Lime and Black BPS Limited (in liquidation) v Dharminder Singh Gill & Ors

The court found that the Second Defendant, Mr Kiran Kumar Mistry, was a de facto director of Lime and Black BPS Limited and therefore owed the statutory and equitable duties of a director under the Companies Act 2006 (notably sections 171 to 175). The company had been used to perpetrate a substantial VAT fraud and certain sums that should have been available to meet the company’s VAT liabilities were diverted to or received by third parties including Mr Mistry via payment platforms (notably IFX and Payfect). The judge rejected Mr Mistry’s account in key respects, drew adverse inferences from deleted or absent documents (including a Dropbox), and concluded that payments received by Mr Mistry were not genuine fees for services but were diverted in breach of fiduciary duty. Judgment was entered for the claimant, with recovery to be calculated by reference to payments diverted from the company’s IFX/Payfect accounts (excluding payments demonstrably from the HSBC account to other defendants).

This was a first-instance claim brought by the joint liquidators of Lime and Black BPS Limited against five defendants; the claim was compromised against all but the Second Defendant, Mr Kiran Kumar Mistry. The company had been put into creditors’ voluntary liquidation and the liquidators sued for breach of fiduciary duty, dishonest assistance, knowing receipt and conspiracy, although some alternative causes were not pursued at trial.

The proceedings included without-notice freezing and search orders and lengthy documentary disclosure; the case against Mr Mistry was tried over several days. Key witnesses were an HMRC officer, the liquidator Mr Illes, the sole statutory director Mr Dharminder (Pete) Gill, and Mr Mistry. The claimant relied heavily on Gill’s evidence and on material recovered from electronic devices; the court emphasised the importance of contemporary documents and permitted adverse inferences where documents (notably a company Dropbox) appeared to have been deleted.

Issues for decision

• Whether Mr Mistry was a de facto director of the company.
• If so, whether he breached the statutory fiduciary duties (sections 171–175 Companies Act 2006) by participating in, facilitating or knowingly receiving the proceeds of a VAT fraud.
• What sums, if any, the company could recover as equitable compensation.

Court’s reasoning and conclusions

• The judge applied established authorities on de facto and shadow directorship and on assessing credibility in fraud-related fact-finding. He examined the cumulative effect of acts alleged to be directorial in nature.
• He found that Mr Mistry had been involved in the company’s conception, had set up and administered the workplace pension to a limited extent, had set up the company’s IFX payments account and had both uploaded and processed payments via IFX/Payfect, such that his acts were directorial in nature and he was a de facto director.
• The court found the company had been used to perpetrate a VAT fraud (assessed amount pleaded; HMRC evidence corrected the figure) and that significant sums were diverted away from monies available to meet VAT liabilities. The judge rejected Mr Mistry’s account that sums he received were genuine fees and drew adverse inferences from his false statements about access to emails and from the deletion of the Dropbox.
• On causation and measure of loss the judge concluded the company’s loss caused by Mr Mistry’s breaches was the sums diverted from the IFX and Payfect accounts (and sums paid to Mr Mistry), but not sums paid from the HSBC account to other defendants for which Mr Mistry was not responsible. The judge therefore entered judgment for the claimant, to be calculated accordingly (see paragraph 165 of the judgment).

Judgment for the Claimant. The court held that Mr Mistry was a de facto director who owed the duties in sections 171–175 of the Companies Act 2006, breached those duties in the course of a VAT fraud by participating in and receiving diverted funds, and was liable to equitable compensation. The judge rejected Mr Mistry’s explanations, drew adverse inferences from deleted and absent documents and limited recoverable loss to sums diverted via the IFX/Payfect accounts and sums received by Mr Mistry (excluding payments from the HSBC account for which he was not responsible).