Insolvency Team ' Recent Insolvency Case Update - 21 April 2021

• Published date: 26 August 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Directors and Officers, Insolvency/Bankruptcy, Personal Injury
• Law Firm: Gatehouse Chambers
• Author: Alaric Watson, Rob Hammond, Aileen McErlean, David Peachey and Lauren Godfrey

These case summaries first appeared in LexisNexis' Insolvency Case Alerter. They represent some of the more interesting insolvency decisions to have been published recently.

This summary covers:

1. Brown (Liquidator of Shahi Tandoori Restaurant Ltd) v Bashir [2021] EWHC 337 (Ch)
2. Re Mederco (Cardiff) Ltd [2021] EWHC 386 (Ch)
3. Lyle v Bedborough [2021] EWHC 220 (Ch)
4. Re TXU Ltd, Insolvency and Companies Court, 2 March 2021
5. Re Port Finance Investment Ltd [2021] EWHC 378 (Ch)

Brown (Liquidator of Shahi Tandoori Restaurant Ltd) v Bashir [2021] EWHC 337 (Ch)

Liquidator's claim in misfeasance against former directors in relation to missing cash and underdeclared VAT required the taking of an account rather than assessment of damages based on HMRC's findings.

Facts

Following an investigation by HMRC into discrepancies in the returns filed by a restaurant-owning company and its records of takings and expenditures, HMRC raised assessments for underdeclared VAT based on upscaling the turnover to account for the anomalies. After the company went into creditors voluntary liquidation, the liquidator concluded that the directors had diverted money belonging to the company to themselves and breached their duties with regard to filing truthful VAT returns. He therefore brought an application under s 212 of the Insolvency Act 1986 (IA 1986) against them for misfeasance.

Held

ICCJ Prentis accepted that the evidence pointed to the directors having diverted monies belonging to the company and that, on the balance of probability, this had been the practice of Respondent 1 (R1) from the inception of trading down to 2013. It was inconceivable that R1 had not been involved in the diversion of cash takings and very likely he had benefitted personally from them. Respondent 2 had been appointed a director later, in 2008, but during his tenure of office, even if he had not also benefitted, he was liable for failing to control R1's illicit activities. Nevertheless, contrary to the arguments advanced on behalf of the liquidator, it did not follow that the respondents were liable for the sums calculated by HMRC in scaling up the takings: the liquidator sought equitable compensation and there was evidence to suggest that the company might have benefitted from some of the missing cash; the appropriate remedy was an account on which all the factors could be brought into the reconning. In this case, however, the directors had failed to cooperate in producing the company's books and records: if...