Summary

A claim that liquidators had converted assets belonging to the claimants failed because the claimants could not establish ownership. One of the claimants had also made representations that the assets belonged to a separate company and was therefore estopped from resiling from that position, and the liquidators were protected by the Insolvency Act 1986 s.234.

Facts

The claimant company and director (E and B) brought conversion claims against the defendants. The second and third defendants counterclaimed for administration costs.

B and his family had run various companies connected with television broadcasting and production from a property known as "the studio". The studio contained television equipment worth over a million pounds. In February 2004, one of their companies (Hardial) entered creditors' voluntary liquidation. A few months later, another of their companies (HDS) also ceased trading and was later wound up. The second and third defendants (D2 and D3) were administrators and liquidators of HDS. Hardial had owned the television equipment until it mortgaged the equipment to HDS and another related company (Quinella) to secure various liabilities. E and B alleged that the benefit of those chattel mortgages was assigned to E or B's father under two assignments dated July 10, 2002 and July 13, 2003. They claimed that D2 and D3 had converted the assets by selling them to the first defendant company (D1) in 2004. D1 re-sold the assets in 2005. D2 and D3 asserted that B and his brother had undertaken to meet the costs of HDS's administration. They therefore counterclaimed for those sums.

E and B claimed that assets within the studio had been converted as a result of the 2004 and 2005 agreements, and also by D2 and D3 locking them out of the studio and not allowing them to remove their goods.

Held

(1) The assertion that the relevant assets belonged to Hardial before the chattel mortgages were entered into was borne out by its accounts for 2001. However, HDS's 2003 accounts portrayed it as owning the relevant assets. The assets were also included in HDS's fixed asset register. On the face of it, all the equipment previously owned by Hardial had been transferred to HDS, the indebtedness Hardial had previously had to Quinella was assumed by HDS, and Hardial's substantial indebtedness to HDS was discharged. It was B's case that the benefit of the Quinella mortgages was assigned to E on July 10, 2002, and that the benefit of the HDS mortgage was assigned to his father on July 17, 2003. Neither of the disputed assignments were genuine. Both were likely to have been created after HDS had gone into liquidation and were fabrications. The evidence demonstrated that by the time HDS went into liquidation, it had become the owner of the assets that had formerly belonged to Hardial, and the Quinella and HDS mortgages were spent. The benefit of the HDS and Quinella mortgages was not assigned to B's father or to E. B had not established that he, or anyone from whom he had taken an assignment, owned any of the assets sold under the 2004 and 2005 sale agreements. His evidence was inconsistent with the documents and unconvincing (see paras 36, 48, 53-55, 66-68, 74-75 of judgment). (2) B had represented that the relevant equipment belonged to HDS. He did so by sending the administrators a balance sheet that showed HDS to have tangible assets of over £2 million, by swearing affidavits concerning HDS's tangible assets, by providing copies of the fixed asset register and by telling D2 that the studio equipment belonged to HDS. There was reliance on B's representations and it followed that B was estopped from denying that the relevant assets in the 2004 and 2005 sale agreements belonged to HDS. The Insolvency Act 1986 s.234 also operated to confer protection on administrators, liquidators and other office-holders. D2 and D3 were amply justified in believing that the equipment sold pursuant to the 2004 and 2005 sale agreements had belonged to HDS; they had acted reasonably and could rely on s.234 (paras 76-79, 81-82). (3) B and E had not asked to remove possessions from the studio when HDS ceased trading. The way in which D2 and D3 dealt with access to the goods alleged to have belonged to B and E did not constitute conversion. The ordinary way of showing a conversion by unlawful retention was to prove that the defendant, having it in his possession, refused to surrender it on demand, Kuwait Airways Corp v Iraqi Airways Co (No.6) [2002] UKHL 19, [2002] 2 A.C. 883 followed. No such refusal had been established (paras 33, 110). (4) The counterclaim was supported by contemporary documents including an affidavit made by B, a letter from B to D2, and an exchange of emails in which the costs were discussed but B did not deny responsibility for them. On balance, the court concluded that B and his brother were liable for the administration costs and the amount of those costs should be assessed (paras 116-121).

Judgment for defendants