In Levy & Partners Ltd v Barnett & Ors (Re C.C.T. Logistics Ltd and Insolvency Act 1986) [2023] EWHC 1548 a creditor claim decision was reversed by the Court after Creditors’ Meeting.
The case navigates how to appoint a Liquidator.
This case is about the Creditors Voluntary Liquidation of C.C.T. Logistics Limited (“the Company”).
In a nutshell, a connected company increased its claim at a second meeting of creditors based on having discharged some bank debt after the commencement of the Liquidation. As a result, the Liquidator voted in at the first meeting of creditors retained office.
The Meeting Of Creditors
The Liquidator was appointed on 15 July 2021 at a meeting of creditors. 5 minutes earlier Levy & Partners Ltd (“the Accountant”) sent a proof of debt to the Liquidator.
A connected company known as CCI was the only voting creditor at the Creditors’ Meeting for £5,212.
6 minutes after the start of the creditors meeting the Accountant submitted a proof of debt and supporting documents for a claim of £43,516.75.
Further Creditors Meeting
A further creditors meeting was held on 26 August 2021 at the request of the Accountant. This time CCI voted for £51,412.83 not £5,212.50.
The new claim of CCI was for various amounts including £34,976.86. CCI agreed on 11 August 2021 to discharge the Company’s debt to Barclays in respect of the overdraft facility.
CCI’s revised proof of debt was admitted for voting purposes at the new creditors’ meeting. The Accountant’s proof was marked objected to but allowed for voting purposes in the sum £43,516.75.
The Overdrawn Directors’ Loan Accounts
The Statement of Affairs dated 8 July 2021, it appears did not include the overdrawn Directors loan accounts in respect of monies owing to the Company by the Directors. The Court said:
… the Statement of Affairs dated 8 July 2021, bearing a statement of truth, which Mr Murray chose to sign and which has never been updated or corrected. The only asset declared by it was the sum of £5,212 cash at bank/in hand. No mention was made of the significant sums owed to the Company by Mr Murray and Mr Nash on their directors’ loan accounts. Mr Murray accepted in cross examination that the company accounts for the year ending 30 March 2019 showed sums outstanding on the director’s loan accounts of £137,468 and accepted that these sums had not been repaid. There was a small quibble as to whether another £30,000 or so was owed on top of that figure, but in context this was irrelevant; Mr Murray knew that at least £137,468 remained owing. He cannot have forgotten it, or the fact that at least £94,762 of that figure was owed to the Company by him personally; a liability in such a sum was plainly material from his perspective, given his concerns (as expressed at Murray(1) para [47]) about his exposure under the Barclays guarantee in the (much lower) sum of £35,000; yet he failed to declare this highly material asset of the Company in its statement of affairs. He states in his first witness statement (at para 19) that he ‘did inform the liquidator of the Directors Loan Accounts’ but notably does not state in his witness statement when he informed him. I do not accept the suggestion in evidence that he was simply guided by the Liquidator and did not realise that that the directors’ loan account should be listed as an asset of the Company in the Statement of Affairs. On the evidence overall, I am satisfied that this was a deliberate, self-serving omission.
…
Mr Murray’s written evidence was not prepared with the candour and care required of formal evidence bearing a statement of truth. His oral evidence was also inaccurate in certain material respects, a number of which are addressed in this judgment. Whilst his oral testimony was undoubtedly truthful in some respects, he was prepared to deviate from the truth when it suited his purposes.
Paying Off The Bank
It was deemed accepted by the parties that CCI paying off the bank voluntarily (if so) would mean the Company had no liability to CCI:
It was common ground that if the payment was voluntary, the Company has no liability to CCI in respect of the payment.
The Court recited the volunteer point:
This principle is set out in Chitty on Contracts (24th edn) at [32-131]:
‘It is necessary for the claimant to prove the defendant’s express or implied request to the claimant to pay the money for his use. It is not sufficient to prove the defendant was liable to a third person and that the claimant paid the third person: it must be proved that the claimant did so at the instance, express or implied, of the defendant … For no legal right to repayment will be established by the mere voluntary payment of the debt of another person; a man cannot make himself a creditor of another without his knowledge and consent ….’
A range of other technical issues arose but they all pointed towards the fact that CCI had no obligation to discharge the Company’s bank debt.
CCI based its claim on the payment of the bank debt on unjust enrichment law. That argument failed because amongst other things the debt to the bank was not discharged in full and there was no unjust factor. The Court said:
CCI has failed to establish on a balance of probabilities the unjust factor relied upon. CCI cannot demonstrate on the evidence that the Company knew, or ought to have known, that CCI expected to be paid by the Company (or remunerated in some other way by the Company). Mr Murray’s own evidence, written and oral, flies in the face of any such conclusion. Mr Murray was a director of both the Company and CCI. When asked by his own counsel in re-examination why he arranged for CCI to pay rather than paying himself, he replied: ‘I was going to take it on as a director’s loan [of CCI]’.
In addition, the Company was given no meaningful opportunity to refuse the benefit. The Liquidator was presented with a fait accompli.
The Court found it to be a voluntary payment:
There was no request from the Company to CCI and no authorisation by the Company of the payment prior to the Company entering into liquidation. I so find.
Developments In The Evidence
The Court reflected on Mr Murray’s evidence over the circumstances in which CCI had paid off the bank overdraft for the Company:
In short, Mr Murray’s new case, introduced in oral testimony, was entirely inconsistent with his written evidence and I have no hesitation in rejecting it.
On the evidence as a whole, I am satisfied that by the time of trial, Mr Murray simply realised how weak his case was on the issue of whether or not the payment was voluntary and came up with a new story.
Not A Provable Debt
In the circumstances of the case, the Court considered the definition of a provable debt as set out in Rule 14.1(3) of the Insolvency (England and Wales) Rules 2016:
- any debt or liability to which the company is subject at the relevant date;
- any debt or liability to which the company may become subject after the relevant date by reason of any obligation incurred before that date;
It concluded:
In my judgment, the Bank Debt is not a provable debt.
CCI is clearly not a contingent creditor because nothing had been done or had happened to put the Company under any existing obligation to CCI in relation to the Bank Debt before the liquidation.
In my judgment the Company had not incurred an ‘obligation’ to CCI within the meaning of rule 14.1(3)(b) IR 2016 either. The case of Nortel makes clear that there must have been some legal duty or legal relationship prior to the liquidation that gives rise to the obligation to pay. In this case, no legal duty or legal relationship arose prior to the Company’s entry into liquidation that gave rise to an obligation to pay.
Mr Murray accepted in oral testimony that no request had been made by the Company of CCI prior to the bank demand on 22 July 2021, which post-dated the Company’s entry into liquidation.
For reasons already explored, CCI has also failed to make out a case of implied authorisation prior to the Company entering into liquidation. As I have found, even if taken at face value, Mr Murray’s evidence of discussions which he claims to have had with Mr Nash in 2019 and 2020 falls far short of clearing the Duomatic threshold or establishing on the balance of probabilities an informal board resolution that CCI be authorised by the Company to pay off the Barclays overdraft.
Moreover, even if a request had been made (or implied authorisation given) prior to the Company entering liquidation, on the evidence as a whole, that of itself would not give rise to an ‘obligation’ to CCI, for the reasons addressed in paragraph 148 above.
As a result, the Court held that the vote cast in respect of the bank debt by CCI on 26 August 2021 at the creditors meeting would be reversed:
The Bank Debt was a voluntary payment. Accordingly, it did not discharge the Company’s liability to Barclays and the Company was not enriched. The unjust enrichment claim therefore fails at the first hurdle. Even if CCI had cleared the enrichment hurdle, it has failed to establish an unjust factor. In addition, for reasons previously explored, the Bank Debt is not a provable debt.
I have come to the conclusion that the appropriate course is to dispense with a further meeting of creditors and simply to order the appointment of Mr Patel as liquidator…
Post Draft Judgment Comments
It seems that since the draft judgment was circulated it came to light the first Liquidator had already earlier in the year reached a settlement of the overdrawn Director’s loan account of one of the Directors, Mr Murray in the sum of £65,000.
This had no bearing on the outcome of the litigation as the judge said:
Whilst I have found Mr Murray to have been an unreliable witness in numerous respects, in context, he would have had no reason at this point in his cross-examination to have lied about having reached a settlement with the Liquidator regarding his directors’ loan account in February 2023 and every incentive to mention it.
…
It would appear, therefore, that the timing of the settlement agreement (and the settlement sum agreed) will require further investigation.
…
…I confirm that these recent developments do not affect the ultimate conclusion reached at paragraph 227 of this judgment, which is that the appropriate course is to allow the appeal save in respect of the sum of £5,212 and to order that Mr Patel be appointed as liquidator…
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