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Insolvency Law

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Guildhall Chambers , 03 MAR 2015

Top Brands Ltd v Sharma [2014] EWHC 2753 (Ch)

Top Brands Ltd v Sharma [2014] EWHC 2753 (Ch)
(Chancery Division, HHJ Simon Barker QC (sitting as a judge of the High Court), 04 August 2014)

The court gave guidance on the standard of care to be expected from a liquidator, in negligence and as a fiduciary.

Top Brands, creditor of Mama Mia Ltd (‘MML’), in liquidation, applied under s 212 of the Insolvency Act 1986 for orders that Mrs Sharma (MML’s former liquidator) account to MML for some £548,000 paid away from the company in the course of the liquidation to a third party company, SERT, as a result of her negligence and in breach of her fiduciary duties. SERT, a customer of MML’s, had claimed that the £548,000 was a prepayment for goods, impressed with a Quistclose trust in its favour entitling it to repayment of the sum whereas in fact, SERT’s claim was fraudulent.

HHJ Simon Barker QC held that the effective cause of the loss was not the fraud, as Mrs Sharma contended, but her failure to conduct the liquidation of MML with the care and diligence to be expected of an ordinary, skilled insolvency practitioner. The judge found that had Mrs Sharma reviewed the documents as she ought to have done, she would readily have discovered a number of serious irregularities including the fact that the pattern of trading between MML and SERT involved goods always being paid for by SERT after, not before, delivery. Had she discharged her duties to a reasonable standard, the sum in question would not have been paid away before the true position as to MML’s trading, assets and liabilities had been enquired into by the liquidator. By contrast, within two months of taking office, the new liquidator discovered a VAT fraud on the part of MML thought to be in the region of some £1.5 million in addition to the SERT fraud. The judge further concluded (obiter, since he decided the claims on the basis of negligence) that Mrs Sharma’s conduct could also be characterised as a conscious disclaimer or disregard of responsibility for the assets in her charge on a material scale and were therefore a breach of fiduciary duty on her part.

The decision is under appeal.
Guildhall Chambers
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