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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Tradition (UK) Ltd v Ahmed & Ors [2008] EWHC 2946 (Ch) (05 December 2008) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2008/2946.html Cite as: [2009] BPIR 626, [2008] EWHC 2946 (Ch)

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IN THE HIGH COURT OF JUSTICE
IN BANKRUPTCY
(No 973 of 2007)
Re: EAITISHAM AHMED

		Royal Courts of Justice Strand, London WC2A 2LL
		5 December 2008

Andrew Simmonds QC:

Introduction

1. This is an application by Tradition (UK) Limited pursuant to section 262(1)(b) of the Insolvency Act 1986 ("the Act") and rule 5.22(3) of the Insolvency Rules 1986 ("the Rules") to set aside the decision of a creditors' meeting held on 29 March 2007 to approve the proposal of the First Respondent, Eaitisham Ahmed ("the Debtor"), for an individual voluntary arrangement ("IVA").
2. The application was originally issued in April 2007 by Monecor (London) Limited, trading as Tradindex.com ("Tradindex"), which is a financial spread betting company. The Debtor became a client of Tradindex in May 2003. He subsequently incurred substantial losses in spread betting activities on his Tradindex account. By June 2006 the Debtor owed Tradindex £4.27m. After the issue of the current application, this debt was assigned to Monecor's sister company Tradition (UK) Limited which was substituted as Applicant in February 2008. There is no need to distinguish between the current and former Applicants and I shall refer to them collectively as Tradindex.
3. Tradindex opposed the Debtor's IVA proposal and voted against it at the creditors' meeting. The proposal was approved by a 77.94% majority of creditors by value, which narrowly exceeded the 75% majority required by rule 5.23(1) of the Rules. That majority would not have been achieved without votes in favour of the proposal cast by the Third to Eighth Respondents who all claimed to be loan creditors of the Debtor.
4. The Third, Fourth and Fifth Respondents (to whom I shall refer respectively as "Kashif", "Saeeda" and "Samina") are, respectively, the brother, the mother and the wife of the Debtor. The Seventh Respondent ("Hornby Street") is an Ahmed family company to which I shall refer in more detail below. The Eighth Respondent ("DDW") was struck off and dissolved in June 2007 but formerly operated as a clothing wholesaler. It was owned and managed by Mr Ranjit Singh ("Mr Singh"), a friend and business associate of the Ahmed family. Little is known about the Sixth Respondent ("Mr Bhatti").
5. At the creditors' meeting Tradindex objected to the claims of the Third to Eighth Respondents being admitted to vote. The Second Respondent ("Mr Andronikou"), a licensed insolvency practitioner who acted as Nominee in relation to the Debtor's proposal and as Chairman of the meeting, marked those votes as objected to, as envisaged by rule 5.22(4) of the Rules.
6. Tradindex's principal complaint is that it has been the victim of what its Counsel described as "vote-rigging". It contends that the purported debts claimed by the Third to Eighth Respondents, who are (with the exception of Mr Bhatti) members of the Debtor's family or close associates of his, have been fabricated, or at least inflated, for the very purpose of ensuring that the IVA proposal was approved and depriving Tradindex of its right (absent a genuine 75% majority in favour of the IVA) to have the Debtor adjudged bankrupt.
7. Tradindex also has a subsidiary complaint that the Debtor's IVA proposal and Statement of Affairs contained a number of errors and omissions which amounted to a material irregularity for the purposes of section 262(1)(b) because, if those errors and omissions had been corrected, creditors (or at least some of them) might have voted differently at the meeting on 29 March 2007.
8. Thirdly, Tradindex asks the Court to make findings that, in relation to his conduct before, at and after the creditors' meeting, Mr Andronikou failed to meet the standard expected of a reasonably competent insolvency practitioner. The purpose of this part of Tradindex's application is to form the basis of a submission, after delivery of this judgment, that Mr Andronikou should be ordered to pay some or all of Tradindex's costs of the application.
9. Tradindex was represented by Mr Jonathan Lopian (instructed by Baker & McKenzie LLP). The First to Fifth and Seventh Respondents were represented by Mr Romie Tager QC and Mr Michael Green (instructed by Jeffrey Green Russell). The Sixth and Eighth Respondents were not represented before me. References hereafter to "the Respondents" are to those Respondents represented by Mr Tager and Mr Green.
10. Tradindex's application was, in accordance with the Rules, made by Ordinary Application supported by witness statements made by Mr Franco Barone, Tradindex's General Counsel. The Respondents relied on witness statements made by the Debtor, Kashif, Samina, Saeeda and Mr Andronikou and on statements made by the following:

(1) Mr Andrew Hosking, a licensed insolvency practitioner and partner in the accountancy practice of Grant Thornton, who has acted for HSBC Bank plc ("HSBC"), the Debtor's largest creditor by value, in relation to the IVA proposal.

(2) Mr Singh, who (as I have mentioned) owned and controlled DDW and is additionally said to have channelled funds to the Debtor which are said to form the subject matter of loans by Kashif and Samina.

(3) Mr Mohsin Shameem, an accountant who has assisted the Respondents in analysing and preparing financial information for the purposes of the application.

(4) Mr Mohammed Tariq, an accountant and family friend of the Ahmeds, who gave evidence in support of Saeeda's claim.

11. All these witnesses were cross-examined before me with the exception of Saeeda who was unable to attend court due to illness.
12. I will now set out the factual background to the application which is very largely uncontroversial.

Factual background

The Ahmed family businesses

13. The Debtor was born in 1962 in Pakistan. He came to England with his father in 1964. His father started a business selling clothing from a market stall and after a few years he was able to open a shop. The business prospered and the Debtor's father opened several more retail outlets before moving into the wholesale clothing business.
14. The Debtor left school at the age of 16 and went straight into the family clothing business. From 1978 to 1998 he worked with his father principally on the wholesale side. During this period the Debtor persuaded his father that they needed to change the direction of the business and, in particular, to target younger markets.
15. It appears that the Debtor led this change of direction and it produced enviable results, at least in the short to medium term. All agree that the Debtor is a mercurial, flamboyant character who, in the words of one witness, had the "Midas touch" but was capable of dissipating money as quickly as he made it. He is a "big picture" man with little interest in fine detail. By the early 1990s the business was turning over more than £45m per annum. This success funded a conspicuously wealthy lifestyle to which the Debtor remained committed even when his star later waned.
16. Although the Debtor appears to have been the figurehead during this phase of the business's history, he ensured that other members of the family were involved. In particular, the Debtor's younger brother Kashif assumed an increasingly important role in the management of the business. Kashif is a rather different character: he is understated and presents himself as more level-headed than his brother. I formed the impression that Kashif is an able and astute businessman who is nevertheless fiercely loyal to his elder brother.
17. In the late 1980s and early 1990s the business expanded rapidly. In 1999 the family acquired a retail chain of some 80 shops. Unfortunately, the retail side of the business then began to make significant losses and it eventually went into administration. Although the wholesale side of the business was considered still to be basically sound, it was a major supplier of the retail side and the collapse of the latter cost it £5m.
18. The bankers to the wholesale side were HSBC. As conditions of its continued support, HSBC required the Debtor to give a personal guarantee of the wholesale group's borrowing (by then £25m) and to accept a rationalisation and restructuring of the business.
19. In structural terms, the family businesses operated through a substantial number of limited companies trading under the umbrella title "the Juice Corporation". Administration of the businesses was based in Manchester. The current group finance director is Katherine Rowland. The following companies are particularly relevant to the issues which I have to decide:

(1) Hornby Street was (and is) the principal vehicle for the conduct of the wholesale side of the business. Its issued shares are all held by members of the Ahmed family and their close associates. The Debtor has at all material times held a little under 25% of the capital. In the period up to June 2003 the directors were the Debtor, Kashif and their sister Miss Bushra Ahmed ("Bushra").

(2) Continental Shelf 128 Limited ("Old Continental Shelf") appears to have managed the family's intellectual property assets (especially trademarks) and the business's real property. Its issued shares were held by the same people and in the same proportions as those in Hornby Street.

20. As part of the restructuring required by HSBC, the Debtor stood down from his management role and was replaced by Kashif whom HSBC considered to be more reliable. The Debtor resigned his directorships in Hornby Street and Old Continental Shelf on 30 June 2003. He continued to be employed by Hornby Street as a part-time consultant until June 2005. Kashif is managing director of Hornby Street.
21. In the period up to 2005 the fortunes of the wholesale side of the business revived sufficiently to reduce the borrowing from HSBC to below £15m. At that point HSBC declined to continue the facility and the group had to switch to Barclays Bank plc ("Barclays"). Barclays would only provide a facility of £7m and HSBC made demand for payment of the balance of £8m under the Debtor's personal guarantee. HSBC agreed to accept £4m in satisfaction of the guarantee liability to be paid in instalments over five years, subject to the entire £8m becoming due if the Debtor missed an instalment.
22. As part of the refinancing operation, Barclays required the business assets of Old Continental Shelf to be transferred to a "clean" company free from any charge in favour of other financial institutions. As a result the goodwill, assets and inter-company liabilities of Old Continental Shelf were transferred to a dormant Ahmed company called Gabicci International Limited which was renamed Continental Shelf 128 Limited ("New Continental Shelf"). The issued shares in New Continental Shelf were held by the same people and in the same proportions as those in Hornby Street and Old Continental Shelf. The sole director of New Continental Shelf was Kashif. Old Continental Shelf was renamed Heartland Initiatives Limited.
23. Throughout the period material to this application there were large inter-company balances existing between the various companies in the Ahmed group. In general, and presumably because most of the cash was earned in Hornby Street, those were balances owed by other companies to Hornby Street.

Spread betting

24. Meanwhile, in about 1998, the Debtor began playing the stock market, principally by means of contracts for differences and spread betting.
25. The nature of spread betting was explained by Rix LJ in Spreadex Ltd v Battu [2005] EWCA Civ 855 at paragraphs 2 - 3:

"2. Spread betting is not so much or not merely a bet, although it can be described as such, as a form of contract for differences. It enables a customer to take a position on a market (or an event) for a very small stake. Thus if the Dow Jones Index is, say, at 10,000, one can "buy" or "sell" the market at a spread around the index of, for the sake of example, 10 points either way, 9990 to 10,010. If one buys, one is betting that the market will rise above 10,010. If one sells, one is betting that the market will fall below 9990. If one buys and the market rises, one stands to gain £1 for every point that the index exceeds 10,010. If one sells, and the market falls, one stands to gain £1 for every point that the index falls below 9990. If, however, one calls the market wrong, then one will stand to lose £1 for every point that the index exceeds the spread point in the wrong direction. Thus if one sells at 10,000 with a sale spread point at 9990, one will make £1 for every point the market falls below 9990 and lose £1 for every point the market rises above 9990. Until the bet or "trade" is closed, the gains and losses are merely "running" gains or losses. They are real enough, but constantly changing with every change in the index, and have not yet been fixed. Closing the bet will fix the position, win or lose. Unlike a classic bet, the customer can of course lose more than his stake. Indeed, on the example given, of a sale spread point of 9990 when the market is at 10,000, if the market does not move an inch, the customer will lose £10 for every £1 staked. Nor, again unlike a classic bet, are his winnings fixed at the outset by an agreement on odds. In theory winnings based on rising markets are infinite (in practice of course they are not) and losses based on falling markets are limited only insofar as they cannot exceed the consequences of a fall in the index to zero.

3. Normally, of course, to gain by £1 for every rise (or fall) of a single point in a stock market index such as the Dow Jones would take an investment of significantly more than £1. In effect, one's £1 bet commands a position in the market significantly greater than the stake. In other words, there is a large element of gearing in the trade, and the situation is correspondingly volatile. Where the market in question is itself in a volatile phase, the risks become even greater. Thus, if the Dow Jones is capable of moving within a range of 100 or 200 points in a single day, the customer can be £100 to £200 richer or poor per £1 stake within a matter of hours of his trade. On a trade of £100, those figures become £10,000 to £20,000".

As appears from this account, spread betting is a highly geared enterprise. With a relatively modest stake, the better can win the jackpot or lose his shirt.

26. In 2000 to 2002, the Debtor embarked on a period of sustained spread betting activity with a view to winning back the millions which he had lost in the family businesses. He placed bets with a number of spread betting operations including Spreadex Limited ("Spreadex") and, from May 2003, Tradindex. Spread betting was also undertaken by Kashif and by Mr Singh.
27. The Respondents' case is that the Debtor's spread betting was very successful to begin with although he subsequently made losses which precipitated the IVA proposal. They say that they maintained faith in the Debtor's ability to return to his winning ways and, in consequence, lent him large sums to finance his spread betting activities.
28. If the Debtor was initially successful, there is little hard evidence of that before me. Mr. Hosking told me that the Debtor made £9m betting on Moss Bros shares but lost it all a few weeks later. Apart from that, the only dealings of which I have seen evidence resulted in losses. In August 2005 the Debtor and Kashif were sued by Spreadex to recover just under £1m in aggregate by way of spread betting losses following a margin call. On 13 March 2006 the claim was compromised on terms that the claim against Kashif would be dismissed but the Debtor would pay Spreadex £800,000 in eight instalments of £100,000 over the period from March to October 2006. The details of this compromise are relevant because Kashif claims that he lent the Debtor £400,000 towards payment of this liability.
29. So far as spread betting with Tradindex is concerned, and as has been mentioned, the Debtor incurred losses which, by June 2006, had reached £4.27m.

The IVA proposal

30. Tradindex served a statutory demand on the Debtor on 18 July 2006. On 1 August 2006 the Debtor applied to set the demand aside on the grounds that the account in respect of which the claim had arisen had been opened on behalf of a Bahamian corporation called Cazador Enterprises Inc and that Tradindex had agreed that any margin calls or other liabilities on the account would be met by Cazador alone.
31. The set aside application was heard by Mr Registrar Simmonds on 31 October 2006. In a reserved judgment delivered on 23 November 2006 the Registrar dismissed the application. In the course of his judgment he said:

"The defence of want of liability has, in my view, grown organically. It has been created in response to [Tradindex's] evidence".

I mention this because Tradindex contends that the same can be said of the Respondents' case in this application: their case as to the existence and quantum of debts owed by the Debtor to various family members has grown organically in response to Tradindex's arguments.

32. Meanwhile, in or about October 2006, the Debtor approached Mr Andronikou, who is a partner in UHY Hacker Young, for advice as to his financial affairs. Mr Andronikou quickly ascertained that the Debtor was insolvent and set about examining his options.
33. The possibility of an IVA was first raised with Tradindex on 14 November 2006. In an email of that date to Mr Barone, Mr Andronikou said

"…I have been retained by several members of Mr Ahmed's family to assist him with his financial difficulties. I have conducted a brief review of his personal position, and it is apparent that he is insolvent. In order to assess Mr Ahmed's options I am contacting all his significant creditors to explore their appetite to considering proposals for an Individual Voluntary Arrangement, pursuant to section 3 of the Insolvency Act 1986.

"My clients are keen to avoid Mr Ahmed's obvious option of Bankruptcy".

Tradindex relies on this email in relation to its claim for costs against Mr Andronikou. Tradindex contends that Mr Andronikou aligned himself with the interests of the Debtor and his family to such an extent that he was unable to, and did not, discharge his professional responsibilities in relation to the IVA. Tradindex argues that this process of alignment is evident in the email even at this early stage.

34. The Debtor and Mr Andronikou produced an estimated Statement of Affairs as at 1 December 2006. This disclosed an estimated deficiency of over £17m. The assets listed included:

"Investments – shares Hornby St and other Co's £150,000".

Liabilities were listed as follows:

"Tradindex	£ 4,270,000
Mrs Samina Ahmed	£ 878,000
HSBC	£ 7,475,000
Kashif Ahmed	£ 2,550,000
Saeeda Ahmed	£ 1,100,000
T. Bhatti	£ 736,000
Go Wealthy LLC – Dubai	£ 800,000
HM Revenue & Customs – income tax	£ 130,000
	_________
Total	£17,939,000

Anglo Irish Property Lending Limited (otherwise known as Anglo Irish Bank) ("AIB") was listed as a secured creditor only, apparently on the footing that its claim of £3.5m would be met from the proceeds of a property in St John's Wood over which it held a charge.

35. The estimated statement of affairs was discussed at a meeting held at Mr Andronikou's offices on 4 December 2006. The meeting was attended by the Debtor, Mr Andronikou, Mr Barone and two other representatives of Tradindex. According to Mr Barone's note of the meeting, the following statements were made:

(1) Mr Andronikou said that "third party funds have been funding most of [the Debtor's] trading in the last few years".

(2) Mr Andronikou said that "the statement of affairs is nearly in final form - but still a draft. Still working on the liabilities…I've been working on this for 3-4 weeks…The liabilities are the only area I'm not happy with. Assets are ok…I need to go through the bank statements".

(3) The Debtor said "the assets are accurate. The liabilities may need more work".

36. It appears that this meeting did not encourage Tradindex to support an IVA and on 23 January 2007 it presented a bankruptcy petition against the Debtor. There was some delay in effecting service of the petition on the Debtor and on 13 February 2007 the Debtor issued an application for an interim order pursuant to section 252 of the Act.
37. It will be convenient at this point to refer to a number of the provisions of the Act and the Rules dealing with proposals for an IVA.
38. If a debtor's proposal for an IVA is approved (with or without modifications) at a duly convened meeting of his creditors, the approved arrangement binds every person who was entitled to vote at the meeting as if he were a party to the arrangement: section 260(2). In that event, any pending bankruptcy petition is deemed to have been dismissed: section 260(5).
39. The Court may make an interim order under section 252, the effect of which is inter alia to impose a moratorium on proceeding with any bankruptcy petition pending the approval or rejection of an IVA proposal at a creditors' meeting. By sections 253 and 255 the Court may only make an interim order where it is satisfied that the debtor intends to make an IVA proposal to his creditors and that a licensed insolvency practitioner is willing to act as nominee for the purpose of supervising its implementation.
40. Section 256(1) provides that, where the Court has made an interim order, the nominee must, before the order ceases to have effect, submit a report to the Court stating whether in his opinion

(a) the IVA proposal has a reasonable prospect of being approved and implemented; and

(b) a creditors' meeting should be summoned to consider the proposal (and, if so, when).

By section 256(5), if the Court is satisfied on receiving the nominee's report that a creditors' meeting should be summoned, it must extend the period for which the interim order has effect to enable the proposal to be so considered. It is also to be noted that, under section 256(4), the nominee can apply to the Court to extend the period of the interim order if he needs more time to prepare his report. When I come to deal with the allegations made against Mr Andronikou (see paragraphs 215 to 256 below) I shall refer to the guidance in the authorities as to the responsibilities which the nominee bears in preparing this report.

41. By section 256(2), in order to enable the nominee to prepare his report, the debtor must submit to him a document setting out the terms of the proposal and a statement of his affairs. The content of these documents is regulated by the Rules. By rule 5.3 the proposal must state inter alia

(i) his assets with an estimate of their values

(ii) the extent (if any) to which particular assets are to be excluded from the IVA

(iii) particulars of any third party property to be included in the IVA and the terms upon which it is to be included

(iv) the nature and amount of his liabilities and how they are to be dealt with under the IVA (and in particular how creditors who are associates of the debtor (as defined by section 435 of the Act) are to be treated)

(v) how much it is estimated will be distributed to creditors and when.

42. With the nominee's agreement, the debtor's proposal may be amended at any time before delivery of the nominee's section 256 report: rule 5.3(3).
43. By rule 5.5(3) the debtor's statement of affairs must be certified as correct by the debtor and must contain inter alia a list of his assets with estimated values, the names and addresses of his unsecured creditors with the amounts of their respective claims and particulars of debts owed to associates. The purpose of the statement of affairs is stated to be to supplement or amplify, so far as necessary for clarifying the state of the debtor's affairs, the particulars given in the proposal. By rule 5.6 the nominee may require the debtor to provide him with further information and access to accounts and records to enable the nominee to prepare his report.
44. On 13 February 2007 the Debtor swore an Affidavit in support of his application for an interim order, exhibiting the original form of his proposal and a Statement of Affairs as at 13 February 2007. Mr Andronikou was named as the nominee. The Statement of Affairs listed the Debtor's assets in broadly the same terms as in the Statement of Affairs as at 1 December 2006 and listed his unsecured creditors as follows:

" Monecor Limited/Tradindex	£4,270,000
Mrs Samina Ahmed	£ 35,600
France Affairs/Intra Communications	£1,250,000
Kashif Ahmed/R. Singh	£3,250,000
Saeeda Ahmed	£1,100,000
M. Bhatti	£ 235,000
Go Wealthy LLC – Dubai	£ 800,000
HM Revenue & Customs – income tax	£ 130,000
HSBC Bank plc – shortfall on securities	£7,475,000
	_________
Total	£18,545,600"

45. It can be seen that, in comparison with the Statement of Affairs as at 1 December 2006:

(i) a new liability to France Affairs/Intra Communications is recognised in the sum of £1.25m

(ii) the amounts of the claims of Samina and Mr Bhatti are reduced from £878,000 to £35,600 and from £736,000 to £235,000 respectively

(iii) the claim of Kashif (now referred to as "Kashif Ahmed/R. Singh") is increased from £2.55m to £3.25m

(iv) total unsecured liabilities are increased from £17.7m to £18.5m.

46. The proposal was to the effect that creditors would receive a dividend of 9.9p in the £ compared to 2.1p in the £ on the Debtor's bankruptcy. The increased dividend in the IVA was to be secured by a combination of (a) contributions totalling £1.45m from the Debtor and his family over a five year period and (b) the waiver by the family creditors of their right to a dividend. The price for this, however, was the exclusion of most of the Debtor's assets from the IVA.
47. An interim order was made on 27 February 2007. It was extended on 13 March 2007 and further extended on 7 February 2008 to cover the period until determination of the present application.
48. Mr Andronikou's first Nominee's Report pursuant to section 256 was dated 23 February 2007. I note that this was before the interim order was first made whereas section 256 envisages the nominee's report being made only after the interim order but nothing appears to turn on this. The Report stated inter alia that

(i) Mr Andronikou was not aware of any information which would lead him to believe that the Debtor had not made full disclosure of his affairs and he had no reason to call on the Debtor for further and better particulars

(ii) he was satisfied that the Debtor's true position as to assets and liabilities was not materially different from that which was represented to the creditors by the proposal and the documents annexed thereto

(iii) although he had not had an opportunity to independently quantify the precise quantum of all the liabilities, he believed the Schedule of creditors was accurate based on the documentation (statements) from creditors which the Debtor had provided

(iv) since the proposal provided for a greater dividend than in a bankruptcy and it was support by HSBC as the largest creditor by value, he recommended that a creditors' meeting be summoned for 27 March 2007.

49. Following receipt of the Nominee's Report, Tradindex's solicitors, Baker & McKenzie LLP, wrote to Mr Andronikou on 26 February 2007. They said:

"We note that a number of Mr Ahmed's creditors are his family or employees and the value of the debts owed to these creditors, as put forward by Mr Ahmed, has varied substantially in recent months. In such circumstances, our client has serious and reasonable doubts as to the fullness or candour of the information provided by Mr Ahmed and we expect you to have taken such steps as are reasonable to satisfy yourself that…

(b) Mr Ahmed's true position as to assets and liabilities does not appear to you in any material respect to differ substantially from that which it is represented to the creditors to be".

Mr Andronikou did not respond to this letter but that was probably because Baker & McKenzie said they would be writing shortly with specific questions regarding the proposal and/or the Nominee's Report.

50. Baker & McKenzie duly wrote to Mr Andronikou on 8 March 2007 raising a number of issues, including the following:

(1) They asked for details of the Debtor's shareholdings in "Hornby Street Limited and others", estimated values of his holdings and audited accounts of the relevant companies;

(2) They asked for copies of loan agreements and other documentation in relation to the listed creditors; for details of the dates on which and purposes for which any loans were made and documentary evidence of payments having been made;

(3) They queried the discrepancies between the creditors listed in the 23 February 2007 Statement of Affairs and those listed in the 1 December 2006 Statement of Affairs which I have identified in paragraph 45 above.

The points at (2) and (3) above clearly reflected the concerns expressed in Baker & McKenzie's 26 February letter as to the bona fides of the family debts. The letter concluded as follows:

"In view of the issues raised above, you may also consider that the Proposal requires amendment prior to the hearing on 13 March 2007. As you are no doubt aware, the creditors will base their decision whether to support the IVA on the facts contained in the Proposal, and it is therefore important that the Proposal put before the creditors is factually accurate and does not include misleading or incomplete information. In particular, it is important that you are satisfied that financial information that concerns the proportion of the outstanding debt attributable to a particular creditor is completely accurate – this has a direct bearing on the voting rights of particular creditors at the meeting".

51. Baker & McKenzie's letter crossed with letters from Mr Andronikou dated 8 March 2007 enclosing (a) the Debtor's amended proposal, (b) Mr Andronikou's further Nominee's Report and (c) a notice summoning a creditors' meeting for 29 March 2007.
52. The principal change to the proposal concerned the mechanics of the £1.45m contribution from the Debtor and his family. Whereas in the unamended proposal certain assets valued at £490,000, including the Debtor's shareholdings in Hornby Street "and others", were excluded from the IVA, they were now to be included but were to be acquired by the Debtor's family in consideration of their cash contributions.
53. In paragraph 5.24 of the amended proposal the Debtor stated

"My current income has significantly been reduced to approximately £100,000 per year, the majority of my family living expenses are being paid by other family members in consideration for the energy and effort I dedicated to setting up the original business".

54. Attached to the amended proposal was a Statement of Affairs as at 8 March 2007. This was in identical terms to the Statement of Affairs as at 13 February 2007 attached to the unamended proposal. However, it was intended to be accompanied by certain Notes, copies of which were not sent to Tradindex initially. They were sent to Tradindex on 16 March. The Notes contained inter alia the following commentary on certain items in the Statement of Affairs:

"4. Shareholding in Hornby Street

I own a minority shareholding of approximately 25% of my family business, which comprises of a group of companies. These companies have experienced a protracted period of reorganisation and reconstruction, and it is therefore not possible to place an accurate valuation on these shares. For the purposes of the IVA, a value of £150,000 has been included in the statement, representing the value my brother would be prepared to pay to buy out my interest in the Group…

7. Mrs Samina Ahmed

This represents a prudent estimate of the monies borrowed from my wife in recent years…

9. Kashif Ahmed/Ranjit Singh

My main trading activities were funded by loans from my brother. In recent years, because I increased the volume of trading I found it particularly more easily to open up larger positions with spread betting organisations if he traded using other individuals accounts. Mr Singh was one of those individuals who was funded by way of my brother to assist me in opening up larger positions. I also borrowed money from my brother to bridge the gap between my earned income and living expenses.

10. Saeeda Ahmed

I was advanced a loan from my mother in 2003 to assist with my financial difficulties at the time. The monies were raised by way of an increased mortgage on her private home in Manchester.

11. M. Bhatti

This represents a personal loan to me".

55. Mr Andronikou's further Nominee's Report dated 8 March 2007 contained confirmation of the accuracy of the Debtor's Statement of Affairs in similar terms to that contained in his earlier Report but he added certain comments about the assets including the following:

"The Debtor has shareholdings in Hornby Street Limited and Legendary Investments plc. I have not been provided with a current valuation of these shareholdings and therefore consider that these will need to be professionally valued, again so that I can satisfy creditors that the acquisition by the family members, in part consideration of the third party contributions, will be at full market value and not an undervalue transaction".

56. Baker & McKenzie chased Mr Andronikou for a substantive response to the questions raised in their 8 March letter on 16 March and 20 March. Mr Andronikou's substantive response was contained in a letter dated 26 March 2007. He answered the queries summarised in paragraph 50 above as follows:

(1) The request for details of the Debtor's shareholdings in "Hornby Street Limited and others" had been "superseded by the new Proposal dated 8 March 2007".

(2) The request for documentation and particulars in respect of alleged loans met with this response:

"The list of creditors has been provided by the debtor and all creditors have received notification of the meeting. This will include a claim from HSBC Bank plc, whose claim is expected to exceed £18m. All claims that I receive will be made available to all creditors on the day of the meeting".

(3) The query about discrepancies regarding creditors in the various iterations of the Statement of Affairs was answered thus:

"The final Proposal reflects the debtor's reconciled position in respect of his creditors. Similarly, all creditors have been given Proof of Debts and asked to provide evidence of their claims. I have no other comments to make on these points. I recollect at the meeting that your client was insistent on being given the financial information and I stated at the time that it was in draft form".

57. The notice summoning the creditors' meeting on 29 March 2007 contained the rubric:

"Creditors wishing to vote at the meeting must bring with them a statement setting out details of their claim. Unless the creditor is attending in person, a proxy should be lodged at the offices of Andrew Andronikou, prior to the meeting, together with a statement of claim. Forms of proxy are enclosed for this purpose".

58. By letter dated 9 March 2007 to Mr Andronikou, HM Revenue & Customs ("HMRC") confirmed that its claim was for £130,000 as set out in the Statement of Affairs and enclosed a proxy form in favour of the Chairman of the meeting mandating him to vote for rejection of the IVA.
59. Under cover of a letter dated 26 March 2007 Baker & McKenzie sent to Mr Andronikou Tradindex's statement of claim in the sum of £4,796,621 together with supporting documents. The excess over the £4.27m recognised in the Statement of Affairs represented for the most part interest and costs. Tradindex did not complete a proxy form as it intended to be represented, and vote, at the creditors' meeting.
60. Under cover of a letter dated 27 March 2007 AIB's solicitors sent Mr Andronikou a statement of claim in the sum of £2,075,164 (together with supporting documentation) and a proxy in favour of the Chairman mandating a vote for acceptance of the IVA. The covering letter explained that the debt of £3.5m recognised in the Statement of Affairs was incorrect because that amount was owed by one of the Ahmed family companies, Deauville Properties Limited ("Deauville"), in connection with a property development but the Debtor's liability derived from a personal guarantee which was limited to £2m plus interest and costs. AIB further explained that it was not a secured creditor of the Debtor: its security related entirely to the liability of Deauville.
61. AIB's intervention came as a surprise to all concerned. It had been assumed that AIB was a secured creditor which was accordingly not entitled to vote at the meeting: rule 5.23(3) of the Rules.
62. On 28 March 2007 HSBC lodged a statement of claim in the sum of £8,346,305 and a proxy in favour of Mr Hosking mandating a vote for acceptance of the IVA subject to the modification that Mr Hosking be appointed joint supervisor to act together with Mr Andronikou. The excess over the £7,475,000 recognised in the Statement of Affairs was accounted for by interest.
63. Neither France Affairs nor Go Wealthy LLC lodged a statement of claim or proxy.
64. The following further statements of claim and proxies were sent to Mr Andronikou before the meeting:

(1) Kashif lodged a statement of claim in the sum of £3,882,424 together with a proxy in favour of the Chairman mandating a vote for acceptance. The claim was for £632,424 more than the figure recognised in the Statement of Affairs. The statement of claim was not signed by Kashif but the proxy form was. Particulars of the debt were said to be contained in the documents attached to the statement of claim which consisted of one page of a bank statement relating to the Debtor's account with the Bank of Scotland and 12 pages of company ledgers purporting to evidence director's loans made to the Debtor. Kashif also sent a letter dated 28 March 2007 to Mr Andronikou which stated as follows:

"Obviously, I am concerned about my brother's financial difficulties and would like to assist him. I know that he has experienced a few difficult years during which he has lost substantial monies. I, along with my family members, have supported his endeavours because we believe in his entrepreneurial business methods and have full confidence that he will be successful.

I am personally owed in excess of £3.8 million and I am willing to pledge further monies to assist him to avoid Bankruptcy, which will, in my opinion, destroy him and cause irrevocable damage to my family…".

(2) Samina lodged a statement of claim in the sum of £296,449 and a proxy in favour of the Chairman which did not contain any voting instructions (I suspect this was an oversight on Samina's part). The claim was for £260,849 more than the figure recognised in the Statement of Affairs. Particulars were said to be contained in the attached documents which consisted of a schedule and 14 pages of bank statements relating to Samina's account with Barclays.

(3) Saeeda lodged a statement of claim in the sum of £1,363,389 and a proxy in favour of the Chairman mandating a vote for acceptance. The excess over the figure of £1.1m recognised in the Statement of Affairs was attributable to interest on the capital sum.

(4) Mr Bhatti lodged a statement of claim in the sum of £305,504 and a proxy in favour of the Chairman mandating a vote for acceptance. The claim was for £70,504 more than the figure recognised in the Statement of Affairs. Particulars of the debt were said to be contained in the attachment to the statement of claim which was a one page schedule headed "Bhatti loan" which appeared to detail payments to the Debtor principally from an unidentified Bank of Scotland account.

(5) Hornby Street lodged a statement of claim in the sum of £953,109 together with a proxy in favour of the Chairman mandating a vote for acceptance. In fact both the statement of claim and the proxy form referred to the creditor as "Mr Kashif Ahmed, Hornby Street Limited" but it is common ground that the claim was intended to be by Hornby Street. No liability of any amount to Hornby Street had previously been mentioned by the Debtor. Particulars of the debt were said to be contained in the attachment to the statement of claim which consisted of 12 pages detailing invoices raised by Hornby Street in respect of the Debtor for the period from March 2006 to February 2007.

(6) DDW lodged a statement of claim in the sum of £200,000 together with a proxy in favour of the Chairman mandating a vote for acceptance. The statement of claim and proxy both referred to the creditor as "Ranjit Singh, Discount Designerwear", but again it is accepted that the claim was intended to be by DDW. Although Mr Singh had been referred to in the Statement of Affairs in connection with Kashif's claim ("Kashif Ahmed/R. Singh") it had not previously been suggested by the Debtor that he owed money to Mr Singh's company. Particulars of the debt were said to be contained in "documents ordered from bank – to follow".

65. All the documents referred to in paragraph 64 above were received by Mr Andronikou on 28 March 2007, the day before the creditors' meeting. With the exception of those relating to Mr Bhatti and DDW, they appear to have been faxed from the London offices of Tymex Investments Limited (another company controlled by the Debtor) either direct to Mr Andronikou's firm or indirectly via Kashif's office in Manchester.
66. Before turning to the events of the creditors' meeting, I should refer to the relevant provisions of the Act and the Rules regulating its conduct.
67. Section 258 provides that a creditors' meeting summoned under section 257 shall decide whether to approve the proposed IVA. The proposal may be approved with modifications agreed by the debtor: section 258(2). By section 258(6) the meeting is to be conducted in accordance with the Rules. Section 259 provides that the Chairman must report the result of the meeting to the Court.
68. Rule 5.19 provides for the nominee to chair the meeting unless he is unable to attend. Rule 5.21 provides that every creditor who has notice of the meeting is entitled to vote at the meeting or any adjournment of it. A creditor's entitlement to vote is calculated by reference to the amount of his claim as at the date of the interim order.
69. By rule 5.23(1), a resolution approving a proposal for an IVA must be passed by a majority in excess of three-quarters in value of creditors voting in person or by proxy. Rule 5.23(3) provides that a creditor's vote may not be counted if written notice of his claim is not given either at the meeting or before it. This highlights a point made by Mr Andronikou in his oral evidence, namely that it is a common occurrence for previously unknown creditors to turn up at a meeting summoned to approve an IVA. Such creditors have every right to turn up on the day and vote provided they lodge a written statement of claim at the time.
70. The provision for a 75% majority by value is qualified by rule 5.23(4) which provides, in effect, that the IVA must also be approved by a 50% majority by value of creditors who are not associates of the debtor.
71. Rule 5.24 deals with adjournments of the meeting. It provides that

"On the day on which the creditors' meeting is held, it may from time to time be adjourned".

It further provides that

"If on that day the requisite majority for the approval of the voluntary arrangement with or without modifications has not been obtained, the chairman may, and shall if it is so resolved, adjourn the meeting for not more than 14 days".

As will be seen, these provisions are relevant to Tradindex's allegation in respect of Mr Andronikou's conduct of the meeting.

72. Rule 5.22 deals with the procedure for admission of creditors' claims for voting purposes and is critical to the disputed debts issue:

"5.22(1) Subject as follows, at the creditors' meeting the chairman shall ascertain the entitlement of persons wishing to vote and shall admit or reject their claims accordingly.

5.22(2) The chairman may admit or reject a claim in whole or in part.

5.23(3) The chairman's decision on any matter under this Rule or under paragraph (3) of Rule 5.21 is subject to appeal to the court by any creditor or by the debtor.

5.22(4) If the chairman is in doubt whether a claim should be admitted or rejected, he shall mark it as objected to and allow votes to be cast in respect of it, subject to such votes being subsequently declared invalid if the objection to the claim is sustained.

5.22(5) If on an appeal the chairman's decision is reversed or varied, or votes are declared invalid, the court may order another meeting to be summoned, or make such order as it thinks just.

The court's power to make an order under this paragraph is exercisable only if it considers that the circumstances giving rise to the appeal are such as give rise to unfair prejudice or material irregularity.

5.22(6) An application to the court by way of appeal against the chairman's decision shall not be made after the end of the period of 28 days beginning with the first day on which the report required by section 259 is made to the court.

5.22(7) The chairman is not personally liable for any costs incurred by any person in respect of an appeal under this Rule".

73. The creditors' meeting on 29 March 2007 was attended by Mr Andronikou (as chairman and nominee) and two of his assistants from Hacker Young, by Mr Barone and a Mr Fischer on behalf of Tradindex together with two solicitors from Baker & McKenzie, by Mr Hosking on behalf of HSBC and by the Debtor and his solicitor. The meeting lasted approximately three hours. A detailed file note by Baker & McKenzie is in evidence.
74. The meeting was a rather bad-tempered affair. This resulted mainly from the fact that Tradindex's representatives asked a large number of questions of both the Debtor and Mr Andronikou regarding the Debtor's assets and liabilities (particularly with regard to the substantial increase in the claims of the Ahmed family and their associates in the period since 8 March) and they felt they were not getting appropriate answers. For his part, Mr Andronikou considered many of the questions to be misdirected, particularly those relating to the steps he had taken to verify the Statement of Affairs. He considered that Tradindex could examine the statements of claim and supporting documents after the meeting with a view to considering an appeal under rule 5.22(3) and that the real purpose of the meeting ought to be to question the Debtor in person.
75. The flavour of the meeting can be gathered from the following extracts from Baker & McKenzie's note:

"41. [Mr Barone] asked [the Debtor] to explain why his family is owed money by him. [The Debtor] replied that there was no point in his explaining as they (Monecor) would not believe him. He would not answer.

42. [Mr Yates of Baker & McKenzie] questioned what steps [Mr Andronikou] had taken to satisfy himself as to the credibility of the creditors' claims. [Mr Andronikou] stated that he had written to all the creditors listed and asked them to provide details; he looked at [the Debtor's] bank statements up to about last October. [Mr Yates] asked whether [Mr Andronikou] had written to all creditors and traced things through bank account information.

43. [Mr Yates] queried what [Mr Andronikou] had done in relation to Kashif Ahmed's £3.8m claim. [Mr Andronikou] said that the proof of debt is with the other proofs. [Mr Andronikou] stated that he is satisfied as to the proof of debts and was not prepared to be cross-examined…

47. [Mr Andronikou] asked [the Debtor] whether there were any more potential debt claims against [the Debtor]. [The Debtor] said that he was comfortable with the current position, however there may be more claims…

74. …[Mr Fischer] considered the events of the meeting to be a "joke". [Mr Fischer] said that it was his personal belief that the family members' debts had been very cleverly calculated in order to reduce Monecor's share below 25%".

76. It is clear from the Baker & McKenzie note that the proxies had been added up at an early stage of the meeting so that all who were present knew that, subject to any claim being rejected, the IVA would be approved (subject to the modification that Mr Hosking be joint supervisor) by a majority of 77.94% to 22.06%. When it came to the formal vote at the end of the meeting, Tradindex stated its objection "for the record" to the claims of Kashif, Samina, Saeeda, Hornby Street, Mr Bhatti, DDW and AIB. There is no suggestion in the Baker & McKenzie note that anyone asked Mr Andronikou either to reject any of the claims for voting purposes or to adjourn the meeting so that further investigations in respect of them could take place before the IVA was voted on. Tradindex's representatives seem to have accepted that Mr Andronikou would have to admit the disputed claims for voting purposes but mark them as objected to (pursuant to rule 5.22(4)) and that Tradindex's remedy lay in an appeal from that decision.
77. I should mention at this stage that, although Tradindex formally objected to AIB's claim, it was common ground at the trial that AIB had been properly admitted to vote at the meeting in respect of a claim for £2,075,164. In fact, following the sale of the St John's Wood property on which AIB's loan to Deauville was secured, its claims have since been fully discharged so its unsecured claim against the Debtor has evaporated.
78. Mr Andronikou delivered his section 259 report to the Court on 2 April 2007. The report records that the IVA had been approved by a majority of 77.94% of all creditors and 70.65% of non-associated creditors, thereby satisfying the requirements of rule 5.23. The only oddity about this document is that the voting schedules record Mr Bhatti's claim as having been admitted in the sum of £285,504 rather than the £305,504 figure given in his statement of claim. There is no explanation for this in the contemporary documents and Mr Andronikou could not offer one in the course of his oral evidence.

Tradindex's application

79. It will be convenient at this stage to say something about the interlocutory stages of these proceedings and, in particular, the nature of the evidence adduced by the Respondents.
80. The application was issued on 26 April 2007 (within the time limit prescribed by rule 5.22(6)). The application was supported by Mr Barone's first witness statement. At that stage the only Respondents were the Debtor and Mr Andronikou. They answered Mr Barone's evidence with statements from the Debtor, Mr Andronikou and Mr Hosking. Mr Hosking's statement dealt with the history of HSBC's involvement with the Ahmed family and why HSBC supported the IVA. The Debtor's statement responded in very argumentative style to Mr Barone's allegations of material irregularity in relation to the proposal document. He did not deal at all with the disputed debts. The lead evidence on the disputed debts was given in Mr Andronikou's first statement dated 19 June 2007, even though he had no first-hand knowledge of them and had, by definition, been "in doubt" regarding them for the purposes of rule 5.22(4). Mr Andronikou concluded in paragraph 32 of his first witness statement:

"I am satisfied that the creditors voting in favour of the Proposal stated bona fide claims".

81. In paragraph 8 of his second witness statement (in reply) Mr Barone observed:

"…it is noteworthy that none of the creditors to whom objection has been taken by Tradindex has chosen to provide written evidence in answer to this application and that even Mr Ahmed, the alleged debtor, has left Mr Andronikou (without first-hand knowledge) to deal with this matter".

82. Notwithstanding this challenge, the Respondents who claim to be creditors of the Debtor did not themselves adduce any substantive evidence as to the nature and circumstances of the debts until 16 April 2008. This was after the Third to Eighth Respondents had been joined on Tradindex's application on 11 September 2007 and was the last day before the Respondents were to be debarred from filing evidence pursuant to an order made on 11 April 2008.
83. The Respondents' evidence has since been supplemented by five further witness statements served during the course of the trial. It was not until his third witness statement served on 11 June 2008 that the Debtor actually confirmed that the disputed debts were owed by him.
84. The other principal feature of the Respondents' evidence to which I should refer at this stage is that the quantum of a number of the claims has undergone further change from the figures contained in the March 2007 statements of claim, in some cases both in Mr Andronikou's June 2007 witness statement and in the individual Respondent's own statement in April 2008.
85. The extent to which the amounts of the disputed debts have shifted over the course of the history of this case is helpfully summarised in a table set out in Mr Lopian's skeleton argument which I reproduce below:

Creditor	Unsecured creditors per Estimated Statement of Affairs at 8 March 2007 (£)	Claims as at 29 March 2007 (creditors' meeting) (£)	Claims as at 19 June 2007 (per Mr Andronikou's witness statement) (£)	Claims as at 16 April 2008 (per disputed creditors' witness statements) (£)
Kashif Ahmed	3,250,000	3,882,424	2,746,500	3,221,500
Hornby Street Ltd	N/A	953,110	2,955,211	2,898,892
Discount Designer Wear	N/A	200,000	110,500	110,500
Samina Ahmed	35,600	296,449	332,319	477,961
Saeeda Ahmed	1,100,000	1,363,389	1,363,389	1,102,154
Tahir Bhatti	235,000	285,504	285,504	285,504
Total	4,620,600	6,980,876	7,793,423	8,096,511

The disputed debts

Legal principles

86. This part of Tradindex's application is governed both by rule 5.22(3) and by section 262(1)(b). Rule 5.22(3) provides that any creditor, which plainly includes Tradindex, may appeal to the Court against a decision of the chairman of the creditors' meeting to admit or reject a claim for voting purposes. In the context of the present case, the Court is required to determine, in the case of each of the Third to Eighth Respondents, whether the claims admitted by Mr Andronikou under rule 5.22(4) should have been (a) admitted in the same amount or (b) admitted in a smaller (and, if so, what) amount or (c) rejected entirely.
87. The Court's determination of those questions will decide whether Tradindex's appeal under rule 5.22(3), in the case of each relevant Respondent, succeeds or fails. If it succeeds, the further question of what order (if any) should be made is dealt with in rule 5.22(5): the Court may order another meeting to be summoned or may make such other order as it thinks just. However, the Court may only make an order if it considers that the circumstances giving rise to the appeal are such as to give rise to unfair prejudice or material irregularity. Tradindex relies on material irregularity and not on unfair prejudice.
88. That proviso dovetails with section 262(1) which provides:

"Subject to this section, an application to the court may be made, by any of the persons specified below, on one or both of the following grounds, namely –

(a) that a voluntary arrangement approved by a creditors' meeting summoned under section 257 unfairly prejudices the interests of a creditor of the debtor;

(b) that there has been some material irregularity at or in relation to such a meeting".

Such an application may be made by a creditor entitled to vote at the meeting: section 262(2). The reference in section 262(1)(b) to material irregularity "at or in relation to such a meeting" means that section 262(1) has a wider scope than rule 5.22(3). Tradindex's complaint that the claims of the Third to Eighth Respondents were wrongly admitted to vote falls within section 262(1)(b) ("…material irregularity at…such a meeting") provided there has been a material irregularity as required by rule 5.22(5). But section 262(1)(b) also covers material irregularity "in relation to such a meeting" which would include material errors or omissions in the debtor's proposal or his statement of affairs: Re a Debtor (No 87 of 1993) (No 2) [1996] 1 BCLC 63, 95g per Rimer J. That provision is therefore the basis of Tradindex's subsidiary complaint in relation to errors and omissions in the Debtor's proposal and Statement of Affairs.

89. If grounds are established under section 262(1), the Court may revoke or suspend the approval of the IVA and/or direct the summoning of a further meeting of creditors (and for the latter purpose may continue any interim order): section 262(4), (6).
90. The nature of the exercise which the Court conducts on an appeal under Rule 5.22(3) was explained by Blackburne J in Re a Company (No 004539 of 1993) [1995] 1 BCLC 459, 466:

"In my view, the task of the court, on an appeal under r 4.70(4) of the Insolvency Rules 1986, is simply to examine the evidence placed before it on the matter and come to a conclusion whether, on balance, the claim against the company is established and, if so, in what amount. I would only add that, in considering the matter, the court is not confined to the evidence that was before the chairman at the time that he made his decision but is entitled to consider whatever admissible evidence on the issue the parties to the appeal choose to place before the court".

As appears from that passage Blackburne J was dealing with the very similar provisions of the Rules governing meetings of creditors of insolvent companies but I agree with John Martin QC in Re a Debtor (No 574 of 1995) [1998] 2 BCLC 124, 128 that exactly the same approach should be followed in personal insolvency cases.

91. So the Court must decide the issues to which I have referred in paragraph 86 above on the balance of probabilities having considered all the evidence adduced by the parties at the hearing of Tradindex's appeal. Moreover, it seems to me to follow that, if I am left in doubt whether the relevant claims are established, I should reject them and allow Tradindex's appeal accordingly. The burden of establishing a claim against any debtor must lie on the creditor alleging it. This is recognised in Blackburne J's formulation ("whether, on balance, the claim against the company is established and, if so, in what amount"). Although in an earlier passage in the same case he referred to "the onus of demonstrating that the chairman's decision was wrong" as lying on the appellant, in context this can only mean establishing that the chairman was "wrong" in the sense that, on mature consideration, the creditor has not established his claim on the balance of probabilities. There are three further points which should be mentioned at this stage.
92. First, as appears from the table set out in paragraph 85 above, the claims of Hornby Street (in particular) and Samina were alleged by the Respondents at the hearing to be greater than the amounts in which they were admitted to vote at the creditors' meeting. Mr Lopian submitted that, on Tradindex's appeal, the Court is concerned only with the question whether Mr Andronikou should have rejected the claims of those Respondents or should have admitted them in a smaller amount so, in each case, the claim as admitted at the meeting (and not the higher value contended for by the Respondents) is the starting point for the enquiry. I accept that submission but nevertheless (and I understood Mr Lopian to accept this) the Court must in practice determine whether the alleged greater claims are valid because the relevant Respondents would be free at any further creditors' meeting to increase their claims and this accordingly impacts on the exercise of the Court's discretion (if Tradindex's appeal were to succeed) whether to direct the summoning of such a meeting given the evidence of creditors' voting intentions.
93. Secondly, the claims of the Third to Eighth Respondents are all based on alleged loans. They say that they lent money to the Debtor either to finance his spread betting activities or to fund his general living expenses and those loans have not been repaid. The Court's task is therefore to determine whether on the balance of probabilities such loans were in fact made. In the case of Hornby Street's claim, it is common ground that large amounts of company money were in fact paid to or applied for the benefit of the Debtor. It would be tempting for the Court to consider whether, in such circumstances, there was any, or any lawful, explanation for the payments other than a loan and, if there was not, to conclude that the payments must have been loans. In this regard, Mr Lopian in his closing submissions made a number of what he described as "suggestions" as to how such payments could be explained otherwise than as loans. On reflection, it seems to me that it would not be appropriate for the Court to engage in this sort of comparative exercise. If I am not satisfied on the balance of probabilities that a loan was made, I should allow Tradindex's appeal whether or not a better explanation for the payment presents itself. This approach is, I think, supported by the following passage from the speech of Lord Brandon of Oakbrook in Rhesa Shipping SA v Edmunds [1985] 1 WLR 948, 955-956:

"My Lords, the late Sir Arthur Conan Doyle in his book The Sign of Four, describes his hero, Mr Sherlock Holmes, as saying to the latter's friend, Dr Watson: "How often have I said to you that, when you have eliminated the impossible, whatever remains, however improbable, must be the truth?" It is, no doubt, on the basis of this well-known but unjudicial dictum that Bingham J decided to accept the shipowner's submarine theory, even though he regarded it, for seven cogent reasons, as extremely improbable.

In my view there are three reasons why it is inappropriate to apply the dictum of Mr Sherlock Holmes, to which I have just referred, to the process of fact-finding which a judge at first instance has to perform at the conclusion of a case of the kind here concerned…

The third reason is that the legal concept of proof of a case on the balance of probabilities must be applied with common sense. It requires a judge at first instance, before he finds that a particular event occurred, to be satisfied on the evidence that it is more likely to have occurred than not. If such a judge concludes, on a whole series of cogent grounds, that the occurrence of an event is extremely improbable, a finding by him that it is nevertheless more likely to have occurred than not, does not accord with common sense. This is especially so when it is open to the judge to say simply that the evidence leaves him in doubt whether the event occurred or not, and that the party on whom the burden of proving that the event occurred lies has therefore failed to discharge such burden".

94. Thirdly, I should refer to the broad submission made by Mr Lopian at the start of his closing speech that the Respondents' case had a "smell" about it and that the circumstances bore all the hallmarks of a "stitch-up". He relied in particular on

(1) the Debtor's unsuccessful attempt to set aside the statutory demand;

(2) the striking changes in the identity of the Debtor's creditors, and in the amounts of their claims, over the period between December 2006 and the creditors' meeting in March 2007, including in particular the emergence of Hornby Street and DDW as new creditors the afternoon before the meeting; and

(3) the fact that the claims of the Third to Eighth Respondents at the meeting were just sufficient to ensure the requisite 75% majority for approval of the IVA.

Mr Lopian's thesis was that shortly before the meeting the Debtor's family had put their heads together and worked out, on the basis of claims received up to that point, the quantum of further claims from associated creditors required to cross the 75% threshold and they had adjusted their existing claims and fabricated new claims accordingly. This, Mr Lopian submitted, was borne out by the paucity of the supporting documentation attached to the statements of claim submitted by the disputed creditors and by the fact that if, as everyone expected until 27 March 2007, AIB had not voted, the majority secured by the vote of the disputed creditors would have been 75.67%, a wafer thin margin over the requisite 75% which cannot be a coincidence.

95. As to this, I accept that the matters on which Mr Lopian relied are such as to excite the Court's suspicion as to the bona fides of the disputed debts. Indeed, I would say that that suspicion is reinforced by the manner in which the Respondents' evidence in these proceedings was prepared. I have referred to this in paragraphs 79 to 85 above. The impression is given of parties who avoided committing themselves to a detailed account of the composition of their claims until the last possible moment.
96. However, I remind myself that the Court must determine the validity of each Respondent's claim on the basis of the evidence relating to the claim and not on the basis of some predisposition to find that there has been a "stitch-up". The appropriate response to Mr Lopian's broad submission is, I think, to focus sharply on whether the Respondents' claims are corroborated either by the contemporary documents or by other reliable evidence.

(i) Kashif's claim

Kashif's case

97. At trial Kashif claimed to be a creditor for £3,221,500. This figure comprised three basic elements:

(a) a loan of £700,000 made to the Debtor in August 2004 in order to fund the Debtor's spread betting activities;

(b) a loan of £400,000 by way of partial discharge of the Debtor's liability to Spreadex for £800,000 under the March 2006 settlement referred to in paragraph 28 above; and

(c) loans totalling £2,121,500, again principally in order to fund the Debtor's spread betting, which were made between December 2005 and November 2006, not directly by Kashif but by Mr Singh using profits which were derived from his own spread betting activities but which were generated from funds provided to Mr Singh by Kashif (so that the true lender was Kashif and Mr Singh merely a conduit).

Tradindex's case

98. Tradindex contended that Kashif had no claim at all. As for the three elements of the claim identified above, Tradindex argued as follows:

(a) The £700,000 loan was never made. The payment relied on is best explained as a recycling of the Debtor's own money.

(b) The £400,000 payment to Spreadex, if made by Kashif, should be treated as a gift and not as a loan.

(c) The £2,121,500 allegedly lent via Mr Singh could at best only be £1,421,500 as the Respondents had double-counted £700,000 and, as for the balance, although the payments to the Debtor were made, they were not loans and were probably refunds of the Debtor's own money.

Discussion

(a) The £700,000 loan in August 2004

99. Kashif and the Debtor both operated bank accounts at the same branch of Bank of Scotland in Manchester. Kashif produced a statement showing that £700,000 was transferred from his account to the Debtor's account on 4 August 2004. However, at the date of that transfer the balance on Kashif's account was £733,841 and the Debtor's bank statements show that two days earlier, on 2 August 2004, £700,000 was transferred from his account to Kashif's account. Absent any other explanation, I would infer that the payment relied on was in fact the Debtor's own money being recycled through Kashif's account, even though there is no evidence to suggest what the purpose of that exercise would have been.
100. Kashif's explanation for this in cross-examination was that the payment by the Debtor on 2 August 2004 was a repayment of an earlier loan and that the 4 August payment was accordingly a fresh loan of £700,000 to the Debtor.
101. I am unable to accept this explanation. First, it seems to me implausible that the Debtor would have repaid a loan of £700,000 to his brother only to borrow the same amount from him two days later. Why not just extend the period of the initial loan? Mr Tager suggested that the Debtor could have been concerned to show his brother that he could repay monies borrowed from him. This seems to me unlikely: it was a feature of the evidence relating to the disputed debts as a whole that the Debtor was never asked to, and never did, make cash repayments of the alleged loans. Secondly, the bank statements to which I have referred were produced as exhibits to Kashif's second witness statement. It must have been obvious that the payment of £700,000 by the Debtor on 2 August would be called into question. However, Kashif's statement made no mention of any earlier loan nor were any earlier bank statements produced to evidence that loan.
102. I note also that there is no suggestion in Mr Andronikou's first witness statement (which, as I have explained, was initially the Respondents' lead evidence on the disputed debts) of a £700,000 loan having been made directly by Kashif to the Debtor. The relevant part of Mr Andronikou's statement was verified by Kashif.
103. I find on the balance of probabilities that the £700,000 loan was not made.

(b) The £400,000 Spreadex payment

104. It was tentatively suggested on Tradindex's behalf that the £400,000 paid by Kashif was not in respect of the Spreadex settlement but rather in respect of Kashif's own trading because the dates of the four cheques for £100,000 each written by Kashif did not match the due dates for the instalments under the settlement agreement. However, I regard that as insignificant and am satisfied that Kashif did discharge that part of the Spreadex debt.
105. Tradindex argues that I should infer that this payment was made by way of gift. Plainly there is no presumption that a gift was intended; on the contrary, such a payment would normally be presumed to be a loan. Tradindex suggested two reasons for inferring a gift. First, it advanced a general argument, applying to all payments found to have been made by members of the Debtor's family (that is Kashif, Samina and Saeeda but not Hornby Street, Mr Bhatti or DDW), that the Debtor had been generous to his family during the years when the family businesses were successful and the family must have intended to return that generosity by making gifts to the Debtor when he got into financial difficulty. Secondly, the Spreadex settlement related to a claim against both the Debtor and Kashif so that, although the Debtor was the only party liable under the settlement agreement, Kashif recognised that he had a moral responsibility to contribute to the settlement figure.
106. In his oral evidence Kashif denied that the £400,000 Spreadex payment was a gift. I accept his evidence on this point and I find neither of the reasons advanced by Tradindex for inferring a gift to be persuasive.
107. On the more general argument, Tradindex relied on the Debtor's evidence in paragraph 7 of his second witness statement:

"By the early 90's the repositioned business that I was now directing (with my Father taking a back seat) was turning over in excess of £45m. That is quite a lot of money now, but was a considerable amount of money in the early 90's. In these successful times, I shared the success with my younger brother, Kashif, and with other members of my family to whom I was very generous with the result that the whole family shone in reflected glory from the wealth I was accumulating through my sound business decisions".

Tradindex argued that the references to "generosity" and "sharing success" were to lavish gifts to members of the family which would have been reciprocated when the Debtor fell on hard times. Tradindex also relied on the statement in paragraph 5.24 of the amended proposal that

"….the majority of my family living expenses are being paid by other family members in consideration for the energy and effort I dedicated to setting up the original business".

Tradindex interprets this as indicating that the Debtor's living expenses were paid as a gift in return for his earlier efforts in the family businesses. Tradindex also relied on the fact that, given the extent of his financial difficulties, family members could not realistically have expected the Debtor to repay any loans and no repayments were ever requested.

108. However, there was in fact no evidence before the Court of the Debtor having made gifts to members of his family of a size likely to have prompted reciprocal gifts running to hundreds of thousands or millions of pounds. In his oral evidence the Debtor explained the statement in his second witness statement as being a reference to his having brought members of the family, especially Kashif, into the business where they were able to earn a good living.
109. The evidence of Kashif and Samina was to the effect that the family did expect ultimately to be repaid by the Debtor because they maintained the belief that, because the Debtor had made millions in the past, he would do so again, possibly through spread betting. It is not for me to say whether that was wise but I accept that that was what they thought. It also seems to me unsurprising that, while the Debtor remained in financial difficulties, the family did not request repayment. There was no point because at that time the Debtor could not pay.
110. Even if the family had not had such faith in the Debtor's future prospects, I would not see that as supporting the inference of a gift. Experience suggests that if a member of a family falls on hard times, other members of the family, if they are able, may be willing to help out but it would cause acute embarrassment on both sides if financial support were offered by way of gift. So support is offered by way of a loan. The recipient's dignity is preserved. The lender may have little real hope of repayment but would not want to preclude it if the recipient wins the lottery. Whatever the actual ability of the recipient to repay or the expectation of the lender that he will get his money back, such a transaction is in law a loan and not a gift.
111. I do not read paragraph 5.24 of the amended proposal as necessarily inconsistent with the Respondents' case. This is so particularly as Note 9 to the Debtor's Statement of Affairs states

"I also borrowed money from my brother to bridge the gap between my earned income and living expenses".

It is to be noted that paragraph 5.24 deals with living expenses rather than spread betting activities. In paragraph 5.22 of the same document the Debtor states

"Historic losses in the markets have meant that I have had to borrow monies from family and friends on short notice, to maintain my positions at various times".

This is certainly consistent with the Respondents' case that funding of the Debtor's spread betting activities (which would include the Spreadex liability) was by way of loan. As Mr Tager submitted, it seems improbable that the family would have financed spread betting by way of loans but paid for the Debtor's living expenses by way of gifts. If, as I find, they expected repayment eventually, there would be no reason for drawing such a distinction.

112. So I do not accept Tradindex's wider argument that any payments to the Debtor by family members were by way of gift. Nor do I accept the narrower argument advanced with specific reference to the Spreadex debt. I was provided with the pleadings in the Spreadex action from which it appears that it was common ground that Kashif's account with Spreadex was at all material times managed by the Debtor pursuant to a written authority provided by Kashif. Thus the losses that lead to Spreadex's claim resulted from the Debtor's trading on both accounts. I infer that the settlement was structured in the way it was because, contrary to Tradindex's submission, the moral responsibility for meeting the claim lay entirely with the Debtor.
113. Accordingly, I find that the £400,000 Spreadex payment was a loan by Kashif to the Debtor.

(c) The £2,121,500 paid via Mr Singh

114. The two principal issues which arose in respect of this part of Kashif's claim were:

(1) Whose money was it that was paid by Mr Singh to or for the benefit of the Debtor? and

(2) Had £700,000 of the claim been double-counted?

I will deal with the issues in that order.

115. The evidence of Kashif and Mr Singh was to the effect that Kashif provided funds totalling £250,000 by way of "seed money" for Mr Singh's account with Tradindex which Mr Singh then used to generate spread betting profits of some £2.6m over three years, which profits (after payment of commission to Mr Singh) were held for the benefit of Kashif because he funded the trading. These profits were then decanted into Mr Singh's personal bank account and, at Kashif's direction, paid to or for the benefit of the Debtor. I should mention at this point that this mechanism is also relevant to Samina's claim because she alleges that the funds she lent to her husband were in turn borrowed from Kashif who provided the funds via Mr Singh.
116. The arrangement between Kashif and Mr Singh was considered by both to be satisfactory. Kashif had limited time to engage in spread betting because of his responsibilities managing the family fashion businesses but he wanted to take advantage of Mr Singh's expertise and skill in spread betting as well as his access to preferential terms with spread betting companies. Mr Singh was happy to trade Kashif's money as he operated four other spread betting accounts with his own funds and he duplicated the debts across all of the accounts making substantial sums both for himself and for Kashif.
117. Tradindex's case was that the £250,000 seed money was provided by the Debtor and Mr Singh's Tradindex account was operated almost exclusively by the Debtor so the profits which found their way into the Debtor's (and Samina's) bank accounts were in truth the Debtor's own money.
118. There is no dispute that the monies paid to or for the benefit of the Debtor emanated from Mr Singh's bank accounts. The normal presumption would be that funds standing to the credit of a bank account belong to the account holder. Of course, that is not the Respondents' case: they say that Mr Singh was holding the funds on behalf of Kashif. But, looking at the matter broadly to begin with, it is very difficult to see why Mr Singh and Kashif would be colluding to advance a false case that the monies belonged to Kashif if they in fact belonged to Mr Singh. Mr Singh has at all times been in the Debtor's "camp" and would have voted for the IVA as a personal creditor just as he did as managing director of DDW.
119. Kashif's evidence was that the £250,000 seed money was provided in May 2005 by way of a transfer from a Mr Dalal who owed Kashif that amount. The documents produced by Kashif in support of this evidence were consistent with it but cannot be considered to be truly corroborative of it. Nevertheless, Mr Singh confirmed that the funding was provided by Kashif and I am prepared to accept his evidence. In contrast, there is no evidence of any sort to support the contention that the £250,000 was provided by the Debtor. Nor was that part of Tradindex's case put to the Debtor in cross-examination, although it was put to both Kashif and Mr Singh.
120. So far as the operation of Mr Singh's Tradindex account is concerned, the Debtor said that he executed over 90% of the trades. However, Mr Singh's evidence was to the effect that, although he and the Debtor discussed what bets to make every day and the Debtor actually placed the trades, it was Mr Singh who was the executive decision-maker. This seems to me to be consistent with Mr Singh's evidence that he was duplicating the bets over four other accounts funded with his own money. Given the amount of his own money at stake, it seems to me improbable that Mr Singh would have allowed the Debtor to take the decisions. I also agree with Mr Tager's submission that it seems implausible that the Debtor, who was trading unsuccessfully on his own account with both Tradindex and Spreadex, would have realised a £2.6m profit merely because he was operating Mr Singh's account.
121. Accordingly, I do not accept either of the arguments advanced by Tradindex in support of the conclusion that the profits made on Mr Singh's Tradindex account belonged to the Debtor.
122. That is not to say that there were not unsatisfactory aspects of this part of Kashif's case. In particular, Mr Andronikou produced as an exhibit to his first witness statement (verified by Kashif) a written Agreement between Kashif and Mr Singh signed in December 2005 which was said to evidence the terms of the arrangement between them for operating the Tradindex account. However, the Agreement dealt with a situation where Mr Singh was seeking to take advantage of preferential spread betting terms available to Kashif and where Mr Singh would trade his own money on Kashif's accounts. This was the reverse of the situation said to obtain in relation to Mr Singh's Tradindex account.
123. Nevertheless, I find on the balance of probabilities that the profits accruing in Mr Singh's Tradindex account did indeed belong to Kashif. I also find that, so far as those monies were paid to or for the benefit of the Debtor, they were paid by way of loan. I reject any suggestion that they were gifts for the reasons given in paragraphs 107 to 111 above.
124. I turn now to the quantification of this part of Kashif's claim. Mr Andronikou's first witness statement exhibited bank statements showing that £1,421,500 was paid from Mr Singh's accounts to the Debtor's Bank of Scotland account. In his second witness statement Kashif put forward an increased figure of £2,121,500 but based on the same bank statements. This was clearly an error: Mr Andronikou's figure was the correct one. It may be that the difference of £700,000 is accounted for by double-counting on the Respondents' part of the £700,000 alleged loan forming element (a) of Kashif's claim.
125. However, the £1,421,500 was not the only claim advanced in Mr Andronikou's first witness statement. He also referred to three third party payments (that is, payments made to third parties allegedly discharging obligations of the Debtor to those parties) made from Mr Singh's account with HSBC in December 2006 and January 2007. They were:

(1) £200,000 to "Commercial International"

(2) £30,000 to "Handhal General"

(3) £150,000 to Penningtons Solicitors.

No reference to these third party payments was made in Kashif's second witness statement.

126. Kashif was cross-examined on the discrepancy between the figures of £1,421,500 and £2,121,500 during the afternoon of Friday 27 June 2008. He suggested that the £700,000 difference was accounted for by third party payments although, as I have indicated, he made no mention of these in his second witness statement. The Respondents attempted to plug this £700,000 hole by serving a second witness statement from Mr Singh on Monday 30 June. This statement asserted that third party payments totalling £620,000 had been made from Mr Singh's accounts. The reduction from £700,000 to £620,000 was said to result from a belated realisation that the claim should be quantified as at the date of the interim order (27 February 2007) rather than the date of the creditors' meeting (29 March 2007). I gave permission for the statement to be adduced on condition that the Debtor was recalled for cross-examination in relation to its contents.
127. There were seven third party payments relied on: the three referred to in Mr Andronikou's first witness statement and four further ones made between November 2006 and February 2007, namely:

(1) £35,000 to Legendary Investments plc ("Legendary")

(2) £75,000 to Michael and Elizabeth Alexander

(3) £30,000 direct to the Debtor (obviously not in fact a "third party" payment)

(4) £100,000 described only as "Funds Transfer".

The fact that these payments were made was established by bank statements and bank transfer forms produced by Mr Singh. Since the arrangement was that he would transfer funds at Kashif's direction, Mr Singh unsurprisingly had no knowledge of what these payments were for.

128. In his closing submissions Mr Lopian understandably relied on the unsatisfactory manner in which the evidence of the third party payments emerged as casting doubt on its reliability. I agree that the way in which this evidence was dealt with was somewhat shambolic but I do not think it would be right to disregard it for that reason alone.
129. The Debtor's evidence, when recalled, as to the nature of and reasons for these payments was as follows:

(1) The £200,000 payment to Commercial International was to discharge his liability in respect of unsuccessful stock trading in the Middle East via a Mr D. R. Jaffa.

(2) The £30,000 to Handhal General was to discharge a debt incurred in relation to stock trading in Dubai by a Mr Hanif Mohammed.

(3) The £150,000 to Penningtons was to fund a payment by Deauville to the tenant of its St John's Wood property in consideration of the surrender of his lease.

(4) The £35,000 to Legendary was not explained although it is common ground that the Debtor is a 43% shareholder in that company.

(5) The £75,000 to Mr and Mrs Alexander was to discharge another debt in relation to stock market dealings.

(6) The £30,000 direct to the Debtor did not require explanation.

(7) The £100,000 "funds transfer" could not be explained.

130. My findings in relation to these payments are as follows:

(1) It is not established that the payments to either Penningtons (on behalf of Deauville) or to Legendary were in discharge of any obligation owed by the Debtor. On that basis the facts are as consistent with a loan by Kashif to those companies as they are with a loan by Kashif to the Debtor. I therefore do not accept these claims.

(2) There is no reason not to accept the £30,000 paid direct to the Debtor as a valid claim.

(3) The unexplained £100,000 payment cannot be accepted.

(4) The remainder depend on the entirely uncorroborated evidence of the Debtor that they related to obligations owed by him. In the circumstances, both as to the general background to this litigation and as to the manner in which the evidence of the third party payments was dealt with, I am not prepared to accept that evidence.

131. Tradindex produced a table showing that cumulative withdrawals from Mr Singh's Tradindex account for the period from 23 May 2005 to 29 March 2007 amounted to £2,513,400 and that cumulative credits from Mr Singh's accounts to the Debtor's and Samina's bank accounts over the same period amounted to £2,016,800. One of the purposes of this was to demonstrate that the full amount of the alleged third party payments (£620,000) could not have been made in addition from the profits of the Tradindex account as alleged by the Respondents. Since I have found that only £30,000 of the £620,000 constitutes a valid claim, I need say no more about this.
132. Accordingly, I find that element (c) of Kashif's claim is valid only to the extent of £1,421,500 plus £30,000, making a total of £1,451,500.

Conclusion

133. Taking Kashif's claim as a whole, I find that Kashif should have been admitted to vote at the creditors' meeting in the sum of £1,851,500 (that is the £1,451,500 just mentioned plus the £400,000 Spreadex payment) rather than the sum of £3,882,424 in respect of which he was admitted. I therefore allow Tradindex's appeal in respect of Kashif's claim to that extent.

(ii) Hornby Street's claim

Hornby Street's case

134. At trial Hornby Street claimed to be a creditor in the sum of £2,898,892. The case advanced in the Respondents' witness statement evidence (i.e. Mr Andronikou's first witness statement and Kashif's second witness statement) was as follows:

(1) Old Continental Shelf made loans to the Debtor totalling £2,644,620 over the period from 2002 to 2006 by way of third party payments on the Debtor's behalf to meet inter alia salaries for the Debtor's personal staff, travel costs, credit card bills, professional fees and other living expenses. These payments by Old Continental Shelf were financed by Hornby Street thereby giving rise to an inter-company balance between Hornby Street and Old Continental Shelf. The payments were shown in company ledgers as "Continental Shelf Directors Loan" throughout the period referred to. The total figure was made up of the following yearly amounts:

(a) 2002/2003: £604,758

(b) 2003/2004: £1,687,740

(c) 2004/2005: £168,216

(d) 2005/2006: £183,905.

(2) These loans were assigned by Old Continental Shelf to Hornby Street in June 2006. There was no documentary evidence of such an assignment. However, in a letter dated 19 June 2007 prepared for the purposes of these proceedings Katherine Rowland, the group finance director, stated

"…I confirm that all outstanding debt owed by Mr Shami Ahmed to Heartland Initiatives Limited (formerly known as Continental Shelf 128 Limited with company registration number 03805060) was assigned to Hornby Street Limited during the financial year ended 30 June 2006".

The timing of the assignment appeared to be narrowed down to June 2006 in paragraph 58 of Kashif's second witness statement.

(3) Hornby Street made additional loans to the Debtor totalling £251,505 during the period from March 2006 to February 2007. These are evidenced by unpaid invoices issued by Hornby Street. The Respondents' evidence was that, in connection with the refinancing of the HSBC facility, Barclays required invoices to be raised in lieu of the previous system of making ledger entries. There was also a minor claim for £2685 in respect of additional wages paid to the Debtor's employees.

135. Hornby Street's case underwent a significant change during the trial. During his evidence in chief on day 7 Kashif asserted that the assignment from Old Continental Shelf to Hornby Street actually took place in June 2004 and not June 2006. Katherine Rowland was not called to give evidence and no explanation was offered as to why the information provided in her letter was incorrect.

Tradindex's case

136. Tradindex argued that there was insufficient evidence that any of the payments relied on by Hornby Street were made by way of loan to the Debtor. In particular, it contended that the alleged loans should have been, but were not, reflected in the accounts of Old Continental Shelf and Hornby Street.
137. Alternatively, Tradindex argued that if there were loans from Old Continental Shelf to the Debtor and those loans were assigned to Hornby Street in June 2004, the balance due from the Debtor as at 30 June 2005 (namely £2,460,715) was discharged by means of a waiver recorded in Hornby Street's 2005 accounts.
138. Tradindex's "suggestion" was that the various payments were treated by the relevant Ahmed companies as having been made in payment of the company's administrative expenses. But, consistently with the approach outlined in paragraph 93 above, Tradindex maintained that it did not have to establish this alternative explanation on the balance of probabilities.

Discussion

139. It is a striking feature of the Hornby Street claim that the Debtor had made no mention of the existence of any such liability at any time before the statements of claim were delivered to Mr Andronikou's offices on the afternoon before the creditors' meeting. It did not appear in any version of his Statement of Affairs and Mr Andronikou confirmed in his oral evidence that the Debtor did not tell him before 28 March 2007 that he was indebted to Hornby Street. When he was challenged about this in cross-examination the Debtor's response was that the Statement of Affairs was "estimated" and he had no expertise in IVA matters. I was not impressed by this. It seems to me implausible that if the Debtor had genuinely borrowed from Hornby Street sums estimated at between £1m and £3m over a period of five years he would not have remembered it and advised Mr Andronikou of the existence of some liability, even of an uncertain amount, at a relatively early stage. It is to be noted that the Debtor had not entirely forgotten about Hornby Street as his Statement of Affairs dealt with the value of his shares in that company. In his closing submissions Mr Tager realistically accepted that the omission was "surprising".
140. That omission is not the only disquieting feature of Hornby Street's claim. In addition there is

(1) the substantial change in the value of the claim from just under £1m in March 2007 to just under £3m at trial;

(2) the fact that the Old Continental Shelf ledgers, which cover more than 90% of the value of the claim, refer to all the payments from 2002 to 2006 as "directors loans" when the Debtor ceased to be a director of both Old Continental Shelf and Hornby Street on 30 June 2003; and

(3) Kashif's change of evidence at the trial in relation to the date of the alleged assignment. The significance of this point will become more apparent in the context of my analysis of the relevant accounts.

141. In those circumstances it seems to me critical to ascertain whether Hornby Street's claim is reflected in the relevant company accounts.

The company accounts

142. The alleged loans by Old Continental Shelf for 2002/2003 totalled £604,758. The audited accounts of Old Continental Shelf for the year ended 30 June 2003 (which were produced as an exhibit to one of Mr Shameem's witness statements) disclose debtors of £4,021,000 of which £4,018,000 comprised loans to related companies (namely Hornby Street and Wembley Menswear Company Limited) leaving only £3,000 in respect of "other debtors". Plainly, the alleged debt owed by the Debtor was not included in that figure.
143. The explanation for this given by Kashif in his oral evidence was that the debt owed by the Debtor had been offset against larger loans made to Old Continental Shelf by Kashif himself and Bushra (totalling £704,000 as at the 2002 year end) and that the balance appeared as a "directors loan" in the entry for creditors of the company.
144. I do not accept this explanation. In my judgment, there are two reasons why, consistently with proper accounting practice, it cannot be correct. First, such offsetting is simply not permitted. Section 226(3) of the Companies Act 1985 requires a company's individual accounts to comply with the provisions of Schedule 4 to the Act. Schedule 4 paragraph 5 states:

"Amounts in respect of items representing assets or income may not be set off against amounts in respect of items representing liabilities or expenditure (as the case may be), or vice versa".

Moreover, the Old Continental Shelf 2003 accounts stated that they were prepared in accordance with applicable Accounting Standards in the UK. Financial Reporting Standard 5 ("FRS5"), issued by the Accounting Standards Board, provides by paragraph 29 that

"Assets and liabilities should not be offset. Debit and credit balances should be aggregated into a single net item where, and only where, they do not constitute separate assets and liabilities, i.e. where, and only where, all of the following conditions are met…".

The conditions referred to concern the existence of mutual obligations between the company and another party. Kashif's explanation dealt with a quite different scenario, namely a set-off of a company liability to X against a company asset consisting of a debt owed by Y.

145. Secondly, the Debtor was a director of Old Continental Shelf throughout the year ended 30 June 2003 so the loans to him should have been specifically disclosed in a note to the accounts. That is required by section 232 of and Schedule 6 paragraphs 16 and 19 to the Companies Act 1985. Moreover, FRS8 deals with disclosure of related party transactions. For this purpose a "related party" includes inter alios a director and someone with at least a 20% shareholding. The Debtor fell into both categories. FRS8 paragraph 6 requires disclosure of "material transactions" including the names of the transacting parties and the amounts involved. By paragraph 19 "material transactions" include loans. Note 15 to Old Continental Shelf's 2003 accounts did disclose related party transactions but there was no mention of a loan to the Debtor.
146. Old Continental Shelf's 2003 accounts are accordingly not consistent with Hornby Street's claim.
147. The alleged loans by Old Continental Shelf for 2003/2004 were £1,687,740, resulting in an aggregate total of £2,292,498. The only accounts available for Old Continental Shelf for the year ended 30 June 2004 are unaudited short-form accounts but these disclose no debtors at all. Prima facie, therefore, these accounts are also inconsistent with Hornby Street's claim.
148. The Respondents' answer to this was to point to Kashif's change of evidence regarding the date of the assignment to Hornby Street. They argued that, because the assignment occurred in June 2004, one would not expect to see the Debtor's debt reflected in Old Continental Shelf's 2004 accounts. Instead, it was to be found in Hornby Street's 2004 accounts.
149. I do not accept Kashif's evidence regarding the change in the date. I consider his evidence to have been an opportunistic attempt to explain away a major flaw in Hornby Street's case. As I have mentioned, there is no documentary evidence of the terms or date of any such assignment and no attempt was made to adduce evidence from Katherine Rowland, in particular to explain why her letter dated 19 June 2007 was incorrect. But there are other reasons why I cannot accept Kashif's evidence on this. First, it simply does not fit with the alleged pattern of lending to the Debtor: if, as I understand Hornby Street to submit, it replaced Old Continental Shelf as the Debtor's creditor with effect from 30 June 2004, why do the Old Continental Shelf ledgers record continuing loans to the Debtor until 2006? Secondly, the alleged loans are not reflected in Hornby Street's 2004 accounts either.
150. Hornby Street's accounts for the year ended 30 June 2004 were audited by Grant Thornton. Relevant debtor entries were: "director's loan" £629,000 and "other debtors" £1,706,000. The Respondents argued that the "director's loan" figure included the 2002/2003 loan of £604,758 whilst the "other debtors" figure included the 2003/2004 loan of £1,687,740. I do not accept this either. The Debtor was not a director of Hornby Street at any time during the relevant year so there is no reason why any loan to him would have been classified as a "director's loan". Any loan to the Debtor should have been reflected in "other debtors" but the amount of that entry is insufficient to cover the alleged debt of £2,292,498. Moreover, since the Debtor remained a 20% shareholder, any loan to him should have been specifically disclosed in accordance with FRS8 but there was no such disclosure.
151. The alleged loan for 2004/2005 was £168,216, making a cumulative total of £2,460,714. This should have been reflected in Old Continental Shelf's 2005 accounts but, again, these disclosed no debtors at all.
152. The alleged loan for 2005/2006 was £183,905, making a cumulative total of £2,644,620. According to the Respondents' case as advanced in their witness statements, this debt was assigned to Hornby Street in June 2006 and so should have been reflected in Hornby Street's 2006 accounts. Those accounts were audited by Grant Thornton and disclose "other debtors" of only £18,000. Nor was there any disclosure in accordance with FRS8. These accounts are accordingly also inconsistent with Hornby Street's case. It may also be noted that the 2006 accounts of New Continental Shelf (to which the assets and liabilities of Old Continental Shelf were transferred in about March 2006) disclose debtors of only £75,000 so the alleged loans to the Debtor cannot be found there either.
153. The alleged additional loans by Hornby Street for 2006/2007 amount to £254,270, making a cumulative total of £2,898,892. Hornby Street's 2007 accounts, audited again by Grant Thornton, are instructive. They contain a disclosure as follows:

"A loan to E Ahmed of £122,000 (2006 £Nil). The maximum amount owing on this loan during the year was £122,000 (2006 £Nil). The loan has no fixed repayment terms and carries no interest".

The accounts plainly do not support Hornby Street's case. The clear inference to be drawn both from the figures stated ("2006 £Nil") and from the fact that these accounts contain the first explicit disclosure in accordance with FRS8 is that no loans were made to the Debtor before 2006/2007. The Respondents accepted that the £122,000 referred to in these accounts related to a period after the interim order and is therefore irrelevant to Tradindex's appeal.

154. The Respondents argued that the explanation for the "2006 £Nil" entry was that it recognised the unenforceability of the debt following the approval of the IVA, the accounts having been signed off on 20 February 2008. I do not accept this explanation. First, the nil figure reflects the value of loans as at 30 June 2006 when the IVA had not even been proposed. Even if the approval of the IVA was seen as a post-balance sheet event which had to be reflected in the accounts, one would have expected to see an explanatory note to that effect. Secondly, and similarly, it could not be said that the maximum amount owing by the Debtor during the year 2005/2006 was nil. Thirdly, since Hornby Street did not waive its dividend under the proposed IVA, it is difficult to see why the entry should have been nil in any event.
155. It appears, therefore, that in respect of each year between 2002 and 2007 the relevant company accounts are inconsistent with Hornby Street's claim. So the inconsistency cannot be dismissed as just a one-off error or quirk. In summary, neither the Debtor on the one side nor Old Continental Shelf/Hornby Street on the other recognised the alleged liability before 28 March 2007, the day before the creditors' meeting.
156. In his closing submissions Mr Tager argued that I should not draw adverse inferences against Hornby Street by reference to the accounting points because the Respondents had not known in advance what points were going to be taken by Tradindex and accordingly could not adduce the evidence required to rebut them. The Respondents were the victims of what Mr Tager described as "a trial by ambush".
157. It is true that a number of the technical accounting arguments did not emerge until the cross-examination of the Respondents' witnesses. That was largely a function of the procedure adopted in this case. There was no order for pleadings at the interlocutory stage and the Respondents never applied for such an order. I do not think Tradindex can be criticised for taking tactical advantage of that procedure. Notwithstanding that, if I thought that the Respondents had truly been taken by surprise, I would take that into account.
158. But I do not think they were taken by surprise in any material respect. Apart from the audited Old Continental Shelf accounts for 2003 (which were produced in evidence on the Respondents' behalf by Mr Shameem), all the accounts to which I have referred were contained in the agreed trial bundles. Hornby Street's claim obviously invited enquiry as to whether it was consistent with the relevant company accounts and I cannot accept that the Respondents and their advisers were so jejune as not to realise why the accounts were considered relevant to the trial. Indeed, it seems to me evident that the Respondents had undertaken an analysis of the accounts because that enabled them to advance the explanations which I have mentioned in paragraphs 143, 148, 150 and 154 above, including the change in the date of the alleged assignment. Many of the explanations were tendered by Kashif in the course of his oral evidence. In paragraph 51 of his second witness statement he said:

"I am aware of the accounting affairs of Hornby Street and the group as a whole. I actively take part in the direction of the accounts department at a managerial level".

and in paragraph 57:

"As the Managing Director of Hornby Street, I am the best person to comment on payments that were recorded as Continental Shelf directors loans to Eathesham".

159. In all the circumstances I cannot be satisfied on the balance of probabilities that the alleged loans were made. It is not necessary for me to make any findings in respect of Tradindex's "suggestion" that the payments were treated as administrative expenses of the relevant companies and I do not do so.
160. In view of my findings as to the date of the alleged assignment, it is not necessary for me to deal with Tradindex's alternative argument based on the "waiver" of a related party loan recorded in Hornby Street's 2005 accounts. The evidence relating to this is not at all clear and the entries in the accounts themselves are ambiguous, referring both to a "waiver" and to a "provision". However, I am inclined to think that this is a red herring and that the related party loan referred to was in fact a loan either to Old Continental Shelf or to Wembley Menswear Company Limited and not a loan to the Debtor. That would accord with the explanation given by Kashif in paragraph 129 of his second witness statement.

Conclusion

161. I am not satisfied that, in the period before the interim order, any loans were made by either Old Continental Shelf or Hornby Street to the Debtor. Accordingly, Hornby Street's claim should have been rejected in its entirety and I allow Tradindex's appeal in respect of that claim.

(iii) Samina's claim

Samina's case

162. When the trial opened, Samina's claim was quantified at £477,961 but in a second witness statement served during the trial she reduced the claim to £340,764 to reflect the fact that part of the higher figure was accounted for by payments made after the date of the interim order.
163. Samina's claim was based on payments made between late September 2006 and February 2007 from two bank accounts in her name either directly to the Debtor or to third parties allegedly in discharge of liabilities of the Debtor. Samina had no independent means and these payments were funded by transfers into the two accounts in her name (which were specially opened for this purpose) from Mr Singh's bank account and ultimately from the Singh Tradindex account. Consistently with Kashif's case in respect of his personal claim, Samina asserts that these funds belonged to Kashif and the payments represented loans by Kashif to her and she then in turn lent the sums on to the Debtor.
164. The Debtor, Samina and Kashif all gave evidence about the reasons for this roundabout mechanism for providing financial support to the Debtor. Their case was that, by August 2006, the Debtor was becoming embarrassed about repeatedly asking his family for funds and he sensed that Kashif might be unwilling to continue funding him indefinitely. However, the Debtor and Samina considered that if a request for further support was made to Kashif by Samina, his brother's distressed wife, Kashif would not refuse her. So this was a means of securing continued financial support for the Debtor and at the same time minimising loss of face on his part.

Tradindex's case

165. Tradindex accepted that the alleged payments from Samina's dedicated bank accounts were made and that the accounts were funded by payments from Mr Singh's accounts. Its case was as follows:

(1) The funds transferred from Mr Singh's account belonged to the Debtor;

(2) The explanation for the roundabout mechanism was not credible because Kashif continued to lend directly to the Debtor after Samina's accounts were opened in August/September 2006 so there was obviously no reluctance on Kashif's part to lend direct and no saving of face by the Debtor;

(3) Alternatively to (1), any payments by Samina to the Debtor were gifts not loans; and

(4) Certain of the payments for the Debtor's benefit did not in any event give rise to a debt owed by the Debtor.

Discussion

166. I have already rejected Tradindex's argument that the monies in Mr Singh's account belonged to the Debtor. I am satisfied on the balance of probabilities that they were Kashif's monies: see paragraphs 117 to 123 above.
167. Samina's evidence was not entirely satisfactory. It is clear that she had no real idea what most of the payments out of her accounts were for and she became extremely muddled when cross-examined on the details of the operation of the accounts, in particular the reasons for opening the second account. This, it became apparent, was because she acted entirely on the instructions of the Debtor, relayed via his PA Melanie Hadaway.
168. That might suggest that Samina's entire involvement was nominal and that accordingly she cannot have been intended to play a substantive role, either as lender to the Debtor or as borrower from Kashif. Nevertheless, I am satisfied on the balance of probabilities that Samina's case with regard to the structure of the transaction should be accepted. There are two main reasons for this.
169. First, I consider that the pattern of payments made is more or less consistent with Samina's case. Of the 33 payments made by Samina to or for the benefit of the Debtor, only two were made before November 2006. Conversely, after the end of October 2006, the only payments made to the Debtor by Kashif which I have found proven were:

(1) payments on 2 and 16 November 2006 from Mr Singh's account totalling £55,000;

(2) the last £100,000 instalment of the Spreadex payment on 16 November 2006; and

(3) the £30,000 payment made to the Debtor on 8 February 2007.

Given that Kashif must have committed himself to the Spreadex payments before the first instalment was paid in August 2006, I do not regard this degree of overlap as particularly significant. There was a relatively short transitional phase when the Debtor was receiving funds both directly from Kashif and via Samina but after that Kashif's direct funding almost entirely ceased.

170. Secondly, once it is established that the funds in question belonged to Kashif I cannot think of a single reason why Kashif and Samina would collude to present a false case that the Debtor's creditor was Samina when it did not matter for the purposes of securing approval of the IVA whether the creditor was Samina or Kashif.
171. I am also satisfied that the payments made by Samina were loans and not gifts. There is no presumption of gift in relation to payments made by a wife to her husband. Further, it would make no sense for Samina to be making gifts of these funds to the Debtor. The funds were provided by Kashif. He, I find, was not making gifts to Samina and she would be unable to repay Kashif if the Debtor had no obligation to repay her. I have no doubt that Kashif would not have pressed Samina for payment until the Debtor was in a position to repay her (which, as I have found, the family expected the Debtor to be able to do eventually) but I am satisfied that repayment would indeed have been expected at that stage.
172. Subject to two exceptions, I am satisfied that the payments made by Samina did give rise to loans to the Debtor. The exceptions relate to the payments made to Deauville and to Legendary. As was the case with the payments to those companies which formed part of Kashif's claim (see paragraph 130(1) above) there seems to me to be no satisfactory evidence that the Debtor owed any obligations to those companies which were discharged by the payments. On that footing, the evidence is as consistent with Samina having made loans to the companies as it is with her having made loans to the Debtor.
173. Moreover, in relation to the Deauville payments (which were made to meet mortgage payments to AIB, insurance premiums and professional fees) Samina produced as an exhibit to her first witness statement a ledger maintained by Equity Trust. The shares in Deauville were originally owned entirely by the Inaam Trust, a family discretionary trust of which the Debtor, Samina and their son were objects and which was administered by Equity Trust, a Jersey registered trust company. The Equity Trust ledger can be correlated with the payments out of Samina's bank accounts and most of them are designated as "loans" with two being specifically referred to as "loan from Samina Ahmed".

Conclusion

174. In relation to Samina's claim, therefore, I find that she should have been admitted to vote in the sum of £340,764 less the payments made to Deauville (£140,993) and to Legendary (£3,500), that is a total sum of £196,271 rather than the sum of £296,449 in respect of which she was admitted at the meeting. I therefore allow Tradindex's appeal in respect of Samina's claim to that extent.

(iv) Saeeda's claim

Saeeda's case

175. At the creditors' meeting Saeeda was admitted to vote in the sum of £1,363,389. However, in her witness statement evidence, Saeeda explained that this figure was calculated in error and the correct figure as at the date of the interim order was £1,102,154.
176. Saeeda's case was that, following a request by the Debtor to borrow money from her, she remortgaged her home in Altrincham, Cheshire for £1.1m and lent that sum to him. This occurred in July 2002. The mortgage was for a ten year term with interest only repayments and the arrangement was that the Debtor would pay the interest direct to the lender. The amount claimed represented the £1.1m capital sum (less certain transaction costs) and a small amount of unpaid interest as at 27 February 2007.

Tradindex's case

177. Tradindex did not dispute that Saeeda paid the sum alleged to the Debtor in July 2002 and there was ample documentary evidence of this. Tradindex argued that the payment was a gift and not a loan.

Discussion

178. There is no presumption of gift in relation to payments from mother to son. In her witness statement Saeeda denied that the payment was a gift. As I have mentioned, Saeeda could not attend Court for cross-examination due to ill health. Nevertheless, her evidence that there was an oral agreement for a loan between herself and her son was corroborated by the evidence of Mr Tariq who was present at the time and who was cross-examined.
179. I accept the evidence of Saeeda and Mr Tariq. I am satisfied that the payment was a loan and not a gift. This conclusion is reinforced by a number of other matters, namely:

(1) The Debtor referred to his liability to his mother in roughly the correct amount in every iteration of his Statement of Affairs.

(2) The Debtor did in fact make the interest repayments on the mortgage loan from inception.

(3) In 2002 Saeeda was retired and was a widow. She had no means of repaying the £1.1m to the lender at the end of the ten year term. However, like the rest of the family, she believed that the Debtor's fortunes would improve, enabling him to repay the loan. It would have been very odd for Saeeda in those circumstances to relieve the Debtor of any repayment obligation when she could not herself repay the loan and would in all likelihood lose her home.

Conclusion

180. I find that Saeeda should have been admitted to vote at the creditors' meeting in the sum of £1,102,154. Because of the calculation error referred to above, this is a smaller sum than the amount in respect of which she was actually admitted at the meeting. Accordingly, I must allow Tradindex's appeal, but to that very limited extent only.

(v) Mr Bhatti's claim

181. Mr Bhatti was not represented before me and did not give evidence either orally or in writing. The evidence relating to his claim consisted of (a) the one page schedule attached to his statement of claim which purported to detail loans totalling £305,504 made in 2004/2005, (b) three documents exhibited to Mr Andronikou's first witness statement which purported to be, but which were not, records of bank transfers from Mr Bhatti to the Debtor and (c) explanations given by the Debtor in his oral evidence. I have already mentioned that, for reasons which are not clear and Mr Andronikou could not explain, Mr Bhatti was admitted to vote only in the sum of £285,504.
182. Neither the Debtor nor Mr Andronikou could explain the entries in the one page schedule. The Debtor could not recall what the alleged loans were for. There was no documentary evidence, for example statements relating to the Debtor's bank account for the relevant period, that the alleged sums were ever paid to the Debtor.
183. In those circumstances I cannot be satisfied on the balance of probabilities that any loans were made by Mr Bhatti to the Debtor.

Conclusion

184. I find that Mr Bhatti's claim should have been rejected in its entirety and accordingly I allow Tradindex's appeal in respect of it.

(vi) DDW's claim

DDW's case

185. DDW was admitted to vote at the creditors' meeting in the sum of £200,000 which was the figure set out in its statement of claim delivered on 28 March 2007. However, it was accepted in Mr Andronikou's and Mr Singh's witness statement evidence that the claim was in fact only for £110,500.
186. The claim relates to three sums totalling £110,500 which were paid to the Debtor in April 2005, allegedly by way of loan to fund the Debtor's spread betting activities.

Tradindex's case

187. There is no dispute that the alleged payments were made in April 2005 from DDW's account at the Bank of Scotland to the Debtor's account at the same bank. Tradindex argued that the circumstances were inconsistent with the payments having been loans and tentatively suggested that the monies paid from DDW's account were either the Debtor's own money being recycled through DDW's account or were from an entirely different source.

Discussion

188. There is no evidence before the Court that the monies in the DDW account belonged either to the Debtor himself or to any other third party. The presumption must be that those monies belonged to DDW and, the payments to the Debtor having been proved, that they were made by way of loan.
189. In support of its argument that the facts were inconsistent with there having been a loan, Tradindex relied on four particular matters.
190. First, there was no mention of DDW's claim in the Debtor's Statement of Affairs or otherwise by him before 28 March 2007. Naturally, this does raise doubts as to the bona fides of the claim. However, it is clear that the Debtor was thoroughly muddled and disorganised in dealing with his financial affairs and DDW's claim was relatively modest in comparison with, for example, Hornby Street's claim.
191. Secondly, Mr Singh's evidence was that the monies lent to the Debtor derived from trading profits of DDW. Tradindex pointed to the facts that (a) DDW was only incorporated in September 2004, (b) the alleged loans were made in April 2005, (c) DDW never filed any accounts, (d) the payments to the Debtor all but emptied DDW's account and, in particular, (e) the 2005 Annual Return completed by Mr Singh stated that DDW was not trading. Tradindex argued that Mr Singh's evidence was unreliable because DDW could not have made the alleged trading profits.
192. I do not accept Tradindex's argument on this point. Taken as a whole, I think Mr Singh's evidence is consistent with the alleged loan having been made. Mr Singh explained that DDW's trade was short-lived, possibly lasting only six to nine months, but during that period it made profits of around £200,000 from supplying a fashion chain known as Ethel Austin. On that basis sufficient profit could have been earned by April 2005. The Annual Return in question was signed by Mr Singh on 21 October 2005: it is quite possible that, by that time, DDW was no longer trading.
193. Thirdly, DDW was struck off and dissolved in June 2007 for failure to file accounts and an annual return. Default notices warning of the consequences of non-compliance were sent to Mr Singh's home address from August 2006 onwards but Mr Singh took no steps to prevent DDW being struck off. Tradindex argued that this was inconsistent with DDW having made a loan to the Debtor for, if it had, Mr Singh would have ensured that DDW remained extant so as to be able to claim repayment or at least a dividend in the Debtor's IVA.
194. However, I do not think that it would be safe to reach that conclusion. From August 2006 onwards the Debtor was embroiled in the precursor to bankruptcy proceedings and the prospects of DDW receiving repayment may have seemed somewhat remote. Even when the IVA was proposed, the intended dividend of just under 10p in the £ would have resulted in the recovery of only about £10,000. According to Mr Singh's evidence, DDW was otherwise dormant and it may well have seemed more trouble than it was worth to maintain the company in existence given that professional fees would have to have been incurred in having the necessary accounts prepared and tax would have been payable on any distributions to Mr Singh.
195. Fourthly, the Debtor's evidence was that Mr Singh never requested repayment of the loan whereas Mr Singh says that he did. There is no explanation for this discrepancy.
196. I have taken full account of the arguments advanced by Tradindex but I do not consider them either individually or collectively to be of sufficient force to displace my prima facie view that the £110,500 was DDW's money and that it was lent to the Debtor.

Conclusion

197. I find that DDW should have been admitted to vote at the creditors' meeting in the sum of £110,500 rather than the sum of £200,000 in respect of which it was admitted. I therefore allow Tradindex's appeal in respect of DDW's claim to that extent.

The disputed debts: overview

198. It follows from my findings in relation to each of the claims of the Third to Eighth Respondents that, if they had been admitted to vote in the correct amounts or their claims had been rejected as appropriate, the voting figures at the creditors' meeting would have been as follows:

	For	Against
AIB	£2,075,164
HMRC		£130,000
HSBC	£8,436,305
Tradindex		£4,796,621
Kashif	£1,851,500
Samina	£ 196,271
Saeeda	£1,102,154
DDW	£ 110,500 £13,681,894	£4,926,621

199. Thus, the total value of voting claims would have been £18,608,515 and the majority in favour of the IVA would have been 73.52%. Since the requisite 75% majority would not have been achieved, the IVA proposal would have been rejected.
200. It is plain, therefore, that Tradindex has established that there was a material irregularity at the creditors' meeting for the purposes of both rule 5.22(5) and section 262(1)(b).
201. The next question is whether, pursuant to section 262(4), I should direct the summoning of a further creditors' meeting to reconsider the IVA proposal. Counsel agreed that, if it is clear from the claim values as found by the Court and from the evidence before the Court as to the various creditors' voting intentions what the outcome of a further meeting would be, then it would be futile to make such an order. That was the approach taken by Harman J in Re a Debtor (No 222 of 1990) ex parte The Bank of Ireland [1992] BCLC 137, 146 and I propose to take the same course.
202. I am satisfied that if a further meeting were summoned the voting figures would be the same as in paragraph 198 above save that AIB would no longer have a vote as its claim has been discharged. I am prepared to assume that DDW's claim would be voted in the same way although, strictly speaking, that would be a matter for the Crown unless DDW were restored to the register. In that event, total claims would be £16,533,351 and the majority in favour of the IVA would be 70.2%.
203. It is therefore clear that the IVA proposal would not be approved at any further meeting and it would be pointless to direct that one be summoned.
204. Although I will hear Counsel on the precise terms of the order to be made, I propose pursuant to section 262(4) to revoke the approval of the Debtor's IVA given at the meeting on 29 March 2007 and not to direct the summoning of a further meeting.

The errors and omissions claim

205. Tradindex's subsidiary complaint was that the Debtor's proposal and Statement of Affairs contained a number of errors and omissions which amounted to a material irregularity "in relation to" the creditors' meeting for the purposes of section 262(1)(b).
206. In view of my findings in relation to the disputed debts issue, it is not necessary for Tradindex to succeed in respect of this complaint in order to obtain the relief which it seeks. I will therefore express my conclusions on this part of the claim shortly.
207. Although a number of alleged errors and omissions were identified in Mr Barone's witness statements, in its closing submissions Tradindex confined itself to what were essentially two points, namely:

(1) The discrepancies between the unsecured creditors listed in the Debtor's Statement of Affairs and the creditors admitted to vote at the meeting meant that the proposed dividend of 9.9p referred to in paragraph 2.1 of the amended proposal would in fact have been only 7.7p.

(2) There was no proper disclosure to creditors of the fact that the £150,000 valuation of the Debtor's shareholdings in Hornby Street "and others" was based on what Kashif was prepared to pay rather than on a professional valuation.

208. In order to determine whether any error or omission amounted to a "material irregularity" for the purposes of section 262(1)(b), the parties were agreed that I should apply the guidance given by Robert Walker LJ in Cadbury Schweppes plc v Somji [2001] 1 WLR 615 at paragraph 25:

"In order to determine whether there had been a material omission [the Deputy Judge] asked himself whether, had the truth been told, it would be likely to have made a material difference to the way in which the creditors would have considered and assessed the terms of the proposed IVA. I consider that that is the correct approach, so long as the question is to be answered objectively, and so long as it is borne in mind that as well as the creditors which were represented at the meeting on 20 December 1999, Mr Cooper held proxies for a number of creditors which were not present by their own representatives".

Thus, the Court is concerned in the present case to gauge the likely effect of disclosure of the true position on the creditors who voted in person or by proxy at the meeting held on 29 March 2007. The question is whether there is a "substantial chance" that the creditors would not have approved the IVA: per Lewison J in Re Trident Fashions plc (No 2) [2004] 2 BCLC 35 at paragraph 46.

209. The evidence before me is that all the creditors who voted at the 29 March 2007 meeting would have voted in the same manner (either for or against the IVA) whatever further disclosures had been made, with the exception of AIB. There is no evidence either from or in relation to AIB with regard to how it would have voted in these hypothetical circumstances. Therefore, the argument focused on whether it should be inferred that disclosure of the two matters complained of by Tradindex might have affected AIB's vote in favour of the IVA at the creditors' meeting.
210. Before dealing with the substance of Tradindex's arguments, it is necessary to observe that this part of Tradindex's case had a distinct air of unreality about it. Even if a material irregularity were established, the Court would not grant any relief under section 262(4) without considering the likely outcome of a further meeting to consider the corrected proposal. Since AIB's claim has been discharged, the one uncommitted creditor would play no part in that meeting. The outcome of such a meeting would depend entirely on whether, in the light of the disputed debts issue, the Debtor's family could still command sufficient voting power to secure approval of the IVA. So, if Tradindex had not obtained the relief which it seeks by means of the disputed debts complaint, it could not have done so by means of this subsidiary complaint.
211. In relation to the non-disclosure of unsecured creditors in the Statement of Affairs, the principal discrepancies related to the increase in the claims of Kashif, Samina and Saeeda, the emergence of Hornby Street and DDW and the change in AIB's own status from secured to unsecured creditor.
212. The increased claims of Kashif, Samina and Saeeda could not have affected the amount of the dividend as they waived their right to a dividend as part of the IVA. AIB must obviously have understood the effect on the amount of the dividend of its own change of status. I accept that AIB, which voted by proxy, would not have known of the emergence of Hornby Street and DDW. However, the effect of DDW's claim on the amount of the dividend was insignificant. So far as Hornby Street is concerned, I am satisfied that, on enquiry, it would have been prepared to waive its right to a dividend. Therefore, I conclude that disclosure to AIB before the meeting of the true position regarding unsecured creditors would not have affected the way in which it voted.
213. In relation to the valuation of the Debtor's shareholdings, Tradindex relies on the fact that the notes to the Debtor's Statement of Affairs were apparently not included in the mailing to creditors (because Tradindex had to ask specifically for them: see paragraph 54 above) and it was only in the notes that the Debtor disclosed how his shares had been valued. However, this overlooks paragraph 3(iii) of Mr Andronikou's Nominee's Report dated 8 March 2007 which I have recited in paragraph 55 above. This made it clear that the relevant holdings had not been professionally valued. Accordingly, AIB would have been aware of this from reading Mr Andronikou's report. In those circumstances, I do not consider there to have been a material irregularity.
214. For all these reasons, I would have rejected Tradindex's complaint based on errors and omissions in the proposal and Statement of Affairs.

Mr Andronikou

Tradindex's case

215. As I have mentioned, Tradindex asks the Court to make findings that, in relation to his conduct before, at and after the creditors' meeting on 29 March 2007, Mr Andronikou failed to meet the standard expected of a reasonably competent insolvency practitioner.
216. The particular allegations made by Tradindex are as follows:

(1) Mr Andronikou's Nominee's Report dated 8 March 2007

Tradindex contends that Mr Andronikou should not have made a report which confirmed that the Debtor had made full disclosure of his affairs and that he was satisfied as to the Debtor's statement of his position as to assets and liabilities and which recommended that a meeting of creditors be summoned in circumstances where there had been an inadequate investigation of the Debtor's liabilities, particularly the details of the disputed debts, up to that point in time. The allegation is, in substance, that the summoning of the meeting was premature. Tradindex points out that there was no intrinsic urgency in relation to the summoning of the meeting because it was always open to Mr Andronikou, as nominee, to apply to the Court for an extension of the interim order so as to give him further time to prepare his report: section 256(4).

(2) Mr Andronikou's conduct at the creditors' meeting on 29 March 2007

Tradindex contends that Mr Andronikou, in his capacity as chairman of the meeting, ought to have adjourned it before a vote was taken to enable further investigation of the disputed debts, particularly in the light of the emergence of Hornby Street and DDW as creditors the day before the meeting. Instead, he acted inappropriately in admitting the disputed claims to vote and marking them as objected to pursuant to rule 5.22(4).

(3) Mr Andronikou's role in these proceedings

Tradindex contends that throughout (and indeed even before) these proceedings Mr Andronikou has improperly aligned himself with the interests of the Debtor and his family whereas, as nominee and joint supervisor of the IVA, he should at all times have remained neutral and independent. In particular, Tradindex relies on the fact that Mr Andronikou's witness statement evidence formed the Respondents' lead evidence in relation to the disputed debts issue, even though Mr Andronikou had no first-hand knowledge of the matters in issue and must have been "in doubt" as to the validity of those claims for him to have marked them as objected to under rule 5.22(4), and his evidence failed to deal with Mr Barone's criticisms of his conduct at and before the creditors' meeting.

Mr Andronikou's case

217. Mr Andronikou responded to these allegations as follows:

(1) Nominee's Report

In completing his report Mr Andronikou was required to make a broad judgment as to the reliability of the Debtor's Statement of Affairs and, in making that judgment, he was entitled to rely on the Debtor as being primarily responsible for the accuracy of information provided and on his own instincts and experience. On that basis, he was entitled to reach the view he did.

Mr Andronikou also pointed out that the Debtor was a particularly difficult person to obtain reliable information from: he was a wheeler-dealer who always expected to be able to strike a bargain with Tradindex and in the meantime did not want to incur professional fees on a forensic investigation. In fact the Debtor never concentrated sufficiently on particularising the true extent of his liabilities until the eleventh hour when he needed to push through the IVA.

(2) The creditors' meeting

Mr Andronikou argued that he had no power to adjourn the meeting held on 29 March 2007 for the purpose of further investigating the disputed debts and he was at no stage requested by Tradindex's representatives to do so. Mr Andronikou in fact did exactly what rule 5.22(4) required of him.

(3) These proceedings

In his closing speech on Mr Andronikou's behalf, Mr Tager accepted that it was a misjudgment, and wrong, for Mr Andronikou's evidence to have dealt with the disputed debts and not with Mr Barone's criticisms. However, he argued that Mr Andronikou should be excused because he relied on legal advice as to what his evidence should and should not deal with.

Discussion

(1) The Nominee's Report

218. It is necessary at the outset to establish the purpose or purposes of a nominee's report to the Court under section 256(1). That subsection requires the nominee to submit a report stating

"(a) whether, in his opinion, the voluntary arrangement which the debtor is proposing has a reasonable prospect of being approved and implemented,

(aa) whether, in his opinion, a meeting of the debtor's creditors should be summoned to consider the debtor's proposal, and

(b) if in his opinion such a meeting should be summoned, the date on which, and the time and place at which, he proposes the meeting should be held".

219. The purpose of these provisions seems tolerably clear. The effect of Part VIII of the Act dealing with IVAs is to interfere with the normal right of a creditor to present and pursue a bankruptcy petition. The role of the nominee is to provide independent professional scrutiny of the debtor's proposal so as to ensure that that interference with creditors' rights is justified. In particular, the nominee is required to judge whether the debtor's proposal is serious and viable and not, in the words of Blackburne J in Davidson v Stanley [2005] BPIR 279, "an essay in make-believe". The proposal must not only be viable but it must have "a reasonable prospect of being approved and implemented": section 256(1)(a). If it does not, then the summoning of a creditors' meeting would be a waste of time and any further moratorium on bankruptcy proceedings would be unjustified.
220. I was referred to the guidance in relation to the duties of a nominee provided by Lindsay J in Re a Debtor (No 140 IO of 1995) (Greystoke v Hamilton-Smith) [1996] 2 BCLC 429. At 434a-c he said:

"Where doubts reasonably arise, the nominee will have to satisfy himself as to the amount and quality of such information to such a degree that from it he is able to arrive at what seems at the time and at least to him to be a fair prima facie or provisional view as to whether a particular claimant should be admitted or rejected in respect of his claim for voting purposes and as to what figure, if any, an "agreement" should be reached in order to attribute a minimum value for voting purposes to an unliquidated or unascertained debt…The existence by way of s.262 of a mechanism that permits a creditor to be, say, allowed to vote at £1 and then to object and of a provision that enables a creditor to appeal to the court plainly does not license the nominee to proceed in the meeting upon a view which he knows to be unfair".

At 434i to 435e, he went on as follows:

"Although Parliament has not set out what tests the nominee should apply before concluding that a meeting should or should not be summoned, that DTI letter represents, as it seems to me, a fair view in general terms of responsibilities which the legislation casts upon a nominee. It is not, though, to be expected that in every case the nominee will personally have verified every figure and have tested every part of the proposal. Often, for example, the financial resources available to him to fund the enquiries that would be necessary to do that will be very limited or the figures may be plain and undoubted. But within the scheme of the 1986 Act as discernible from the powers and duties given to the nominee it is, in my judgment, to be expected, as a minimum, of the nominee, at least in those cases where the fullness or candour of the debtor's information has properly come into question, that the nominee shall have taken such steps as are in all the circumstances reasonable to satisfy himself and shall have satisfied himself on three counts. Leaving aside compliance with the formal requirements of the 1986 Act and the Insolvency Rules 1986 they are, first that the debtor's true position as to assets and liabilities does not appear to him in any material respect to differ substantially from that which it is to be represented to the creditors to be, second that it does appear to him that the debtor's proposal as put to the creditors' meeting has a real prospect of being implemented in the way it is to be represented it will be. A measure of modification to proposals is possible under s.258 so this question is to be approached broadly. Third, that the information that he has provides a basis such that (within the broad limits inescapably applicable to what have to be the speedy and robust functions of admitting or rejecting claims to vote and agreeing values for voting purposes) no already-manifest yet unavoidable prospective unfairness in relation to those functions is present".

Lindsay J went on at 435g to 436b to explain how the steps which a nominee was in practice required to take depended upon the particular circumstances of each case:

"Reverting, then, to only the three counts I have mentioned, what steps are reasonable in the circumstances for the nominee to satisfy himself will, inevitably, depend on a host of variables such as the strength of the grounds for such questions or doubts as shall have arisen, their materiality to the propriety or feasibility of the debtor's proposals, the quality of the debtor's answers to the nominee in intended resolution of those doubts, the ease or difficulty with which independent enquiry by the nominee may resolve any continuing doubts, the expense entailed in such further enquiry and the availability of funds to meet that expense. Plainly, the less enquiry the nominee undertakes, the more important, in terms of reliance upon it, becomes the fullness and candour of the information provided by the debtor. If, for whatever reason, the nominee's enquiries in questionable cases have been so restricted or unsatisfactory that the nominee would be unable to assure creditors that he had satisfied himself that those three minima were met, then he should not unequivocally report, under s.256(1)(a), that in his opinion a meeting of creditors should be summoned. Where such doubts have reasonably arisen it cannot be right for the nominee unquestioningly to accept whatever is put in front of him on the supposed basis that it is not for him but for the creditors to accept or reject the proposal; it is fundamental to the intended operation of IVAs that what the creditors vote upon is not the debtor's raw material but a proposal that, at least to the qualified extent I have described, has survived scrutiny and which, at least to that extent, has commended itself to an independent professional insolvency practitioner as proper to be put to, and capable of being not unfairly voted upon by, the creditors."

221. Lindsay J's guidance as to the "three minima" has been incorporated into Statement of Insolvency Practice ("SIP") 3 on Voluntary Arrangements, issued by the Joint Insolvency Committee and recognised professional bodies, which is designed

"…to set out basic principles and essential procedures with which insolvency practitioners are required to comply. Departure from the standard(s) set out in the SIP(s) is a matter that may be considered by a practitioner's regulatory authority for the purposes of possible disciplinary or regulatory action".

222. The guidance given by Lindsay J and in SIP3 is plainly reflected in the drafting of Mr Andronikou's report. Thus in paragraph 3 of his Comments he states:

"I am satisfied that the debtor's true position as to assets and liabilities is not materially different from that which is represented to the creditors by the proposal and the documents annexed thereto but would make the following comments…"

and in paragraph 12 he states:

"Having reviewed the Proposal and for the reasons set out above, I conclude that this is a serious and viable proposal, in that it is feasible, it is fair to creditors, it is fair to the debtor, it is an acceptable alternative to bankruptcy and it is fit to be considered by creditors. I also consider that the Proposals have a real prospect of being approved and implemented".

223. In the context of the present case and in order properly to assess Tradindex's criticisms of Mr Andronikou, I think it is necessary to distinguish between the viability criterion and whether the proposal has a reasonable (or "real" in Lindsay J's words) prospect of approval and implementation.
224. The viability of the Debtor's proposal depended in large part on whether the projected dividend of 9.9p, compared to the projected 2.1p dividend in a bankruptcy, could be delivered. Obviously, in principle, the amount of the dividend depends in part on the number and value of the debtor's unsecured creditors. But, in the Debtor's case, the family creditors were waiving their right to a dividend so the precise amount of their claims would not affect the likely dividend. As at 8 March 2007 when Mr Andronikou made his section 256 report, Hornby Street and DDW had not emerged as creditors. In fact the only disputed creditor of whom Mr Andronikou had knowledge and who could have affected the level of the dividend was Mr Bhatti. But his claim was at that stage only £235,000 and I consider Mr Andronikou could reasonably have concluded that any effect on the amount of the dividend resulting from a change in the amount of his claim would be de minimis.
225. It seems to me that, for Tradindex's criticisms of Mr Andronikou to be valid, I must conclude that Mr Andronikou could not reasonably have reached a view as to whether the section 256(1)(a) criterion ("reasonable prospect of being approved and implemented") was satisfied without ensuring that a more detailed investigation of the alleged family claims had taken place.
226. Whether there is a reasonable prospect of an IVA proposal being approved and implemented will naturally depend on a consideration of the voting strength and voting intentions of particular creditors. Is there a reasonable prospect that at the putative creditors' meeting the 75% (all creditors) and 50% (non-associated creditors) majorities will be achieved?
227. There are specific references to consideration of claims for voting purposes in the extracts from Lindsay J's judgment in Greystoke which I have cited in paragraph 220 above. However, the first of those references (at 434b) appears in the context to be a reference to consideration of such claims at the creditors' meeting by the nominee qua chairman of the meeting and the second such reference (at 435d) seems to relate principally to attributing minimum values for voting purposes pursuant to rule 5.21(3).
228. In most normal cases, it seems to me that it will not be a productive exercise for the nominee to spend time and effort trying to predict the outcome of the creditors' meeting. Known creditors may choose not to vote at the meeting (as occurred in the present case with France Affairs and Go Wealthy). Even in the absence of suspicious circumstances, previously unknown creditors may emerge after the meeting has been summoned. Known creditors may not have reached a view as to how they will vote. After all, the obvious purpose of the mandatory 14 day notice period for the summoning of the creditors' meeting (rule 5.17(2)) is to enable creditors to consider the proposal and the nominee's comments on it before deciding how to vote. Moreover, the proposal is not set in stone: it may be approved at the meeting with modifications agreed by the debtor (section 258(2)). So there is scope for further negotiation and the garnering of support from initially reluctant creditors during the period before the meeting.
229. For all these reasons it is likely in the normal course to be sufficient for the nominee to be satisfied that the proposal has the support of at least one creditor, or a group of creditors, of substantial size on the footing that if such a creditor or group of creditors is satisfied that the IVA is in its commercial interests, there is a reasonable prospect that other creditors will reach the same conclusion. It is no doubt for this reason that paragraph 6.4 of SIP3 states that

"The matters upon which the nominee will wish to comment will vary from case to case but they should normally include…

(f) information on the attitude of any major unsecured creditor which may affect the approval of the arrangement by creditors".

Responding to this, Mr Andronikou referred to HSBC's position in paragraph 4 of his Comments:

"It is estimated that creditors will receive a minimum dividend of 9.9p in the £, in the IVA, as opposed to 2.1p in the £, should Mr Ahmed be declared bankrupt. The debtor's largest creditor is HSBC Bank plc, which is owed a sum of £7.475 million unsecured. I have contacted the bank which has indicated its approval to the Proposal".

230. However, in my judgment, the circumstances in which Mr Andronikou found himself when he came to prepare his section 256 report on 8 March 2007 were not normal or routine. I refer to my summary of the events between July 2006 and March 2007 in paragraphs 30 to 65 above. The position was as follows:

(1) At the meeting on 4 December 2006 Mr Andronikou told Tradindex that the Debtor's liabilities were an area he was not happy with and they needed further work.

(2) In his oral evidence Mr Andronikou said that he had gone through the Debtor's bank statements in October/November 2006 but he received no further documents supporting creditor claims until a few days before the creditors' meeting. Thus the further work referred to by Mr Andronikou on 4 December 2006 had not been done when he prepared his report on 8 March 2007.

(3) As a result of the 4 December meeting, Mr Andronikou formed the view that Tradindex would always oppose the IVA whatever steps were taken to satisfy them (day 15/page 9).

(4) In their letter dated 26 February 2007 Baker & McKenzie drew attention to the significant variations in the claims of the Ahmed family creditors and expressed Tradindex's "serious and reasonable doubts as to the fullness or candour of the information provided by Mr Ahmed" (which was clearly a reference to the Lindsay J guidelines). Baker & McKenzie emphasised that their client expected Mr Andronikou to take reasonable steps to satisfy himself as to those claims.

(5) On the basis of the Debtor's Statement of Affairs annexed to the amended proposal, Tradindex accounted for 23% of the voting strength of unsecured creditors. In view of Tradindex's implacable opposition to the IVA, it was apparent that it would only be approved by the requisite 75% majority by virtue of the votes of the family creditors.

231. The position therefore was that the prospects for the approval of the proposed IVA depended on the validity of family claims which (a) had not been properly investigated, (b) were in the nature of things vulnerable to manipulation in order to rescue the Debtor, (c) had been subject to substantial variation during the period between December 2006 and March 2007 and (d) were being challenged by the principal dissenting creditor.
232. I also refer to Lindsay J's list of variables which are relevant to deciding what steps it is reasonable for a nominee to take to satisfy himself as to the three minima:

(1) The strength of the grounds for questions or doubts: the relationship between the Debtor and the family creditors, the variations in their claims and Tradindex's concerns gave rise to strong grounds for further investigation.

(2) The materiality of such questions and doubts to the propriety or feasibility of the debtor's proposals: as I have explained, the family claims were critical to the approval of the proposal.

(3) The quality of the debtor's answers to the nominee's questions: Mr Andronikou's oral evidence was that he could get very little information out of the Debtor as he was "in denial".

(4) The ease or difficulty of independent inquiry by the nominee, the expense of such inquiry and the availability of funds: it is clear that any form of forensic investigation of the type undertaken by Mr Shameem during the proceedings would have taken time and been expensive. However, as I have mentioned, Mr Andronikou could have applied to the Court for an extension of the interim order and Mr Tager accepted that if, if necessary, the Debtor's family would have funded such investigation, as they did in the course of the proceedings.

233. I have reached the conclusion that, in the particular circumstances of this case, Mr Andronikou did fall short of the expected professional standard in recommending that a creditors' meeting be summoned before more detailed investigation of the family claims had taken place. Until that had happened, I consider that he could not reasonably have reached a view as to whether the section 256(1)(a) criterion was satisfied.

(2) The creditors' meeting

234. The first question here is whether Mr Andronikou, in his capacity as chairman of the meeting, had power to adjourn the meeting for the purpose of further investigating the disputed debts.
235. I have referred in paragraph 71 above to the provisions of rule 5.24 but I should now set out its terms in full:

"5.24(1) On the day on which the creditors' meeting is held, it may from time to time be adjourned.

5.24(2) If on that day the requisite majority for the approval of the voluntary arrangement with or without modifications has not been obtained, the chairman may, and shall if it is so resolved, adjourn the meeting for not more than 14 days.

5.24(3) If there are subsequently further adjournments, the final adjournment shall not be to a day later than 14 days after that on which the meeting was originally held.

5.24(4) If the meeting is adjourned under paragraph (2), notice of the fact shall be given by the chairman forthwith to the court.

5.24(5) If following any final adjournment of the meeting the proposal (with or without modifications) is not agreed to, it is deemed rejected".

236. The scheme of the rule is therefore as follows. The meeting may be adjourned under 5.24(1) for any purpose but Counsel were agreed that this sub-rule only contemplates an adjournment from time to time during the day on which the meeting is held. It is not possible to adjourn to a later date under 5.24(1). The meeting may be adjourned to a later date (not more than 14 days later) under 5.24(2) but only if the requisite majority for approval of the IVA has not been obtained. Mr Tager submitted, and I accept, that the purpose of such an adjournment contemplated by the sub-rule would be to conduct further negotiations or inquiries with a view to garnering sufficient creditor support for the IVA at the adjourned meeting. Rule 5.24(3) contemplates the possibility of multiple adjournments for this purpose but the final meeting must take place within the 14 day period. Having said that, the Court retains a residual power to extend the 14 day period under section 376.
237. The meeting may be adjourned under 5.24(2) at the chairman's discretion. In addition, the chairman must adjourn if the creditors vote by a 50% majority for such an adjournment. By contrast, it appears that an adjournment under 5.24(1) may only take place if authorised by a resolution of creditors.
238. In my judgment, Mr Andronikou could not sensibly have adjourned the 29 March 2007 meeting under rule 5.24 for the purpose of investigating the disputed debts. An adjournment for a few hours under 5.24(1) would have served no useful purpose. There was no basis for a 5.24(2) adjournment as the proxy count showed that the requisite majorities for approval of the IVA existed.
239. That raises the question whether Mr Andronikou, as chairman, had any power to adjourn in addition to the powers conferred by rule 5.24. It would be surprising if there were any general power to adjourn outside rule 5.24. A creditors' meeting to approve an IVA is entirely the creature of statute. If the statutory code imposes limitations and restrictions on adjourning the meeting, it would be very odd if those limitations and restrictions could be sidestepped by invoking a common law power.
240. The authorities indicate that a residual common law power to adjourn does exist but only for the narrow purpose of ensuring that the meeting can function properly, for example where an adjournment is necessary to preserve order or to deal with logistical problems: Byng v London Life Association Ltd [1990] Ch 170. This limited power is not of relevance in the present case.
241. In support of a more general power to adjourn, Mr Lopian relied on the observations of Robert Walker LJ in Cadbury Schweppes plc v Somji [2001] 1 WLR 615 at paragraph 25. I have already recited in paragraph 208 above the passage in which Robert Walker LJ dealt with the materiality test. He continued as follows:

"Had Mr Cooper been informed on that day of an important new development which ought to have been reported to those for whom he held proxies it would on the face of it have been his duty to adjourn the meeting and report to the other creditors, even if that meant having to obtain an extension of time (under section 376 of the Act)".

It appears that Mr Cooper was an insolvency practitioner who (like Mr Andronikou in the present case) had a number of different functions to perform at the creditors' meeting in question: he was the nominee and proposed supervisor of the IVA, he chaired the meeting and was proxy-holder for a number of creditors.

242. It is right to point out that the meeting in question was one at which the requisite majorities for approval of the IVA were obtained so on the face of it rule 5.24(2) would not have applied. However, it is, I think, significant that there is no mention in Robert Walker LJ's judgment of the provisions of rule 5.24 or of the common law authorities dealing with adjournment of meetings. There is no suggestion in the report that there was any issue between the parties, or any argument, as to whether Mr Cooper had power to adjourn the meeting in order to report developments to creditors. Of course, such an adjournment during the course of 20 December 1999, the date of the meeting, would have been possible under rule 5.24(1) although I recognise that Robert Walker LJ's reference to the possibility of obtaining an extension under section 376 indicates that he had in mind an adjournment to a later date. It is also not entirely clear to which of Mr Cooper's capacities he was referring when he said that it would have been his "duty" to adjourn. It seems likely in the context that he was referring to Mr Cooper's duty qua proxyholder but in that capacity he could only propose an adjournment and not direct one.
243. Taking into account these considerations, and albeit that the other members of the Court agreed with Robert Walker LJ's judgment, I am unable to treat the passage recited as authority for the proposition that the chairman of a creditors' meeting summoned under section 257 has a general power to adjourn the meeting over and above the powers conferred by rule 5.24. It was certainly not necessary for the Court's decision that there had been a "material omission" for the purposes of section 276 to hold that such an adjournment power existed.
244. I conclude, therefore, that Mr Andronikou had no power, whether under rule 5.24 or otherwise, to adjourn the creditors' meeting for the purpose of conducting further investigations into the disputed debts. I therefore reject Tradindex's allegation on that basis.
245. However, even if I am wrong about that and Mr Andronikou did in law have power to adjourn the meeting for that purpose, I would still be of the view that he acted reasonably and in accordance with relevant professional standards in not doing so.
246. The purpose of the adjournment advocated by Tradindex would be to provide the chairman of the meeting with more detailed material upon which to base his decision to admit or reject claims for voting purposes under rule 5.22. But, in my judgment, an adjournment for that purpose would derogate from the rough and ready nature of the chairman's functions under rule 5.22. As Harman J explained in Re a Debtor (No 222 of 1990) ex parte the Bank of Ireland [1992] BCLC 137 at 144:

"In my judgment the scheme of the meeting rules in r 5.17 is quite plainly a simple one. As one would expect the meeting is not the place to go into lengthy debates as to the exact status of a debt, nor is it the time to consider such matters as this court, sitting as the Companies Court, frequently has to consider as such whether a debt is bona fide disputed upon substantial grounds, an issue which leads to a great deal of litigation and frequently takes a day or so to decide. None of that could possibly be a suitable process to be embarked upon at a creditors' meeting.

The scheme is quite clear. The chairman has power to admit or reject; his decision is subject to appeal; and if in doubt he shall mark the vote as objected to and allow the creditor to vote…It provides a simple clear rule for the chairman, not a lawyer, faced at a large meeting with speedy decisions necessary to be made to enable the meeting to reach a decision. On that basis the chairman must look at the claim; if it is plain or obvious that it is good he admits it, if it is plain or obvious that it is bad he rejects it, if there is a question, a doubt, he shall admit it but mark it as objected".

Rule 5.17 referred to in this passage was the forerunner of what is now rules 5.21 and 5.22.

247. Moreover, I find that none of those who attended the creditors' meeting suggested that there should be an adjournment for that purpose. That is consistent with Baker & McKenzie's note of the meeting and was confirmed by Mr Hosking in his oral evidence.

(3) These proceedings

248. Tradindex's complaint focused on the role played by Mr Andronikou in the course of these proceedings, although, as I have mentioned, Tradindex suggested that Mr Andronikou aligned himself with the Debtor and his family from the outset.
249. I have referred at paragraph 33 above to the email which Mr Andronikou sent to Mr Barone on 14 November 2006. I attach little significance to this and do not consider there is any sufficient evidence that Mr Andronikou improperly aligned himself with the Debtor's interests before the commencement of these proceedings.
250. However, Mr Andronikou's conduct during the proceedings, particularly in relation to the evidence filed by him on the Respondents' behalf, was manifestly inappropriate, as is effectively conceded. I refer to the observations of Jacob LJ in Smurthwaite v Simpson-Smith [2006] BPIR 1504 at 1524:

"One of the difficulties in this case stems from the fact that Mr Mond, the insolvency practitioner, made common cause with the debtor. There is inherent danger in adopting any such stance. Insolvency practitioners should be much more careful to preserve utter independence from any party, either the debtor or any creditor."

251. The principal question here is whether I should accede to Mr Tager's submission that Mr Andronikou should be excused because everything he did by way of filing evidence was based on legal advice.
252. The problem with that submission is that there is no evidence before the Court as to precisely what that advice was or whether, and to what extent, Mr Andronikou queried it. I say that because Mr Andronikou is an experienced insolvency practitioner and I would have expected his instinct to be that it was not appropriate for him to provide the lead evidence on behalf of the Respondents in relation to the disputed debts issue. Not only did he not have the relevant knowledge to give the Court any real assistance but it obviously made him appear partisan.
253. I note that when a similar defence was run in Smurthwaite at first instance, the insolvency practitioner in question adduced evidence giving particulars of the legal advice provided: see [2006] BPIR 1483 at 1500.
254. In the circumstances I am not prepared to accept that Mr Andronikou should be excused from what would otherwise be an adverse finding by reason of reliance on legal advice.

Conclusion

255. In summary, therefore,

(1) I find that Mr Andronikou did fail to meet the standard to be expected of a reasonably competent insolvency practitioner in preparing his Nominee's Report dated 8 March 2007 and in his conduct during these proceedings; but

(2) I reject Tradindex's allegation against Mr Andronikou in relation to his conduct of the creditors' meeting on 29 March 2007.

256. I emphasise that, at this stage, I am only making findings as to Mr Andronikou's conduct. I express no view on the question whether it would be appropriate for Mr Andronikou to be ordered to pay any part of Tradindex's costs of these proceedings. That will depend on additional considerations upon which I have yet to be addressed.