UBS Switzerland AG v Anil Kumar

The claim, brought by an assignee of Vincom's liquidators, alleged that the defendant (the sole director of Vincom) breached his duties as a director by issuing eight credit notes and authorising three payments which benefited companies controlled by his family and prejudiced Vincom and its creditors. The court applied the Companies Act 2006 duties (in particular s.171(b) on proper purpose, s.172 on acting in the company’s interests and having regard to creditors where insolvency is real or imminent, and s.174 on reasonable skill and care) to the facts.

The judge found that the eight credit notes were not contemporaneously issued in the genuine course of trade but were created in the run-up to inevitable insolvency (late 2017/January 2018) to enable DMT to avoid payment; there was no reliable documentary or expert support for the asserted cargo contamination. Two payments from Vincom's NatWest account (AST Payments 1 and 2) were found to have been effected on false or fabricated invoice bases and to have been authorised to move company assets to AST (a brother-controlled company). A third AST payment was found to be a separate breach because it increased Vincom’s indebtedness at a time when the director ought to have had regard to creditors' interests. On that basis the director was in breach of fiduciary and statutory duties and was ordered to pay equitable compensation totalling USD 13,337,313 (with interest to be dealt with at a consequential hearing).

Background and parties: Vincom Commodities Limited (Vincom) was a commodities trader whose sole director was the defendant. Vincom went into liquidation on 24 January 2018. The liquidators assigned potential claims against the defendant to the claimant bank (UBS Switzerland AG). The claimant alleged breaches of directors’ duties concerning eight credit notes (2014–2017) and three payments in November 2017; the defendant was self-represented at trial.

Nature of the claim / relief sought: The claimant sought equitable compensation for loss to Vincom caused by the defendant’s alleged breaches of directors’ duties under Companies Act 2006 (notably s.171, s.172 and s.174). The asserted losses comprised the value of the cancelled invoices (credit notes) and the sums paid to AST.

Issues framed:

• Whether the credit notes were issued for a proper purpose or to prefer the interests of the defendant’s family-controlled companies over Vincom;
• Whether the three AST payments were genuine trading payments or improper transfers/asset stripping made while insolvency was imminent;
• The relevance of s.172(3) (directors’ duties where insolvency is real or imminent) and whether the defendant should have had regard to creditors’ interests; and
• Evidential questions including document gaps, witness credibility and expert evidence on cargo contamination.

Court’s reasoning and findings: The judge reviewed the documentary evidence, witness testimony, hearsay material and expert reports (notably a metallurgist who concluded significant contamination rendering cargo worthless was extremely unlikely). The court found pervasive documentary gaps and inconsistent accounts from the defendant, and accepted the claimant’s witnesses and experts on key points. The credit notes were not contemporaneous commercial adjustments and did not appear in Vincom’s records; the court concluded they were prepared in late 2017/early 2018 to enable DMT (the customer) to deny liability. The first two AST payments (made from Vincom’s NatWest account shortly after a winding-up petition was served) were found to have been authorised on fabricated/inflated invoice bases and to have had the purpose of putting assets beyond the reach of creditors; the third AST payment increased Vincom’s indebtedness to a lender and was a breach of duty given the insolvency context. On these bases the defendant breached s.171 and s.172 (and fiduciary duties), and in respect might also have failed s.174.

Result: The court ordered equitable compensation payable by the defendant in the sum of USD 13,337,313 (breakdown in judgment) and reserved submissions on interest for a consequential hearing. The judgment records detailed credibility findings against the defendant and the absence of contemporaneous documentary support for his explanations.

Claim succeeded. The court held that the defendant, as sole director, breached his fiduciary duties and statutory duties under the Companies Act 2006 by issuing credit notes (used to cancel receivables) and authorising payments which benefited companies controlled by his family rather than Vincom, and by entering into/authorising an additional transaction while insolvency was imminent. The breaches comprised improper purpose, bad faith as to the company’s interests and failures of care; equitable compensation of USD 13,337,313 was ordered, with interest to be addressed at a consequential hearing.