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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Brown v Bashir & Anor [2021] EWHC 337 (Ch) (26 February 2021) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2021/337.html Cite as: [2021] EWHC 337 (Ch) |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
RE: SHAHI TANDOORI RESTAURANT LTD (co.no.03658338)
AND RE: THE INSOLVENCY ACT 1986
Fetter Lane, London, EC4A 1NL |
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B e f o r e :
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KEVIN THOMAS BROWN (Liquidator of Shahi Tandoori Restaurant Ltd) |
Applicant |
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- and - |
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(1) ABDUL MONNAN BASHIR (2) ABDUL BAHAR BASHIR |
Respondents |
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Lynette Calder (instructed by Rainer Hughes) for the First Respondent
Dale Timson (instructed by Rainer Hughes) for the Second Respondent
Hearing dates: 24-26 November 2020
Further written submissions: 4 December, 11 December 2020
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Crown Copyright ©
ICC JUDGE PRENTIS:
"A declaration that the transactions in the sum of £771,918 comprising of monies belonging to the Company retained for the benefit of the Respondents constituted misfeasance within the meaning of section 212 of the Insolvency Act 1986 ["IA86"] and/ or that the total sum of £771,918 remains property that the Company is entitled to under section 234(2) of the [IA86]…";
together with an order that:
"the Respondents do repay, restore or account and/or contribute by way of compensation to the assets of the Company in the sum of £771,918 on a joint and several basis".
"or in such other sum as the Court thinks fit".
"Further, or in the alternative, a declaration that in failing to file, progress, or pursue diligently an appeal and/ or review and/ or challenge against a Notice of Assessment issued by HMRC on 19 August 2014, or cause the same to be done, either in time or at all, the Respondents are guilty of misfeasance pursuant to section 212… and/ or have breached their statutory, fiduciary and/ or other duties to the Company".
"…the Respondents do repay, restore or account and/ or contribute by way of compensation to the assets of the Company in the sum of £139,846.92 plus the costs of the Company's liquidation and such statutory interest as may be due on the debts comprising the Company's liquidation estate, or such other sum as the Court thinks fit".
15.1 "Failing to properly declare the Company's income to HMRC", and
15.2 "Transferring property belonging to the Company (namely cash) to themselves for their personal benefit".
"Where a person has failed to make any returns required under this Act… or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment…".
"…the very use of the word 'judgment' makes it clear that the commissioners are required to exercise their powers in such a way that they make a value judgment on the material which is before them. Clearly they must perform that function honestly and bona fide…
Secondly, clearly there must be some material before the commissioners on which they can base their judgment…
Thirdly, it should be recognised, particularly bearing in mind the primary obligation… of the taxpayer to make a return himself, that the commissioners should not be required to do the work of the taxpayer in order to form a conclusion as to the amount of tax which, to the best of their judgement, is due… What the words 'best of their judgment' envisage, in my view, is that the commissioners will fairly consider all material placed before them and, on that material, come to a decision which is one which is reasonable and not arbitrary as to the amount of tax which is due. As long as there is some material on which the commissioners can reasonably act then they are not required to carry out investigations which may or may not result in further material being placed before them".
"whether Mr Wood conducted any cash reconciliation exercises as part of his accounting procedures, he advised he did, and for the years 30/10/2011 & 30/10/12 he did have cash discrepancies where cash purchases exceeded cash taken, without cash injection by the director, of £3,600 and £9385.82 respectively. He believed that these were unrecorded sales, but had not yet accounted for the VAT undeclared".
"We established that was the only income received by the director, apart from the rental income… We established that the director's home mortgage had repayments of approx. £1000 per month, which were just covered by the director's income. On discussing how his family lives (he lives with his wife and 4 children), he advised that their living costs… were just about covered by the child benefits, working family tax credits and child tax credits, approx. £800 per month".
"On examining the Cathedral analysis cash book I noted alongside the takings figures there was a capital introduced figure of approximately £8,000 for each quarter. When I raised this I was informed that this was payments by the director for restaurant supplies made on his personal credit card, which was paid off each month. I queried how the director paid these sums, due to the income and expenditure already established. I advised that I was concerned by the discrepancy.
I asked the director and accountant to discuss matters, and left the premises for 10 minutes to give them some privacy".
"…I asked whether they had established what had happened and Mr Wood advised that there had been a miscommunication between him and his client and that these figures were in fact undeclared takings, and these takings were not included in the businesses' declared takings. I asked the director what had happened, and he advised he took cash from the till to cover these expenses. I pressed him as this would lead to an anomaly between the customer bills and the cash/ card takings. He admitted that he destroyed some of the customer bills in order to match the takings to the bills.
Mr Wood advised that this may have been going on for 2½ years. I asked why this length of time, and he could not answer specifically other than it was around this time that the director started paying some suppliers by his personal credit card and reimbursing himself from the till. We all agreed that this was deliberately done and the director was aware that his actions were wrong.
Having established that the business takings figures were understated we agreed that Mr Wood would discuss matters with his client, examine his client's personal bank and credit card records and try to establish the level of arrears. I advised that it would be helpful if the director also sent in a statement to advise us what procedures he put in place to underdeclare the business' takings…".
"We agreed that Mr Wood would prepare a schedule on underdeclared takings, and a written statement would be drawn up by the director to explain how these underdeclarations had been effected".
"On examination of the meal bills I established that none of these… transactions were in the records. I advised that seemed to lend weight to the fact that there was substantial systematic suppression being undertaken, and that I expected this to be reflected in the revised figures to be produced".
"insisting that we should offer him a good settlement offer which will make him happy When I refused to give him an offer without any proof or evidence, he threatened to us to dig this matter further".
The First Respondent says that Mr Mortell took away with him the business sales records for 25 January and 28 February 2013, and has never returned them.
"Mr Mortell pressed us to make an 'offer', in exchange of which he would 'stop the matter'".
This was why, he says, Mr Mortell left him and Mr Wood alone. Mr Wood "also attempted to persuade me to make a concession", but the First Respondent refused.
"Mr Mortell's reaction was immediately hostile. Before he left the premises, he made the express threat that he would 'dig you from the beginning'".
"I cannot recall whether Mr Wood did say to Mr Mortell that the Company had underdeclared sales… Mr Wood is not a qualified accountant, but merely a bookkeeper".
"I write following my VAT inspection with you and Mr Wood.
We agreed during my visit that you would prepare a statement detailing the takings omissions from your VAT and Corporation Tax declarations following your admission that the returns filed were understated, and you had omitted to record all or your cash takings in your daily takings records which formed the basis of your VAT return and Corporation Tax turnover declarations. You also agreed that you would provide a detailed schedule of the understated sales.
I have spoken to Mr Wood on numerous occasions chasing up this information. During our last conversation he advised me that you had collected your records from him, and he no longer acted for you.
As I have not heard from you I am making an assessment for the underdeclared output tax on your VAT returns as detailed on the enclosed spreadsheets…".
"In the absence of any further information from you, the original decision was upheld".
"The taxpayer believes that the liability has been excessively calculated and that his 'admission' was incorrectly interpreted and misunderstood".
Thus, an excessive liability rather than no liability; and an acknowledgment that something had been said which had wrongly been construed as an admission.
"…we have asked the taxpayer to begin quantifying the sums of money that he introduced to the company that were not sales…".
"The taxpayer has informed us that all his papers were held by JB Wood accountants and subsequently taken by HMRC. Unless HMRC return them to the taxpayer, he will not be able to quantify the amounts he introduced to the company".
"were returned to the business the week after the visit of 21 June 2013, as the business would need them to submit the VAT return for period 7/13. I have spoken to Mr Wood, he advises that he did not send any records to HMRC, he sent the client's records to his new agent Iqbal Sadeque & Co".
He then gave essentially the same account of the November meeting as is above.
"The reason we have more sales in last two quarters was because we had promotional marketing offer in Radio and local newspaper in that period which help us having more sales…".
"The campaign showed promising results from an early stage. In particular, the restaurant-side of the business saw remarkable improvement".
Set against that "the price of raw material tripled or quadrupled".