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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> MKG Convenience Ltd, Re [2020] EWHC 547 (Ch) (09 March 2020) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2020/547.html Cite as: [2020] EWHC 547 (Ch) |
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BUSINESS AND PROPERTY COURTS IN BIRMINGHAM
Insolvency and Companies List (ChD)
In the Matter of MKG Convenience Ltd
Bull Street, Birmingham B4 6DS |
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B e f o r e :
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Mustafa Hassanali Abdulali (1) Neil James Dingley (2) (as joint liquidators of MKG Convenience Ltd) MKG Convenience Ltd (3) |
Applicants |
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- and - |
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URL Local Express Ltd (1) KKS Investments Ltd (2) Kathiraavelu Komaleswaran (3) |
Respondents |
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Marc Brown (instructed by Wilkes) for the Respondents
Hearing dates: 19 November 2019, 20 February 2020
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Crown Copyright ©
HHJ David Cooke:
i) Mr Komaleswaran was never a de facto or shadow director of MKG. He was registered at Companies House as a director for a short period in 2013, by mistake.
ii) URL has never traded at any of the stores. It was formed only to purchase stock and resell it to MKG, and any payments to it were properly made in respect of such sales of stock, or to reimburse costs of refurbishment at its stores or other liabilities of MKG that URL had paid on its behalf. URL is in fact a net creditor of MKG.
iii) The second respondent ("KKS") is the freehold owner of some of the shop premises. Payments to it were for rent at these premises or to reimburse sums KKS had paid on behalf of MKG to other landlords. KKS is also a net creditor of MKG.
iv) A third party unconnected with Mr Komaleswaran, Sandhu News Ltd ("Sandhu News"), took over the operation of MKG's shop at Egghill Lane, Northfield in February 2014. Sandhu News took over the running of all MKG's other shops in February 2015; consequently there were no stock or assets of MKG remaining at the date of liquidation.
Procedural history and disclosure given
i) by para 2 that the respondents would by 13 May 2019 deliver to the applicants' solicitors "the purchase invoices of [URL] from 18 February 2011 to 7 May 2016". Those invoices were to be left with the applicants' solicitors for 14 days, presumably for inspection and copying as required.
ii) By para 3 that the respondents would provide Extended Disclosure in accordance with Model C of the pilot scheme, by reference to the classes of documents set out in an attached Disclosure Review Document ... the DRD), by 21 May 2019. The DRD (p 233) set out a list of 10 issues for disclosure derived from Mr Komaleswaran's witness statement, and a list of the categories of documents of which disclosure was requested in respect of each of those issues.
"Unless the Respondents do comply with paragraphs 2 and 3 of the Consent Order dated 26 April 2019… by 4 pm on 24 June 2019:
(a) their evidence be struck out;
(b) they be debarred from defending the proceedings; and
(c) judgment be entered in favour of the Applicants. "
i) there were numerous pages missing from the bank statements disclosed.
ii) the death of the accountant was not a credible explanation for the absence of any accounting records. The accountant's files and records should still be available at his office, or would have been transferred to the accountant who had taken over, and in any event it was not credible that the companies themselves did not retain any copies of any such documents or of their own books and records.
iii) URL had not disclosed any purchase invoices for periods after 7 May 2015 (the date on which MKG went into liquidation) although the liquidators were aware, by reason of documents disclosed in other litigation by them against NISA (a supply organisation that had previously supplied goods to MKG at several stores) that at about that time NISA had transferred its account from the name of MKG to that of URL, and had issued a considerable number of invoices after that date addressed to URL. The liquidators had a schedule of these invoices, but URL ought to have the invoices themselves.
iv) Further, the bank statements disclosed showed that URL continued after that date to make payments to other suppliers to the stores, but no invoices or documents relating to those payments had been disclosed. The payees included Smith's News (a supplier of newspapers), and payment services called Global Payments and Paypoint, from whom it should be possible to obtain duplicates of invoices or statements of account.
v) No utility bills or records for payment of rates by URL for the 12 month period from 7 May 2015 were said to have been located, which was not credible in light of the fact that Mr Komaleswaran had been able to exhibit copies of certain invoices from just before the liquidation to a witness statement in other proceedings in 2017, and it had been accepted that URL had continued to occupy at least one of the relevant properties until December 2016.
vi) A significant part of the third party liabilities said to have been paid by KKS related to 3 invoices from a supplier called "Beni Cool Man" totalling over £170,000. According to Mr Komaleswaran, this amount was paid in cash. It was not considered credible that there were no receipts or accounting records in respect of such payments, or that the bank statements disclosed did not show any entries consistent with cash having been withdrawn in amounts sufficient to pay these invoices.
An explanation was sought for these and other discrepancies. The respondents were invited to agree that they were in breach of the unless order and that the sanctions set out in it had taken effect.
Has the order been complied with?
Further disclosure after the November hearing
i) Four of them were accounts in Mr Komaleswaran's personal name showing entries for receipts of weekly payments described as rent for properties that appear to be shops formerly operated by MKG, paid in periods at and after the date on liquidation of MKG. One such property was Strathdene Rd. Receipt of rent by Mr Komaleswaran would be on the face of it inconsistent with his evidence that the landlord of that property was an independent third party. Another was the Solihull shop. Continued receipt of rent there raises questions about his evidence that that shop had been closed and remained closed, not being traded by Sandhu News or any other party.
ii) Two of them were accounts of URL, showing many transactions consistent with it carrying on a mainly cash retail trading operation since 2011 both before and after the date of liquidation of MKG, the cash receipts of which increased from about £60,000 pm before liquidation to over £200,000 in July 2015. After May 2015 one account showed multiple large payments in and out of sums up to £50,000. Several such payments were to NISA. These transactions are on the face of it inconsistent with the respondents' case that URL existed only to buy stock for resale to MKG, and did not itself trade any of the shops. If that account is not correct, the basis for setting off sums URL paid to buy stock against monies transferred to URL from MKG is undermined.
Purchase invoices
i) He had provided by 15 May 2019 all of URL's purchase invoices up to 15 February 2015. After that date all trading at the shops was by Sandhu News, so there were no invoices relating to trading by URL after that date.
ii) He had provided by 24 June 2019 7 further boxes of invoices containing "all of URL's invoices" in periods after 15 February 2015, but these did not relate to trading at the shops (the schedule of documents sent refers to invoices for the haulage business, which is all that Mr Komaleswaran says URL was carrying on after 15 February, see p 357). Insofar as the bank statements showed that URL had paid suppliers to the shops after 15 February, URL had been reimbursed by Sandhu News.
iii) Insofar as the liquidators had been informed by NISA that NISA had traded with URL after that date, that was wrong. NISA's accounts had always been with URL (and not MKG as NISA had said in its evidence to the court). From 15 February 2015 sales from NISA were to Sandhu News, but because Sandhu News did not have an account with NISA invoices continued to be raised addressed to URL. Because Sandhu News did not have its own account with NISA, it made payment to NISA through the bank account of MKG.
iv) NISA did not send physical invoices. Orders were sent electronically from EPOS tills in the shops (para 68), to which only Sandhu News had access after 15 February. At para 70 he asserts that "as referred to above" URL never received any electronic invoices because these were sent by NISA to the EPOS tills in the shops. In fact he does not say anything "above" about invoices being sent to EPOS terminals, but only that orders would be sent from those terminals to NISA.
v) Insofar as this account is inconsistent with the evidence given in the liquidators' proceedings against NISA, the respondents were not party to those proceedings, did not have the opportunity to give any evidence in them and are not bound by the findings.
Accounting records
i) Statutory abbreviated accounts filed by URL at Companies House for periods from 2012 to 28 February 2016 (see p 1/11/367) and for KKS for periods from 2012 to 31 January 2018 (p 368). In respect of all other records the disclosure statement said "the Respondent has been unable to locate any further documents, as set [out above] the Respondents' accountant died in March 2018".
ii) Schedules to URL's VAT returns for periods from 2012 to 31 March 2015 (p 1/5/95-210) These were exhibited to Mr Komaleswaran's first witness statement (in March 2019) but not referred to in the disclosure statement filed some months later. No doubt they should have been, but I cannot regard that as a breach of the disclosure obligation.
i) According to the evidence given by NISA in the proceedings against it, a set of complete (ie unabbreviated) accounts of URL for the period to 28 February 2014 and stated to have been approved by Mr Komaleswaran on 1 May 2015 was given to NISA in connection with the transfer of MKG's account at NISA to URL (p 1/11/310). This showed that the accountants must have prepared full accounts for the directors, as well as the abbreviated accounts filed at Companies House.
ii) URL must have had VAT records for the period after March 2015, but has only disclosed those up to that date. Such records would be likely to show whether it had carried on trade at any of the shops after that date.
iii) It was apparent from records at Companies House that KKS had refinanced borrowings on its properties by obtaining funding from Natwest Bank in February 2015. It was not credible that it could have done so without presenting to Natwest accounts or other financial information such as management accounts and financial projections.
"I have supplied those records I have. It is important to bear in mind that some of those records would have been held by my accountant. He has unfortunately passed away. I have made efforts to retrieve the records such as visiting the offices et cetera; however the offices have been taken over and it has been impossible to retrieve those records in those circumstances. For the avoidance of doubt I have already supplied VAT returns, the invoices. I have not however been able to supply any accounts beyond the ones contained in Companies House as they were held by the accountant. The company did not do management accounts. I also do not have the employee records as these would have been maintained by the accountant. There were no employee contracts."
Utility invoices
i) He did not disclose even the invoices provided by the OR in his disclosure statement.
ii) If URL was in occupation of Strathdene Rd up until December 2016 it must have received those and other utility statements during that period, which should either have been produced or listed as documents no longer held.
Occupation of Strathdene Rd by URL during that period is of course inconsistent with the account Mr Komaleswaran has given in these proceedings. He did not give any explanation of that inconsistency in his third witness statement. His attempt to deal with non-disclosure by saying that he "does not have" any of these documents misses the point that even if that is so he should have disclosed them as documents formerly held.
Beni Cool Man invoices and payments
Other documents that should exist if the Respondents' case is true
Conclusions as to breach
i) All the documents subsequently disclosed were necessarily not disclosed by the date they should have been. It has not been suggested that any of them fell outside the disclosure orders made.
ii) Failure to produce or disclose and explain the absence of accounting records of URL and KKS by the due date or at all.
iii) Failure to disclose the existence of all bank accounts of all three respondents by the due date.
iv) Failure to produce or disclose and explain the absence of all pages of statements on all the bank accounts by the due date.
v) Failure to disclose utility invoices in respect of the Strahdene Rd premises.
Relief from sanction
i) Identify and assess the seriousness and significance of the breach. Has it for instance imperilled hearing dates or disrupted the conduct of the litigation?
ii) Consider why the breach occurred. If the breach is not serious or significant and/or there is a good reason for it, relief will usually be given.
iii) If it is serious or significant and there is no good reason, evaluate all the circumstances including the proportionality of the sanction to the breach, bearing in mind the importance of conducting the litigation efficiently and complying with the rules and orders,