Top Brands Ltd & Anor v Sharma (As Former Liquidator of Mama Milla Ltd)

Under Insolvency Rules 1986 r 4.85, only the liquidator, or a creditor where the liquidator declines to act, may apply to expunge or reduce an admitted proof. A former liquidator therefore lacks standing to challenge creditors’ proofs after leaving office. The court cannot use its inherent jurisdiction to bypass that statutory scheme. A fraud allegation with a real prospect of success may avoid an estoppel where the later allegation is materially distinct from the issue compromised earlier. In assessing abuse of process, the court must make a broad, merits-based assessment of all the circumstances. Very late procedural applications are subject to rigorous scrutiny.

Top Brands Ltd and Lemione Services Ltd, creditors of Mama Milla Ltd, brought an application under s 212 of the Insolvency Act 1986 against Gagen Dulari Sharma, the company’s former liquidator. They alleged misfeasance and breach of duty concerning money transferred and paid away during the liquidation.

Shortly before the substantive hearing, Sharma sought an adjournment so that she could challenge a consent order by which she had agreed to admit the applicants’ proofs of debt. She alleged that the consent had been procured by fraudulent misrepresentation and that the underlying transactions formed part of a VAT carousel fraud. The issues were standing, estoppel, abuse of process and procedure.

1. Standing. The application was refused on the decisive ground that Sharma, having ceased to be liquidator, was not a person entitled under Insolvency Rules 1986 r 4.85 to seek the expunging or reduction of an admitted proof. The rule identifies the relevant applicant: the liquidator, or a creditor if the liquidator declines to act. It therefore limits the court’s jurisdiction. The former liquidator’s personal interest did not permit the court to invoke its inherent jurisdiction inconsistently with that statutory scheme (paras 45–50).
2. The present liquidator remained entitled to investigate the validity of the proofs. The s 212 proceedings could proceed even though a later challenge by the current liquidator might be possible (paras 48–49).
3. Alternative findings. If Sharma had been competent to challenge the consent order, the court would have held that the new fraud allegation was sufficiently different from the earlier grounds for rejecting the proofs to lack the congruity required for an estoppel. A genuine fraud claim with a real prospect of success could also engage the public-policy exception to issue estoppel (paras 52–60).
4. Applying a broad, merits-based approach to abuse of process, the court would have concluded that the proposed challenge was not abusive. The assessment was generally confined to whether the pleaded facts had a real prospect of success, rather than a mini-trial of the alleged fraud (paras 61–69).
5. The procedural application was independently adverse to Sharma. An adjournment is a last resort, and the overriding objective requires efficient and proportionate litigation. The very late application, the prejudice and delay, and the current liquidator’s need to pursue the s 212 claim outweighed the advantage of a combined hearing (paras 70–79).

The application to adjourn was dismissed.