator’s late amendments to the application, finding no prejudice to the respondents given the ample opportunity to defend themselves and that the amendments did not change the essential nature of the claims but clarified factual bases. It rejected procedural objections based on limitation periods and fairness.

Holding and Implications

The court’s final decision was as follows:

• The preference claim was upheld in full. The transfer of motor vehicles and associated set-off was a preference benefiting Mohinder, and the court will grant restorative relief accordingly.
• The claim concerning the undated credit note was upheld. The credit note constituted a void disposition and a transaction at undervalue, issued dishonestly by Mohinder and Surjit to prejudice MSD’s creditors. Compensation and recovery will be pursued, with an inquiry to determine loss.
• The claim relating to the three cash payments was partially upheld. The payment of £61,478.23 was validly made and the claim dismissed. The other two payments totaling £75,000 were not proved to have been made and Dale is liable for that sum; no liability was found against Mohinder for these payments.
• The claim for an account was allowed. Due to incomplete and deficient records and unresolved issues, the court ordered an account to be taken to determine the true position and any profits made by Mohinder.
• Surjit was found to be a de facto director of MSD. He assumed fiduciary duties and responsibility for the misuse of MSD’s assets.
• The liquidator’s late amendments to the claims were permitted. The court found no prejudice and held that the amendments clarified rather than altered the substance of the claims.

These rulings have the direct effect of restoring MSD’s position and holding liable those responsible for misfeasance and wrongful preferences. No new legal precedent was established; the court applied established principles of insolvency, fiduciary duties, limitation, and procedural fairness to the facts of this case.