The illegality defence and misfeasance claims against IPs—Top Brands v Sharma

The illegality defence and misfeasance claims against IPs—Top Brands v Sharma

In what circumstances can an insolvency practitioner (IP) against whom a misfeasance claim is made rely on the company’s involvement in an illegal act as a defence to the claim? Ali Tabari, a barrister at St Philips Chambers, discusses the Court of Appeal’s decision in Top Brands v Sharma and its implications for practitioners.

Original news

Top Brands Ltd and another v Sharma (as former Liquidator of Mama Milla Ltd) and another [2015] EWCA Civ 1140, [2015] All ER (D) 77 (Nov)

The Court of Appeal, Civil Division dismissed the defendant former liquidator's appeal against an order that she contribute £548,074.56 to the assets of a company in creditors' voluntary liquidation (CVL) by way of compensation for her breaches of duty. The illegality defence could not apply, as there had been no inextricable link between the claim and the fraudulent conduct, and the policy of requiring liquidators properly to collect and distribute the assets of the company that had to prevail.

What was the background to the appeal?

Mrs Sharma was appointed as liquidator of a company, Mama Milla Ltd, which, it transpired, was used as vehicle for VAT fraud. As the company entered CVL, it received a sum of over £500,000 from a wholesaler with whom it dealt (Sert), that sum representing the only substantial asset of the company.

Contrary to the assertions of two creditors, who eventually brought this action, that sum was paid away by Mrs Sharma, on the seemingly-fraudulent instructions of Sert, to various bank accounts with no ostensible links to Sert or to the company itself. The instructions appeared to have been given on the false basis that Sert had made an advance payment for goods which were never delivered by the company, and that it was entitled to be repaid.

At trial, the performance by Mrs Sharma of her duties as office-holder was strongly criticised by

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.