Manolete Partners PLC v Nag & Anor [2022] EWHC 153 (Ch)

In January 2022, the High Court (David Halpern QC) handed down a judgment concluding claims progressed by Manolete Partners (claims which were assigned by the liquidator of Quore Ltd to Manolete) against a company director Mr Nag for breach of duty and various debts along with claims against his wife Mrs Nag for dishonest assistance and knowing receipt.

Background

Mr Nag was a director of Quore Limited (“Quore”), which was in financial difficulty by the end of 2012. In March 2013, Mr Nag entered into a complicated business structure for the sale of Quore. Simply put, the business and assets of Quore without any liabilities were transferred to Quore Technologies Ltd (“QTL”), which was an SPV owned by Mr and Mrs Nag, for the sum of £650,000.

QTL was immediately sold on to an independent third party by Mr and Mrs Nag for £1,367,430. As part of the overall transaction, Mr Nag executed a deed on behalf of Quore releasing QTL from its liability to repay £288,294 and also provided a release regarding his outstanding director’s loan of £242,562.

Following completion of the transaction, funds of £650,000 were never paid to Quore for the benefit of the creditors. Quore entered into liquidation in 2015 and claims were thereafter assigned by the liquidator to Manolete.

Decision

The court concluded the manipulation of the assets between the companies controlled by Mr and Mrs Nag appeared to have had no commercial justification. At the time Mr Nag entered into the transactions, he knew the consideration of £1,267,430 (after deducting the £100,000 retention which was returned to the independent third party purchaser) for the sale of the business should have been paid back to Quore, that Quore was insolvent and the transaction was not in the interests of the creditors generally.
The court held that Mr Nag committed a breach of fiduciary duty by entering into the transaction which diverted a substantial part of the purchase price to himself and his wife Mrs Nag as shareholders in QTL. The court also held that Mr Nag committed a breach of fiduciary duty for the wrongful release of QTL’s liability of £288,294 and his own director’s loan liability of £242,562.

The court also concluded the requirements for dishonest assistance and knowing receipt in the claim against Mrs Nag were met. This was largely on the basis of various admissions by Mrs Nag that she was a 50% shareholder in QTL which she never paid for, had made a substantial profit from the sale of her shares in QTL, instructed her solicitors to deal with the sale of her shares in QTL and signed all documentation asked of her by Mr Nag without reading them or seeking legal advice or considering if the transaction was wrong.

The court held Mrs Nag liable to account as a constructive trustee on the grounds of dishonest assistance for £1,267,430 and if the requirements were not met for dishonest assistance, she would have been found liable for knowing receipt in any event (which has a lower threshold than dishonest assistance.)

Commentary

While there is no new law in this case, there are some interesting highlights for consideration.

The first relates to witness evidence and what not to do in the witness box. In this case, the court found Mr Nag to be an unsatisfactory and unreliable witness and made the following comments: “…his modus operandi was to ignore whatever question was put to him but instead to use the witness box as a platform for a diatribe against the liquidator and the Claimant's counsel. I lost count of the number of times I had to tell him to answer the question he had been asked and to warn him that his behaviour was not helpful to his case.

“Although he accepted a degree of blame where he regarded it as impossible to avoid, he frequently sought to blame others for what happened. His evidence contained inconsistencies, which I am satisfied arose because he was simply saying whatever he thought would help his case in answer to one question, forgetting that he had previously given an inconsistent response in answer to a different question…”.

The second relates to reliance on legal advice in relation to convoluted business transactions. In this case, the court made the following comments: “In the present case the documents executed on 28 March 2013 are curious and convoluted. Any honest and reasonable company director who was in any doubt would have asked his solicitor for advice on whether it was proper to structure the transaction in this roundabout way. In my judgment Mr Nag deliberately refrained from asking because he did not wish to receive unwelcome advice…”.

The third relates to having trust in your partner when signing documents and avoid a finding of “wilful blindness” in relation to dishonest assistance. In this case, the court made the following comments: “…It is understandable that a person might place great trust in their spouse …This is particularly so in the case of a person who had not worked for the previous seven years, but had been a full-time mother and home-maker, leaving all matters of business to her husband …But would a spouse who had a high degree of trust in her husband sign whatever business documents he asked her to sign…? …There is a difference between having a high level of trust in your spouse and simply doing whatever your spouse asks you to do, regardless of whether it is right or wrong …Her approach was to refrain from considering whether it was right or wrong but simply to do whatever her husband asked …She chose to allow him to be the arbiter of whether it was right or wrong …This amounts to wilful blindness, which is not the way that an ordinary decent person would have behaved in the circumstances of this case…”.

The fourth relates to interest claimed and the substantial impact this can have on the quantum of the judgment debt. In this case, interest was awarded at the rate of 4% compounded with quarterly rests with interest calculated on the judgment exceeding £722,000.

For full judgment, click here.

Ronan Butler
Associate Director