Re MSD Cash & Carry Plc (In Liquidation), Ingram v Singh

The liquidator of MSD Cash & Carry plc applied for relief under the Insolvency Act 1986 including reversal of an alleged preferential set-off against a director's loan account (section 239), declarations that an undated credit note for £996,494.63 was a void disposition (section 127) and/or transaction at an undervalue, recovery of three disputed cash entries, and an account of trading and profits. The court allowed late amendments to the application and found that the second respondent, Surjit Singh, was a de facto director. The court held that MSD had given a preference to the first respondent, Mohinder Singh, by the transfer of vehicles and related accounting entries and that the balance paid in cash to him was also a preferential advantage; restorative relief was granted. The undated credit note was held to be a sham and a void disposition of MSD's chose in action for nil value and the credit note was attributable to Mohinder and Surjit; the court ordered an inquiry into the loss arising from that disposition because quantum could not be determined on the evidence. Of three cash payments, one (£61,478.23) was found to be a genuine pre-petition supply and not recoverable, but two payments (£60,000 and £15,000) were not proved and Dale Wholesale Limited was held indebted to MSD for £75,000. An account was ordered in the terms sought by the liquidator.

The applicant, Mr David Ingram (liquidator of MSD Cash & Carry plc), sought multiple heads of relief arising from transactions between MSD and family-associated entities, notably Dale Wholesale Limited and Lionheart Limited. The principal issues were:

• Whether amendments to the liquidator's application could be permitted late in the proceedings;
• Whether Surjit Singh was a de facto director of MSD;
• Whether MSD gave a preference to Mohinder Singh by the transfer of vehicles to Lionheart and related set-offs against his director's loan account (section 239, Insolvency Act 1986);
• Whether the undated credit note for £996,494.63 was a genuine adjustment, or a void disposition/transaction at undervalue or a device to put assets beyond creditors (section 127 and equitable remedies);
• Whether three cash payments recorded in ledgers were genuine or recoverable; and
• Whether an account of receipts, payments and profits should be ordered.

The court allowed the late amendments to paragraphs 1, 8 and 10 of the application notice after considering limitation points and case-management prejudice, applying the test whether the essential features of the factual basis would be changed. On facts, the judge found that MSD had continued some cash-and-carry trading after March 2010 and that MSD had transferred vehicles to Lionheart by way of an invoice dated 16 March 2010. The transfer and the accounting set-off placed the first respondent in a better position in the event of insolvency; the court found that the transfer was motivated by preserving assets from MSD's creditors and therefore upheld the section 239 preference claim and awarded restorative relief.

The undated credit note was held not to be justified by non-delivery or price adjustment for out-of-date stock. The court accepted the liquidator’s inference from contemporaneous invoices and ledger entries that goods had been invoiced and delivered and found the credit note to be a document created and entered on 5 November 2011 to neutralise an amount owing by Dale to MSD in the run up to insolvency; it was therefore a void disposition for nil value attributable to Mohinder and Surjit. Because the quantum of loss could not reliably be ascertained on the material before the court, an inquiry into loss was ordered rather than an immediate quantification.

As to the three cash entries, documentary evidence established that the £61,478.23 entry related to genuine supplies and pre-dated the petition; that part of the claim failed. Two other cash entries of £60,000 and £15,000 were not supported by contemporaneous documents and were found not proved; Dale was held liable for £75,000. Finally, on the inadequacy and quality of the records and the potential value of further enquiries, the court ordered an account in the terms sought by the liquidator.

This was a first instance disposal. The court allowed late amendments to the liquidator’s application. It found that the second respondent, Surjit Singh, was a de facto director of MSD. The court upheld the liquidator’s preference claim under section 239 of the Insolvency Act 1986 and ordered restorative relief reversing the set-off and payments to the first respondent. The undated credit note for £996,494.63 was held to be a sham and a void disposition of MSD’s chose in action for nil value; the credit note was attributable to the first and second respondents and an inquiry was ordered to determine loss. Of three disputed cash payments, one was found to be a genuine pre-petition payment and not recoverable, while two others were not proved and Dale Wholesale Limited was held indebted to MSD in the sum of £75,000. The court ordered the account sought by the liquidator to be taken.