MSD Cash & Carry Ltd, Re

Compensation for misfeasance or breach of fiduciary duty under the Insolvency Act 1986 is limited to the actual loss caused, assessed by ordinary principles of causation. The claimant bears the burden of proving the loss. Where relevant evidence lies principally with defaulting fiduciaries, the court may assess loss robustly if the claimant establishes a prima facie case and the fiduciaries choose not to rebut it. The assessment restores the company’s estate to the position it would have occupied had the breach not occurred.

The applicant, liquidator of MSD Cash & Carry Ltd, sought compensation from its former directors under section 212(3) of the Insolvency Act 1986. An earlier order, following the trial judgment reported at [2018] EWHC 1325 (Ch), had declared that a credit note issued to a connected company was false and void under section 127, and that the respondents were liable for loss caused by their misfeasance and breach of fiduciary duty. The matter was adjourned for an inquiry into the amount of loss.

The respondents were debarred from defending the inquiry and adduced no evidence concerning the connected company’s financial position. The central issues were the measure of loss, the burden of proof, and whether the evidence justified fixing the loss at the amount of the voided debt plus interest.

1. The respondents were ordered to compensate MSD in the sum of £996,494.61 plus interest. The inquiry concerned the amount of loss, since misfeasance and breach of fiduciary duty had already been established.

2. Under section 212(3)(b) of the Insolvency Act 1986, compensation is limited to actual loss caused and is assessed by ordinary principles of causation. The objective is to restore the company’s estate to the value it would have had if the breach had not occurred.

3. The credit note was an unsuccessful attempt to dispose of MSD’s right to receive payment from Dale. Although void, it deprived MSD and its liquidator of the practical ability to demand payment between its issue and the July 2018 order. The loss was therefore the difference between what MSD could have obtained on a timely demand and what it could realistically recover in Dale’s liquidation.

4. The applicant bore the burden of proving the amount of loss. Murad & Another v Al-Saraj & Another [2005] EWCA Civ 959 concerned whether loss was relevant to an equitable account of profits and did not determine the burden under section 212. GHLM Trading Limited v Maroo and others [2012] EWHC 61 (Ch) and Re Idessa (UK) Ltd [2011] EWHC 804 (Ch) concerned the burden of proving breach, not quantifying loss.

5. Because the relevant financial evidence was substantially within the respondents’ knowledge, the court could accept a prima facie case where the respondents chose not to provide evidence capable of rebutting it. The accounts, dividends, turnover and other evidence established that Dale could have paid the debt and accrued interest during the relevant period. The court therefore assessed the loss robustly against the respondents.

Not stated in the judgment. The decision was an inquiry following the earlier High Court order reported at [2018] EWHC 1325 (Ch).