England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
IN THE MATTER OF THE BURNDEN GROUP LIMITED
AND IN THE MATTER OF THE INSOLVENCY ACT 1986

		Manchester Civil Justice Centre, 1 Bridge Street West, Manchester M60 9DJ
		15 February 2017

His Honour Judge Stephen Davies

His Honour Judge Stephen Davies:

1. Introduction

1. .1 This is an appeal by the applicants, Mr Gary and Mrs Sally Fielding (the Fieldings), brought under rule 4.83 of the Insolvency Rules 1986, against a decision made on 29 December 2015 by the respondent, Mr Stephen Hunt, the liquidator of The Burnden Group Limited (BGL), rejecting their proof of debt.
2. .2 The proof of debt originally advanced by the Fieldings as long ago as February 2011 was a substantial one, said to be £3,249,083. The revised proof of debt with which this court is currently concerned is a little larger still, said by Mr Fielding in his first witness statement to be £3,599,781.56. The proof of debt dispute has generated a significant amount of evidence, both in terms of witness statements and of exhibited material.
3. .3 The proof of debt dispute has also been vigorously contested by both sides and, as a result, the hearing of the appeal has become protracted. The hearing was originally listed for 2 days in September 2016. On day one, 27 September 2016, the claim was opened by Mr Briggs, counsel for the Fieldings, in the course of which I dealt with and rejected a preliminary objection taken by Mr Pickering, counsel for the liquidator, that the court had no jurisdiction to consider or adjudicate upon the revised claim, and I also dealt with an opposed application by the liquidator to rely on further evidence, which I allowed in part. On day two, 28 September, Mr Briggs completed his substantive submissions and Mr Pickering began his substantive response, but there was insufficient time to complete it so that a further day had to be found, the first available date convenient to all being 21 October 2016. On that day Mr Pickering completed his substantive submissions, in the course of which he made further specific submissions in relation to claims 2 – 6 (as explained below) in respect of which the Fieldings reasonably considered they needed further time to consider and to respond. A timetable was set for that to be done by way of supplemental evidence and written submissions, with a further day being reserved in case further oral submissions proved to be necessary, the first convenient available date being 15 February 2017. In the event the parties agreed that further oral submissions were unnecessary and that I could proceed to produce this judgment on receipt of the final submissions. I was notified accordingly on 6 January 2017. In many cases it would not have been appropriate to allow the parties the additional time and court resource which they have been allowed, but in my view the time taken and court resource allowed has been proportionate both to the complexity of the issues involved and the value and importance of the proof of debt to the parties.
4. .4 It is initially surprising that so much time and effort has been devoted to contesting this proof of debt, in circumstances where as matters currently stand BGL has no prospect of paying any dividend to creditors. The explanation however is that this application is in substance, if not in form, a precursor to two misfeasance applications brought by the liquidator against the Fieldings and the former administrators of BGL, challenging a payment of £1.3 million made by the administrators to the Fieldings. If I am satisfied that the Fieldings have a valid proof of debt in excess of that £1.3 million then the misfeasance applications will effectively fall away, because the liquidator will be unable to establish any resultant loss suffered by BGL as a result of that payment being made even if he can establish breach. It is therefore very much in the interests of the Fieldings, both directly and because they gave an indemnity to the former administrators, to establish that they have a claim in excess of £1.3 million, even if they have no real prospect of receiving any actual dividend.
5. .5 By way of overview, the Fieldings are a married couple who have between them effectively owned and controlled a group of companies engaged in a conservatory business in the Bolton and Blackburn areas, known as the Burnden Group. Mr Fielding has never been a registered shareholder or a formally appointed director of BGL. For the purposes of this appeal I am not required to consider, still less make any finding, as to whether or not he was a shadow director of BGL. I refer to the Fieldings merely by way of convenient shorthand save where it is necessary to distinguish between the two. On 2 October 2008, as a result of a "pre-pack" administration and asset sale completed that day, Mrs Fielding acquired a 100% shareholding in BGL and BGL acquired the assets and business of three of the companies within the Burnden group. The result was that from October 2008 onwards BGL, under its former name of K2 Glass Ltd, carried on the conservatory business in its own right.
6. .6 Unhappily however the business did not prosper and BGL in turn was the subject of a further pre-pack administration and asset sale in January 2010, under which its assets and business were transferred to another company effectively owned and controlled by the Fieldings. The administrators of BGL accepted that the Fieldings were owed a substantial amount by BGL and that they were secured creditors, with the result that they made a payment of £1.3 million to the Fieldings from the recoveries made from the pre-pack transaction, but subject to an indemnity in case it transpired that sums to that value were not actually owed.
7. .7 However in due course the administrators' proposals for BGL were rejected and it went into liquidation. An investigation into its affairs was conducted by the respondent liquidator, assisted by Mr Andersen, a forensic investigator with the firm in which Mr Hunt is a partner. It is as a result of those investigations that the decision was taken to reject the proof of debt and also to issue the misfeasance applications to which I have already referred, shortly before the expiry of the relevant limitation period. Those misfeasance proceedings have since been stayed pending the determination of this appeal.
8. .8 The proof of debt as currently advanced is divided into 6 separate claims, which may be summarised as follows.
9. .10 (1) The roll over debt claim. This is a claim for £3,150,000, which the Fieldings say represents monies loaned by Mrs Fielding to BGL in order to finance the acquisition of the assets and business of the three companies as part of the first pre-pack sale in October 2008. The liquidator's position is that nothing is due because sometime in December 2008 it was agreed between the Fieldings and BGL that what was originally intended to be a loan from Mrs Fielding to BGL should instead be converted into an allotment of a further shareholding to her with the result that the loan liability was extinguished. The Fieldings dispute that any such agreement was reached, and contend that insofar as the documentation relied upon by the liquidator may indicate otherwise it was produced in error.
10. .11 (2) The ransom and retention of title payments claim. This is a claim for £298,760.94, now reduced to £178,487.91, which the Fieldings say that they paid on behalf of BGL to existing suppliers in the aftermath of the first prepack sale, in order to ensure that they were prepared to supply BGL as the new trading company. The liquidator's position at the September hearing had been that from Mr Andersen's analysis of the relevant records the Fieldings had been able to establish a claim, but for no more than £35,075.43, although by the October hearing the liquidator's position was that not even that amount was due. Following the October 2016 hearing the Fieldings have reduced their claim to £178,487.91. I will refer to the reasons for these changes in more detail when considering this element of the proof of debt.
11. .12 (3) The Vital claim. This is a claim for £1,561,316.21 in respect of trading payments between BGL and a company referred to as Vital. It is net of a claim for interest charges, which is no longer pursued, and is also subject to a credit for £699,999, being the Fieldings' estimate of the value of stock provided by Vital which was subject to retention of title claims. Its net value according to the Fieldings is therefore £861,317.21. Although the basis for advancing this claim has varied, it is now asserted on the basis of an assignment between Vital and the Fieldings entered into on 21 December 2009, the validity of which the liquidator has indicated that he does not challenge. However the liquidator does contest the value of the claim. On his analysis of the records he is prepared to rely upon he assesses the claim as being no more than £974,256.48. Nonetheless the liquidator has taken and remains of the view that due to a lack of evidence he is unable to make any specific deduction against the claim for the value of stock provided by Vital subject to retention of title claims. It follows that the claim which the liquidator would be prepared to admit still stands at £974,256.48, rather than reducing downwards to £274,257.48 as it would if he had been prepared to accept the credit offered by the Fieldings. The rather surprising result is that the liquidator is prepared to admit more than the Fieldings are claiming. Whilst I do not consider that I can or should allow more than the amount claimed, the end result is that I will allow £861,317.21. However, since that was not clarified until after I had heard full submissions from both sides as to the substantive issue, I will address the substantive issue in case the matter goes further and the liquidator wishes and is permitted to change his stance.
12. .13 (4) The rent, rates and buildings insurance claims. These are claims for outstanding rental, rates and building insurance charges on two commercial properties, known as Century House and Bankfield Works. They are claims initially said to total £436,402.74, being the Fieldings' assessment of the amounts payable by BGL to them as owners of these properties under leases under which BGL was permitted to occupy those properties for the purposes of its business. As at the September hearing the liquidator was prepared to admit a claim for £171,016, whereas by the October hearing the liquidator's position was that only £42,062.64 was due. Following the October 2016 hearing the Fieldings have withdrawn their claim in relation to Bankfield Works, so that their claim has reduced to £355,069.56.
13. .14 It should be noted at this point that included within the original proof of debt was a much more substantial claim for £1,602,283.28, being a claim by the Fieldings for the cost of refurbishment works said to have been undertaken by them for BGL's benefit in relation to Century House. This claim has now been withdrawn. In his submissions Mr Pickering contended that the court should draw adverse inferences against the credibility of the Fieldings' evidence generally, on the basis that in the liquidator's view there was never any merit in this claim and it was put forward despite the Fieldings knowing that it had no merit. However on my assessment of the evidence and correspondence relating to this claim that submission is not made out. There is no material before me which clearly indicates that the Fieldings always knew that this claim had no merit. Instead it seems to me to be a claim which was genuinely advanced but which suffers from the weakness that the Fieldings have been unable to demonstrate that BGL was properly liable to pay for these works in the absence of evidence of a formal lease which would make it liable for leasehold improvements, with the result that the Fieldings have sensibly withdrawn this element of the claim on that basis.
14. .15 (5) The director's loan account claim. This is a claim for what the Fieldings say is a net balance in their favour under the director's loan account in the extremely modest amount of £4,954.73. Given the modest value of this claim it would have been expected that it was capable of resolution, however the difficulty is that the liquidator's case is that the true position is that there is a negative balance of £260,544 on the loan account which can and should be offset against the Fieldings' other claims. That raises potentially two issues, the first being whether or not the claim is made out on the facts and the second being whether or not if so the liquidator is entitled to offset any such claim against the other claims advanced by the Fieldings in the revised proof.
15. .16 (6) The Royal Bank of Scotland overdraft payment. This is a claim for an amount which the Fieldings say that they paid the bank on behalf of BGL. The claim is now advanced only in relation to one specific payment, being a payment in relation to a liability to the Burnt Tree Group, in the sum of £18,227.49. The liquidator's position is that nothing is due in relation to this element of the claim.
16. .17 Credit. Finally, it is common ground between the parties that the Fieldings must give credit in relation to this proof of debt for the payment of the sum of £1.3 million which they have already received from the administrators.
17. .18 Again in his submissions Mr Pickering contended that the court should draw an adverse inference against the general credibility of the Fieldings' evidence on the basis that they failed to give credit for that payment when submitting their proof of debt in 2011. However in the absence of other evidence showing that they were aware at that time of the need to give credit, so that I could be satisfied that this was a deliberate omission, I do not consider that I am justified in drawing such an inference.
18. .19 It will be appreciated from the above summary that in the particular circumstances of this case it is sufficient for practical purposes for the Fieldings to establish only the first of those claims, the roll over debt claim, because even if they recovered nothing else and even if the liquidator established his claim for the balance of the director's loan account the net value of the claim would still exceed the payment of £1.3 million. In such a scenario the Fieldings would have achieved the objective of demonstrating that there would be no good financial reason for the liquidator to pursue the misfeasance proceedings. If, however, the rollover debt claim was to fail then the individual findings in relation to the other claims would become of more significance.
19. .20 I should also record in this introductory section my view on the competing arguments which have been put to me as to the reasonableness of the liquidator's approach in rejecting the original claim in the circumstances in which he did so. In short, it is clear that the reason why the liquidator undertook a review of the proof of debt in 2015 and subsequently, in November 2015, provided the Fieldings with his preliminary view asking for a response within 21 days, was due to his concern that the limitation period for the misfeasance claims would expire in January 2016. I accept the criticism that before this the liquidator had not progressed the proof of debt with any urgency or enthusiasm. Mr Briggs also complained that the time allowed for a response was too short. I agree that it was too short to expect a substantive reply, but I do not think that 21 days was an unreasonable period to seek a preliminary reply, and I also think that the Fieldings' reply at that point was less than helpful. Mr Fielding could have provided at least a preliminary response and then explained he would need more time to address the details and to provide documents. I consider that had he done so the liquidator would have allowed him more time and would not therefore have proceeded to communicate the decision rejecting the proof which he in fact did on 29 December 2015. I also reject the assertion that the liquidator misled the Fieldings into believing that they were not the target for misfeasance proceedings when in fact a decision had already been taken to bring proceedings against them. I am not prepared to reject the liquidator's denial of that allegation on the basis of the inferences which Mr Briggs invited me to draw from the documents.
20. .21 In short, I am satisfied that with more co-operation on both sides the liquidator could have been in receipt of the revised proof which was received piecemeal from the Fieldings in early 2016 before making his decision. I am satisfied that he would still have rejected the revised proof save for some modest elements for essentially the reasons he has maintained in the proceedings, so that this appeal would still have been necessary. However, as I indicate in more detail when addressing the individual claims, I am satisfied that the liquidator did not act unreasonably as regards his initial response to the individual claims based on the material before him and that in many cases it was not until the Fieldings had served evidence in reply to the liquidator's evidence in response that the strength of their claim became reasonably clear. In short, as I said when rejecting the liquidator's preliminary jurisdictional objection, this is a case where for reasons which are not wholly the liquidator's fault the usual process of dialogue and exchange of views and information in relation to a complex proof before a decision is made has taken place in the course of the proceedings rather than prior to the proceedings being issued, as usually would be expected to happen. Nonetheless the reality is that but for the imminent expiry of the limitation period for the misfeasance proceedings it would not have been necessary to compress the timescale as has happened. These conclusions may well be relevant to considerations of costs in due course.

2 The Law

21. .1 It is common ground between counsel on the basis of authority beginning with the decision of Buckley J in Re Kentwood Constructions Ltd [1960] 1 WLR 646 that the function of the court on an appeal from a rejection of a proof is to decide the case in the light of the evidence which is before the court and not merely to express a view as to whether the liquidator was right or wrong in rejecting the proof on the evidence which was before him. The court must approach the question and decide afresh to what extent the claim ought to be admitted by the liquidator. It is also common ground that the burden of proof is on the claimant to establish his claim to the civil standard and not on the liquidator to disprove the claim or justify his rejection of it.
22. .2 A particular point has arisen here about what the correct approach of the court ought to be in a case where, as is the case here, the liquidator disputes certain significant assertions of fact in the witness evidence filed by and on behalf of the Fieldings. This is of particular importance in relation to the rollover debt claim, where the liquidator's case is that the agreement to convert the loan to share capital for which he contends is evidenced by the contemporaneous documents and is entirely consistent with the inherent probabilities. However the Fieldings and their witnesses, particularly Mr Beckett the former finance director of BGL, have filed evidence asserting that there was no such agreement and – in summary – that the contemporaneous documents had been generated as a result of a misunderstanding on Mr Beckett's part which the Fieldings had not noted.
23. .3 Although neither the liquidator nor Mr Andersen gives, nor is able to give, direct evidence about this, so that there is no direct conflict of evidence between the witness evidence given on behalf of the liquidator and the witness evidence given by and on behalf of the Fieldings, nonetheless the liquidator challenges the evidence given by and on behalf of the Fieldings as being inconsistent with the contemporaneous documentary evidence and with the inherent probabilities.
24. .4 The question which arises is whether it is open to me to reject that evidence without the Fieldings and their witnesses, in particular Mr Beckett, being cross-examined on it?
25. .5 The order for directions, made by consent, had provided for the Fieldings to serve evidence in reply to the evidence relied upon by the liquidator and for the case to be listed for a two-day hearing. It said nothing about oral evidence, but the parties were expressly given permission to apply to seek further directions.
26. .6 I raised with Mr Briggs and Mr Pickering in the course of the preliminary exchanges whether or not either party was inviting me to order cross-examination and, if not, the impact on their respective cases.
27. .7 I should record that Rule 7.7A of the Insolvency Rules 1986 as amended in 2010, entitled "Witness statements – general" provides (as relevant) as follows:

"(1) … Where evidence is required by the Act or the Rules as to any matter, such evidence may be provided in the form of a witness statement ….

(2) The court may, on the application of any party to the matter in question order the attendance for cross-examination of the person making the witness statement.

(3) Where, after such an order has been made, the person in question does not attend, that person's witness statement must not be used in evidence without the leave of the court.".

28. .8 In Re BCCI (No 6) [1994] 1 BCLC 450 Sir Donald Nicholls V-C had to consider an application by the liquidator for cross-examination of an applicant seeking to appeal a rejection of a proof of debt. Referring to the then equivalent provision in relation to ordering cross-examination on affidavits, at p.453 he stated the general principle to be as follows:

"So far as the principle is concerned, I am unable to accept that there is a rule of universal application that, failing some contrary sworn evidence, cross-examination of a deponent will not be ordered. The court will always be concerned to see that an order for cross-examination is not made needlessly or when it would be oppressive. The purpose sought to be achieved when cross-examination is ordered is that this is necessary for fairly disposing of the particular issue. Whether it is so necessary will necessarily depend on the circumstances of the particular case."

29. .9 Mr Briggs submitted that in the absence of cross-examination of the Fieldings or their witnesses, which had not been sought or ordered, the court was not entitled to reject the evidence of those witnesses without cross examination where that evidence was apparently credible and neither inherently improbable nor contradicted by incontestable extraneous evidence.
30. .10 Mr Pickering informed me that the liquidator was, as would be expected, fully aware of his right to apply for the Fieldings or their witnesses to attend for cross-examination but had decided not to do so on the basis that: (a) there were no fundamental disputes of fact as between the parties; (b) the documents upon which both parties rely were not in dispute as documents. He submitted that the court was entitled not to accept the evidence of the Fieldings or their witnesses where that evidence was inconsistent with the contemporaneous documentary evidence and the inherent probabilities. That seems to me to be a lower hurdle than that contended for by Mr Briggs.
31. .11 In supplemental submissions at the October hearing Mr Briggs referred me to the note to Part 32.1 of the Civil Procedure Rules at 32.1.5, where attention is drawn to the proposition that if a party contends that the evidence of the other's witness should be disbelieved on particular matters the witness should be cross-examined on them. This is referred to as the rule in Browne v Dunn (1894) 6 R. 67 (H.L.), considered and applied by the Court of Appeal more recently in Markem Corporation v Zipher [2005] EWCA Civ 267, where they referred with approval to the analysis of the rule conducted by Hunt J in the Australian case of Allied Pastoral Holdings v Federal Commissioner of Taxation (1983) 44 ALR 607. Mr Briggs submitted that the liquidator ought to have applied to cross-examine the Fieldings and Mr Beckett on this basis and, having decided not to do so, was not entitled to invite me to disbelieve their evidence unless I was satisfied that the evidence was of "an incredible or romancing character" (being the description applied by Hunt J in the Allied Pastoral case, citing an earlier (12th) edition of Phipson on Evidence).
32. .12 Mr Briggs' submissions receive support in the insolvency context from the decision of Rimer J in Long v Farrer [2004] EWHC 1774 (Ch). In that case Rimer J was faced with an argument, in the context of an appeal against the decision of a registrar to order disclosure of documents in a bankruptcy matter, that the registrar was wrong to conclude an important factual dispute against one of the parties without cross-examination. He said this:

[57] There remains, however, Mr Collings' more general point that the Registrar was faced with the task of deciding a factual issue on which he had directly conflicting witness statements. They were those of Mr Satow and Mr Belcher asserting that Mr Belcher was a Farrers' client in December 1990; and that of Mr Gordon which, with masterly economy, was to the opposite effect. In my view that does raise a difficulty with the Registrar's decision. The reason for that is that the Registrar was dealing with an application which (subject only to any appeal) finally decided the rights of the parties with regard to the s 366(1) application. It was, therefore, akin to a trial, albeit one of modest dimensions. It is, I believe, by now familiar law that, subject to limited exceptions, the court cannot and should not disbelieve the evidence of a witness given on paper in the absence of the cross-examination of that witness. The principle has traditionally been stated in relation to statements made under oath or affirmation, but it was not suggested to me that it does not apply equally to a witness statement. I will refer to three authorities.

[58] First, in In re Lo-Line Electric Motors Ltd and Others [1988] Ch 477, [1988] 2 All ER 692, an application by the Official Receiver to disqualify the respondent, Mr Browning, from acting as a director, Sir Nicolas Browne-Wilkinson V-C said at 487B:

"Conflicts of evidence

In the present case there are many factual issues on which the evidence given by Mr Browning in his affidavits directly contradicts allegations made against him by the official receiver. Yet he has not been cross-examined. In my judgment proceedings for disqualification are no different from any other court proceedings: it is not possible for the court to disbelieve evidence given on oath in the absence of cross-examination of the witness. I therefore proceed on the footing that Mr Browning's evidence is correct."

I presume that the basis for the approach in the last quoted sentence was that the burden of proof on the disputed matters lay on the official receiver, so that, in the absence of cross-examination, the application of the relevant principle required the benefit of the dispute on them to be given to Mr Browning.

[59] Re Keypak Homecare Ltd (No 2) [1990] BCLC 440, [1990] BCC 117 was another director's disqualification case. Harman J said at p 122G:

"As it seems to me, the conflicts of evidence which arise in this case cannot be resolved in the absence of cross-examination. Mr Millett submitted that I could choose which affidavit I should prefer. In my judgment that is not a possible exercise. When a judge is confronted with paper evidence only which contradicts each other he is left with no option but to say that he cannot identify which of the conflicting stories is correct, and he cannot disbelieve a statement put upon oath without cross-examination, unless some contemporary document plainly contradicts the affidavit evidence."

Harman J was, therefore, not even prepared to give the respondent the benefit of the dispute raised by the conflict.

[60] Thirdly, in Re a Company (No 006685 of 1996) [1997] 1 BCLC 639, [1997] BCC 830 (an application to restrain the advertisement of winding up petition on the ground that the petition debt was said to be the subject of substantial dispute), Chadwick J said, at p 648:

"The company's case is that there is a dispute as to the terms agreed at the meeting in August 1995. It is said that, in the absence of any written agreement, the terms agreed can only be identified by resolving issues of fact to which the deponents have deposed on affidavit. It is said, of course, and said rightly, that the court should not seek to resolve disputed issues of fact on the basis of weighing one affidavit against the other without the advantage of hearing cross-examination of the deponents.

I accept that any court, and particularly the Companies Court, should not seek to resolve issues of fact without cross-examination where there is credible evidence on each side. But I do not accept that the court is bound to hold that there is a need for a trial in circumstances in which, on a proper understanding of the documents, the evidence asserted in the affidavits on one side is simply incredible.

The principles applicable were considered by the Court of Appeal in National Westminster Bank plc v Daniel [1994] 1 All ER 156, [1993] 1 WLR 1453. I refer, in particular, to the analysis of the authorities in the judgment of Glidewell LJ commencing at [1994] 1 All ER 156, 158, [1993] 1 WLR 1453, 1455, and concluding with the following passage ([1994] 1 All ER 156 at 160, [1993] 1 WLR 1453 at 1457):

I think it right to follow the words of Ackner LJ in the Banque de Paris case ([1984] 1 Lloyd's Rep 21) . . . is there a fair or reasonable probability of the defendants having a real or bona fide defence? Lloyd LJ posed the test [in Standard Chartered Bank v Yaacoub [1990] CA Transcript 6991 is what the defendant says credible? If it is not, then there is no fair or reasonable probability of him setting up a defence.'"

[61] The basic principle is, therefore, not an unqualified one. In particular, paper evidence which is manifestly incredible can be disregarded or disbelieved. But it will require a fairly extreme case for untested paper evidence to be rejected on that basis."

33. .12 By reference to that summary of the relevant principles, and accepting that the basic principle is as summarised by Rimer J in Long v Farrer, I am satisfied that Mr Briggs' approach is the correct one. I accept that the liquidator and his witness Mr Andersen are not giving witness evidence directly contradicting the witness evidence given by and for the Fieldings. However the question is nonetheless whether I can make adverse findings against the Fieldings which would involve rejecting their witness evidence without that evidence being tested by cross-examination.
34. .13 I accept that it would be unfortunate in cases such as the present if requests were made for cross-examination of witnesses in every case where there was some dispute of fact simply out of an abundance of caution. That would run the risk of unnecessarily increasing the cost and length of hearings such as the present. I note that it appears from the discussion of the rule in Markem that it may be sufficient in some cases for the party concerned to be clearly placed on notice that the other party is going to invite the judge to make a finding that the evidence should not be accepted as credible, thus allowing the party to deal with the issue as may be appropriate, for example by producing a further witness statement clarifying and explaining his previous evidence in the light of the criticisms made. I also accept the benefit of cross-examination may be limited, and that in many cases where the judge does hear oral evidence he or she proceeds to decide the issue on the basis of his or her assessment of the reliability to be attached to the witness evidence when set against the contemporaneous documents and the inherent probabilities, without necessarily paying very much regard to the oral evidence given by the witness under cross-examination.
35. .14 However whilst in some cases the result of oral evidence and cross-examination is that the credibility of a witness is destroyed, in other – albeit perhaps fewer - cases what is on paper a rather implausible account is considered by the judge to be credible after hearing cross-examination, particularly perhaps having regard to factors such as the internal consistency of the evidence given by the witness, to further explanations which the judge considers to be credible given by the witness when pressed on a point, or perhaps simply the overall impression made by the witness on the judge. It is the loss of this opportunity to explain his or her evidence in a way which the judge regards as credible which arises if the witness is not cross-examined or at least offered the opportunity to explain any particular matters upon which the other party intends to rely in inviting the court to disbelieve his or her evidence on that point. It follows, it seems to me, that although the matter is always highly fact-sensitive and no hard and fast rule can be laid down, in general the benefit of the doubt must be given to the witness in such cases, and his or her evidence should only be disbelieved if it can properly be regarded as incredible.
36. .15 In this regard I return to the submission made by Mr Pickering that the evidence of the Fieldings must be assessed in the context that they had, so he submitted, made a claim which they knew had no merit (the leasehold improvement works claim), failed to give credit for the £1.3 million, and failed to "come clean" about the payment received from BGL to fund over £120,000 of the ransom and ROT payments claim (addressed further below). He might also have referred to their having made a claim in relation to rent for Bankfield Works when they must have known that it was owned by their pension fund and not by them personally (again addressed below). However I refer to the conclusions I have already reached in relation to the leasehold improvement works claim and the £1.3 million credit, and I also refer to the conclusions I reach below in relation to the £120,000 element of the ransom and ROT payments claim and the Bankfield Works claim; in short I am unable to conclude on the evidence before me that they were advanced, or not credited, as the case may be in a consciously misleading fashion. I am also unable to accept that these errors or omissions, considered individually or collectively, are so significant that they cause me to be unable to place any weight on any uncorroborated evidence from the Fieldings, let alone that of Mr Beckett. It is of course possible that, had I heard the Fieldings cross-examined in the course of a traditional trial, it is possible that I might have reached a different conclusion. That would however be pure speculation.
37. .16 I will now turn to the individual claims, and address them in the order stated above.

3. Claim 1 – the rollover debt claim

38. .1 The liquidator accepts, realistically in the light of the documentary evidence, that the initial intention was that the £3.15 million which Mrs Fielding was to be treated as providing to enable BGL to acquire the assets and business of the three companies forming part of the Burnden group as part of the first pre-pack arrangement was to be a loan from her to BGL. This is apparent both from the proposal produced by the accountants PwC, who produced a written presentation in relation to the proposed arrangement on 29 August 2008, and from the funds flow letter produced by Addleshaw Goddard as the solicitors to the administrators on 2 October 2008, which set out the terms of the acquisitions.
39. .2 The liquidator contends however that subsequently a decision was made and put into effect whereby that loan was converted to share capital. He relies upon what Mr Andersen has been able to demonstrate from his analysis of the BGL financial software system known as Navision, which is that on or around 12 December 2008 a number of relevant entries were made in ledgers within that system. Specifically, an amount of £2.13 million was debited to an "investments" ledger and the same amount was credited to an "A ordinary shares" ledger for one of the three new trading divisions through which BGL carried on business after the pre-pack, referred to as K2 Conservatories. Furthermore, the amount of £1 million was credited to an "A ordinary shares" ledger for another of the three new divisions, referred to as Canterbury Conservatories. As Mr Andersen says, the effect of this from an internal accounting perspective was to record the share capital of BGL as increased by £3.13 million. (The difference of £20,000 between the £3.15 million which Mrs Fielding is recorded as having originally loaned to BGL and the £3.13 million is explained by its being allocated to intellectual property as opposed to share capital, and no point has been taken or turns on that.)
40. .3 There is also a contemporaneous email dated 17 December 2008 sent by the auditors of BGL, the accountants known as the Tenon group, which attaches a Tenon-produced document entitled "summary of transactions to acquire trade and assets". The first page of the document begins by recording, consistently with the pre-pack arrangement and the funds flow letter, that Mrs Fielding was acquiring the entire issued share capital of BGL, which at that stage was 1,000 ordinary shares of £1 each, for a consideration of £2.85 million. It also records that the assets and business of the three relevant companies within the group were being acquired for a total of £3.15 million. Thus the total acquisition cost was £6 million. More significantly, for present purposes, it stated that there should be a double entry in the BGL ledgers to record the acquisition, which specifically involved crediting the share capital in the sum of £3.13 million. It is clear from the side note that the reason for the difference between the £3.15 million and the £3.13 million, namely the £20,000 attributed to intellectual property, had been discussed and agreed with Mr Beckett, to whom I shall refer presently. The note also identified how the credit to share capital was to be divided between the two trading divisions to which I have referred, consistently with the ledger entries to which I have also already referred. The subsequent pages of the document included two pages setting out the "division balance sheet" of the two divisions as at the deemed acquisition date of 30 September 2008, which records Mr Beckett having commented that the share capital of £3.15 million divided between the two divisions was "being Sally Fieldings investment via issue of shares".
41. .4 On its face, therefore, this contemporaneous document indicates that the £3.15 million was going to be recorded in the internal ledgers of BGL as share capital and that Mr Beckett was fully aware that this was the case. It is also clear that this transaction was entirely separate from the connected transaction whereby Mrs Fielding was to acquire the existing issued share capital in BGL for £2.85 million.
42. .5 It is on the basis of this documentary evidence that the liquidator contends that a decision was clearly made in December 2008 to alter the existing arrangement so that the £3.15 million was to be treated as additional share capital of Mrs Fielding as opposed to a loan from her to BGL. Mr Pickering took me through the subsequent management accounts for the period 30 June 2009 to demonstrate that, consistent with the documentation dating from December 2008, the share capital of BGL was increased by £3.13 million with effect from September 2008. He points out that if those management accounts had shown the £3.15 million as being a loan as opposed to share capital the financial position of BGL would have been much worse than was shown by those accounts, and would have shown BGL as being balance-sheet insolvent as early as October 2008, instead of in February 2009 as was shown by the actual accounts. In short, the liquidator contends, it is clear that a conscious decision was taken to convert the loan to share capital in December 2008, the obvious explanation for which was a desire to ensure that BGL was shown as balance sheet solvent on the management accounts. The liquidator emphasises that BGL was continuing to trade, as had the predecessor companies, with the benefit of an invoice discounting facility from GE Commercial Finance ("GE" for short), so that it was vitally important for BGL to keep GE on board.
43. .6 Although the liquidator is unable to point to any contemporaneous documentary evidence showing that the Fieldings were also involved in the events and discussions of December 2008, he relies on the admitted fact that Mrs Fielding would have attended regular monthly management meetings at which these management accounts would have been tabled and discussed. He argues that it follows that she could have been in no doubt as to the way in which the £3.15 million was being treated.
44. .7 He also points to a further report commissioned from PwC and produced in September 2009, the purpose of which was to provide GE with advice and information to assist it in determining its strategy in respect of debt owed to it by BGL. The liquidator relies on the fact that the report was addressed to both BGL and GE and that it clearly refers to the share capital as being £3.131 million (i.e. the £3.13 million plus the original £1,000 issued shares) whereas the amount stated for the directors' loan liability clearly does not include this amount. The liquidator also relies upon the fact that no reference was made to the £3.15 million as being a loan liability of BGL within the statement of affairs produced and signed by Mr Fielding in connection with the second administration in January 2010, nor is it included within the original proof of debt claim. Finally, Mr Pickering contended that it was only towards the later stages of the lengthy interview conducted by Mr Andersen with the Fieldings in August 2012 that Mr Fielding, so says Mr Pickering because he only belatedly came to appreciate the difficulty, first made it clear that he believed that the Fieldings were entitled to claim the £3.15 million as a loan liability.
45. .8 I refer at this stage to what Mr Beckett says in his witness statement about all this. Mr Beckett is an accountant with 34 years' experience. In 2003 he became group finance director of the companies within the Burnden group and a director of BGL, which position he occupied until he resigned in December 2009. The other directors at the relevant times were Mrs Fielding and a Mr Jackson and a Mr Kavanagh. Mr Beckett says that he was not directly involved with the first prepack administration or the transactions undertaken to give effect to the arrangements made. He says that it is quite likely, given the significant amount of work which needed to be undertaken in October and November 2008 following the prepack administration which involved, effectively, the merging of three separate companies into one company operating under three divisions, that it was not until December 2008 that he would have come to finalise the reconciliation process and seek to reflect the position in BGL's accounting books. He says that he believes that the entries made in December 2008 in the ledgers to which I have already referred would have been made by Mr Hutchinson, a management accountant working in his team and under this guidance.
46. .9 The crux of his evidence is that he says that he was confused, as he believes was Tenon, by the fact that there were two separate transactions, one involving the purchase of the shareholding in BGL and the other involving the purchase of the business and assets. He says that he was confused by the detailed terms of the funds flow letter into believing that the £2.85 million shown as being paid in respect of the shares in BGL would be reflected as an addition to its share capital, rather than as a straightforward purchase of the existing share capital. He says that it is not the case that initial entries were made regarding the £3.15 million as a loan, which were then consciously changed to share capital in December 2008, but rather that the first time that the transactions came to be reconciled and entered the £3.15 million was attributed, wrongly, as to £3.13 million to share capital. He says that he was reassured in his understanding when he received the email from Tenon on 17 December 2008. Importantly, in paragraphs 27 and 28 of his witness statement, he says in terms that he did not discuss this treatment of the £3.15 million in general or these entries in particular with either of the Fieldings, nor was he present at any board meeting where any increase in share capital was discussed or authorised. He explains that both of the Fieldings would have trusted him to deal with these internal financial arrangements without asking him for details, that Mrs Fielding was heavily involved on the sales side of the business and also had health problems at the time, and that Mr Fielding was also heavily occupied in ensuring the smooth transition of the business to BGL and indeed its survival as a business following the pre-pack. He does accept that the monthly management accounts would have shown the increase in share capital but, as I have said, his evidence is that this was not discussed at board meetings. He says in paragraph 31 that he would have expected that the precise financial details of the transaction would have been subject to audit in due course as part of the audit of the June 2009 accounts, in the course of which any errors could and would have been picked up at that stage, whereas is in fact that did not happen as a result of the administration and subsequent insolvency of BGL in January 2010.
47. .10 Mrs Fielding confirms in her witness statement that neither she, nor her husband to her knowledge, authorised or consented to the £3.15 million being converted into or treated as share capital. She makes the point that at no stage were any of the steps undertaken which would have been needed to have been done in order to give effect to any such agreement, such as an increase in the authorised share capital and an allotment of further shares, or an alteration of the register of members. She says in terms in paragraph 10 that she did not discuss with Mr Beckett the entries he made relating to the £3.15 million nor was she aware that he had done so. She confirms that other matters were occupying her attention at the time, and she also confirms that whilst she would have attended regular board meetings at which the management accounts would have considered and discussed, there was never any consideration or discussion of the entries for share capital, and she did not appreciate the significance of those entries.
48. .11 Mr Fielding also gives evidence to the same effect. He confirms that he did not notice the treatment of the £3.15 million in either the management accounts or in the 2009 PwC report. He also makes the point that whilst the statement of affairs in relation to the second administration, which he signed, does not show the £3.15 million as part of the liabilities of BGL, neither does it show it as part of share capital. He says that this was not something which be discussed with MCR, the firm who undertook this second administration. He also says, and in my view he is correct to say, that even in the early stages of the interview with Mr Andersen he was, whilst undoubtedly - and unsurprisingly in my view - unfamiliar with the details, nonetheless making it tolerably clear that so far as he was aware the £3.15 million was still outstanding. It was never suggested to him, and there is no indication that he ever suggested in the course of this meeting, that it had in some way been converted to share capital. That I think is because at that stage Mr Andersen had not discovered the internal ledger entries to which I have referred above, but it should also be said that although Mr Andersen did say he would formulate and send some further written questions to the Fieldings after the meeting, he never did, so that this particular point was never put to them prior to the matter being resurrected by the liquidator in November 2015.
49. .12 Mr Pickering submits that Mr Beckett's explanation is simply not credible. He submits that there is nothing remotely confusing in the funds flow letter which could have caused Mr Beckett to misunderstand the position. He also submits that it is apparent from the documentation produced by Tenon in December 2008 that they did not, contrary to Mr Beckett's apparent belief, misunderstand the position either. He submits that it is inconceivable that Mr Beckett would have taken it upon himself to allocate this substantial amount to share capital without having first discussed it and having had it approved by the Fieldings. He submits that it is inconceivable that this would not have been picked up by either of the Fieldings from the monthly management accounts or in the year end management accounts or in the PwC report for September 2009. He submits it is also inconceivable that it would have been left out of the statement of affairs as part of the then existing liabilities of BGL. He submits that the reason for the entries made in December 2008 and the subsequent treatment is clear, and consistent with the inherent probabilities, in contrast to the arguments advanced by the Fieldings and Mr Beckett. He submits that in those circumstances the court can reject the evidence of the Fieldings and Mr Beckett and conclude that the Fieldings have not established their case in relation to the rollover debt claim on the balance of probabilities.
50. .13 Mr Briggs submits that the explanations given by the Fieldings and Mr Beckett are not incredible. He submits that the court has not had the opportunity of hearing Mr Beckett and the Fieldings giving evidence which would put the court in a much better position to judge whether or not what they say is credible. He submits that there is a danger of judging the evidence of Mr Beckett with the benefit of hindsight and the knowledge available to experienced insolvency professionals, and ignoring the other pressures which both Mr Beckett and the Fieldings were labouring under at the time. He points out that if these transactions had been intended at the time, then it is likely that the formalities would have been completed as well. He submits that since the £3.15 million was not paid in cash, and since there was never any intention of it being repaid in the short to medium term, it is scarcely surprising that the Fieldings would have had no particular interest as to whether or not it had been correctly recorded in the management accounts at the time. He submits that since once BGL had gone into administration the Fieldings had no prospect of recovering the £3.15 million it is scarcely surprising that they would not have been particularly interested in whether or not it had been included in the statement of affairs or the initial proof of debt, or that Mr Fielding was initially a little hazy about the detail when asked in interview.
51. .14 On balance, and not without some hesitation, I prefer and accept Mr Briggs arguments on this key issue. It is clearly the case, with the benefit of hindsight and the knowledge now available, that neither the funds flow letter nor the Tenon document are confusing, and it is certainly not the case that any confusion is evident within the Tenon document itself, where a clear distinction is drawn between the £2.85 million used to purchase the shares in BGL and the £3.15 million used to purchase the assets of the companies. However I do not think that this leads inevitably to the conclusion that what is clear and obvious now must also have been clear and obvious to Mr Beckett, who was not intimately involved with the pre-pack itself. It is entirely credible that in December 2008 he was working under severe time pressure to complete the substantial accounting work necessary to give effect to the transactions and the decision to merge three companies into one company with three separate divisions. That is when mistakes do tend to happen. It is also relevant to a general assessment of his credibility that he appears to have given the same explanation in his witness statement as he did in his original email to Mr Fielding dated 7 January 2016. Whilst it is a surprising mistake for an experienced accountant to make, I find it difficult to say that it is an incredible explanation which defies rational belief. There was, after all, a process whereby 2 transactions were taking place at the same time, and one did involve the acquisition of capital, so that it is not completely incredible that Mr Beckett would mistakenly have concluded that the entire financial contribution being treated as injected by Mrs Fielding should be treated as allocated to share capital.
52. .15 It is also relevant that Mr Andersen does not, so far as I can see, give positive evidence from his inspection of Navision to the effect that initially the whole £3.15 million was posted to the directors' loan account ledger, whereas it was only subsequently in December 2008 that a positive decision was taken to reverse that money out of the directors' loan account ledger and transfer it into the share capital ledger. The ledger upon which Mr Anderson places most reliance is described as an "investments" ledger. There is no reference in that or any other ledger to any earlier relevant entry whereby the monies were posted to director's loan account and then credited and re-posted to share capital. In short, it seems to me that this evidence is consistent with no one having attempted to allocate the £3.15 million to directors' loan or to share capital until this process was undertaken for the first time in mid-December 2008. That is consistent, in my view, with Mr Beckett making a decision for the first time in December 2008, mistakenly and without reference to the Fieldings due to the time pressure and his careless misreading of the relevant documents, as to the intended destination and treatment of this money. That in my view is clearly far less implausible as an explanation than if he had had to explain a process, evidenced by contemporaneous documents or ledger entries, involving a decision initially to post to directors' loan account and only later to transfer from there to share capital ledger without involving the Fieldings.
53. .16 Nonetheless the question still arises as to why Mr Beckett did not raise the correct treatment of the £3.15 million with the Fieldings at the time arises. It seems to me to be not completely implausible that at that stage, with Mr and Mrs Fielding having far more important matters on their hands, that Mr Beckett should have proceeded on a mistaken basis which he did not share with the Fieldings in the belief – albeit mistaken – that what he was doing was sanctioned by Tenon, and in the further belief that any mistakes could be corrected as and when necessary once the immediate time pressure had gone, if not earlier at the latest by the time the external auditing process was underway.
54. .17 I also did not find particularly convincing Mr Pickering's forensic analysis as to the reason why a decision to move from loan to share capital might have been taken. Whilst I can see that it would have the effect of showing an improved position in terms of balance sheet solvency, there is no evidence that GE was requiring the provision of monthly management accounts at the time or, even if it was, that the Fielding would have had reason to believe that if the monthly management accounts revealed balance-sheet insolvency that GE would have immediately pulled the plug on BGL; after all they did not do so in February 2009 or for the subsequent months when the management accounts did reveal that to be the case. It does appear more likely, as Mr Briggs submitted, that GE's primary interest would have been in the amount of profit being generated by BGL rather than its balance sheet position.
55. .18 It is easy, with the benefit of hindsight, to see the entries for share capital in the management accounts and in the PwC report, but I am far from convinced that the Fieldings must have read and appreciated the significance at the time. I do not find their explanation that this was not something which they were particularly interested in at the time incredible of belief. The accounting treatment of the £3.15 million was by that stage a historic transaction, not involving the transfer of actual money, and in 2009 they were clearly engaged in trying to achieve a success of the new business, and would have been far more interested in the information about the financial performance of BGL going forwards. For similar reasons I am unable to attach any particular significance to the absence of reference to the £3.15 million in the information accompanying the statement of affairs, in circumstances where there is no reference to it as share capital either, and where there is no reason to think that this would have been the focus of attention at the time.
56. .19 In short, it does not seem to me that the contemporaneous documents establish that the account given by the Fieldings and Mr Beckett lacks any credibility at all. Nor does it seem to me that the inherent probabilities demonstrate that their account simply cannot be credible.
57. .20 In my judgment it is important to bear in mind that at the time of the pre-pack transaction itself the intention of BGL and the Fieldings, objectively ascertained, was - as I have said - that the £3.15 million was to be a loan from Mrs Fielding to BGL. Thus it is necessary for the liquidator to demonstrate that the evidence clearly demonstrates that at some point over the next 2 months there was a subsequent conscious decision-making process involving Mrs Fielding as sole shareholder and co-director, or possibly Mr Fielding acting as her agent for such purpose, and which must have been communicated to Mr Beckett or Mr Hutchinson at least to be given effect in the company ledgers, for the loan to be transferred to share capital. I am not satisfied, having regard to the available contemporaneous documentation, the witness evidence and the inherent probabilities, that I am able to conclude on the balance of probabilities that this did indeed occur. It is clearly possible that it did but, in the face of the witness evidence from the Fieldings and Mr Beckett stating in terms that it was simply a mistake, I do not feel able to conclude that this evidence can be disregarded as incredible in the light of the documents and the inherent probabilities.
58. .21 In the circumstances, I am satisfied that the Fieldings have made out their claim as regards the rollover debt in the sum of £3.15 million.
59. .22 It follows that it is not strictly necessary for me to consider Mr Briggs' fallback argument that even if there had been a discussion it could only have taken effect as an agreement to allot shares at some future time if, as and when further shares had been issued which would have enabled BGL to have allotted the requisite shares. The point is made that since at the time the entire issued share capital of 1,000 £1 ordinary shares had already been transferred to Mrs Fielding, the only way in which the £3.15 million loan could have been transferred to share capital would be if further shares were issued, for example by issuing a further 3.15 million £1 ordinary shares, which could then be allotted to Mrs Fielding. It is said that since there is no evidence that this was ever done, or even agreed to be done, any agreement could not have taken effect as an immediately binding agreement specifically enforceable by one against the other.
60. .23 For completeness however I should state that I would not have accepted that argument. In the context of a company owned as to 100% by Mrs Fielding there could be no sensible basis for contending that a simple agreement or instruction to convert the £3.15 million loan to share capital could not and would not have had immediate binding effect. There would be no reason for not treating BGL as having undertaken an enforceable obligation to issue a further 3.15 million £1 ordinary shares or equivalent, with it not mattering in the least precisely how this was to be done, and to allot them to Mrs Fielding, who had already agreed to accept them once issued and allotted.
61. .24 I should finally note, insofar as relevant to any question of costs, in the context that this claim was not made in the original proof of debt and was only made after the rejection of the original proof, that in my view the liquidator was reasonably entitled to raise the question of the treatment of the £3.15 million by BGL, which was only explained in the Fieldings' evidence in response to the evidence of the liquidator. In short, I am satisfied that overall the liquidator did not act unreasonably in taking the position he did and that, as will be apparent from the above, even after the Fieldings had served their evidence in response the question was still reasonably open for argument.

4. The ransom and ROT payments claim

62. .1 As I have said this is the claim for £298,760.94, now reduced to £178,487.91, which the Fieldings say they paid on behalf of BGL to existing suppliers in the aftermath of the first prepack sale, either as ransom payments, to ensure that they were prepared to supply BGL as the new trading company, whether at all or on credit terms, or as retention of title payments, to ensure that BGL could use the existing goods supplied to the predecessor companies. The liquidator's position had been that from an analysis of the relevant records a claim of no more than £35,075.43 has been established whereas as I have said, by the time of the October 2016 hearing it was said that nothing was due.
63. .2 Mr Fielding provided details of these payments in his letter of 8 January 2016 [B/275]. The supporting documents include schedules of payments cross-referenced to the relevant bank statements. There can be no dispute in my judgment that these payments to these businesses were indeed made by the Fieldings in these amounts and on these dates.
64. .3 It appears however that only 4 of these payments were entered in the ledger entitled "Loan – Gary Fielding" [B/871], which cumulatively amount to £35,075.43, i.e. the sum admitted by the liquidator. Mr Fielding acknowledges that not all of the payments have been recorded in BGL's books. He says that he is unable to explain why all such payments were not similarly allocated, but asserts that he provided sufficient details for this to be done. He also says that he gave a personal account chequebook to Mr Kavanagh as a BGL director to enable the payments to be made.
65. .4 A number of points were made by Mr Andersen in his witness statement [¶45-55] to justify the liquidator's initial stance.
66. .5 The first point was that only payments made in relation to valid substantiated ROT claims could be included. Although not spelled out, it appeared to be said that only payments made against valid substantiated ROT claims would be for the benefit of BGL. I do not accept this submission. If the Fieldings can prove that they have made payments intentionally on behalf of BGL and in good faith to enable it to obtain the benefit of goods already supplied or to obtain the benefit of future supplies, whether from suppliers of goods or services, I do not see any reason why such payments cannot be recovered by them against BGL on the basis that they had failed to prove that before making those payments they had failed to obtain sufficient substantiation of the ROT claims in the same way as a liquidator might do on the liquidation of a company. It would be different, I accept, if the failure to obtain substantiation supported a conclusion that in fact the payments were made for other reasons, for example because the Fieldings felt under a personal obligation to discharge these liabilities as liabilities of the previous Burnden Group companies, in circumstances where there was no intention that such payments should be made on behalf of BGL or that BGL should obtain any legal or practical benefit as a result of the payments being made. I therefore reject any argument that the claims should not be allowed on the basis that insufficient substantiation of the supplier claims which were paid off by the Fieldings has been provided.
67. .6 The second point was that since PwC in its September 2009 report had referred to duress payments of some £1.3 million having been made by BGL [B/789] it would be expected that there would also be a record of similar payments made on behalf of BGL. I understand the forensic point being made, but it does not seem to me that it necessarily follows that payments made by a director would be recorded in the same way as payments made by the company, since much would depend on the circumstances in which the payments were made and recorded in each case. Furthermore, since I am satisfied that the records produced by the Fieldings establish that these payments were made, it is not fatal to their claim that they were not also recorded in BGL's books.
68. .7 The third point was that the creditors ought to be recorded in the statement of affairs of the previous Burnden group companies the subject of the first administrations. It is said that only 7 have been identified. The payments in relation to these 7 amount to £124,116.51, with only one (Hanson) also entered in the loan account ledger. I agree with the Fieldings that if I were to accept the liquidator's premise there is no basis for excluding these recorded payments. Mr Fielding also identified in his responsive witness statement [¶30] a further 6 recorded in the statement of affairs, amounting to a further £61,440.35, including Moody and Mila also entered in the loan ledger, and there is no challenge to this factually. He also identifies [¶33] a further 7 ledgers showing 7 further payments claimed by the Fieldings as recorded against the suppliers, totalling £120,273.03, and again there is no challenge to this factually. It follows that even on the liquidator's case these payments ought not to be excluded on this basis.
69. .8 The fourth point made is that some of the individual entries are individuals rather than companies and hence unlikely to be suppliers. In response Mr Fielding has confirmed [¶37] that these were employees or fitters each paid small amounts by Mr Kavanagh using the Fieldings' cheque book. There is no reason not to accept this evidence, and Mr Andersen does not say that there is no record of these individuals as being employed or engaged by the predecessor companies. Again the real question in my view is whether or not such payments were made intentionally on behalf of BGL and in good faith for its benefit. If such payments were made, as Mr Fielding says, to enable conservatories part erected to be completed by those employees or fitters post pre-pack for BGL's benefit, then in principle they seem to me to be recoverable.
70. .9 The fifth point was to point to the absence of BGL documentation recording or approving the transactions. Whilst that would of course be desirable, it is neither essential nor it is surprising in the circumstances prevailing at the time. There is no reason why this could not have been undertaken on an informal basis, in circumstances where Mrs Fielding was the sole shareholder of BGL following the first pre-pack administration.
71. .10 However at the October 2016 hearing Mr Pickering took some further points on behalf of the liquidator, which have been the subject of further evidence and argument and which I must also resolve.
72. .11 The first point he took was that in relation to the first 7 payments totalling £120,273.03 an analysis of the bank statements showed that the Fieldings had been put in funds by BGL to make these payments, and that these advances had not been debited to the Fieldings' directors loan account, so that to claim them again now would amount to double recovery. In his witness statement in response Mr Fielding accepted this point and accepted that the claim should be reduced accordingly. He explained that this was not a deliberate omission, but an accidental error to recall or to discover the initial payment from BGL in circumstances where: (i) the transactions in question were over 7 years old at the time he made the original claim in January 2016; (ii) he made the original claim in some haste; (iii) the liquidator did not discover the point until shortly before the adjourned hearing in October 2016, despite having had the necessary evidence to do so for some considerable time. He also made the point that the payment was not made until after he had written the cheques in question.
73. .12 In his responsive submissions Mr Pickering invited me to conclude that this was a deliberate, as opposed to a mistaken, omission. However I do not consider that the explanations given by Mr Fielding can be considered to be incredible of belief. Indeed they seem to me to have at least some substance and justification. I thus decline to accept Mr Pickering's submission.
74. .13 The second point taken related to payments 2 to 7, totalling £61,608.81, where he contended that the evidence showed that the payments had been made and, in some cases, cleared shortly before the pre-pack was entered into on 2 October 2008. It followed, he submitted, that these could not have been made for BGL's benefit, not least because according to Mr Fielding's evidence the conversations with suppliers about refusing to supply BGL unless these debts were cleared took place after the pre-pack.
75. .14 In response Mr Fielding explained that the chronology was that the pre-pack was – as would be expected – planned for some time before the date when it completed on 2 October 2008, and that on reflection it must have been the case that these payments, which were made to ensure that the contractors would support BGL to complete part constructed conservatories, were discussed and agreed before 2 October 2008. Mr Briggs submitted that this timescale made eminent sense; after all why would these payments have been made for the benefit of the old company shortly prior to its demise, as opposed to having been made for the benefit of the new company going forwards?
76. .15 In my view the Fieldings' explanation makes far more commercial sense than does the liquidator's argument and, on the balance of probabilities, I accept it. I do not consider that the inconsistency in Mr Fieldings' evidence as to when these discussions took place leads me to conclude that these payments were not made intentionally on behalf of BGL in order to ensure continuity of supply.
77. .16 The third point taken related to payments 10 to 39 and 41. What is said is that the active loan ledger recording the state of the director's loan account as between Canterbury Conservatories Limited (the predecessor company in question – referred to as "CCL") and Mr Fielding showed that these payments had been credited to CCL as payments made in the weeks preceding 30 September 2008, when the account was adjusted so that the CCL director's loan account was written off. Mr Pickering submitted that this demonstrated a conscious intention to treat these payments as having been made on behalf of CCL and not BGL, from which it was not now open to the Fieldings to resile.
78. .17 In his evidence in response Mr Fielding explained that he had not previously been aware of this loan ledger, that these entries had been made by ex-employees of CCL who are no longer available to assist him in providing an explanation, and that they were not made on the basis of any agreement or authorisation from him that they should be posted to CCL as opposed to BGL. He also makes the point that the date when these entries were made is not necessarily the same as the date when they are recorded as having been made, but that in any event what is clear is that not all, if indeed any, of the entries were made before 2 October 2008. This is corroborated, as Mr Briggs notes, by his list of the cheques in question [B/280-1] which shows that the cheques were not drawn until 3 October 2008.
79. .18 Whilst I have not found this point entirely straightforward, on balance it seems to me that the key evidence is that the payments in question appear to have been made by cheques drawn the day after the pre-pack. Whilst they appear to have related to expenses incurred in the weeks preceding the pre-pack, the economic reality – I am satisfied on the balance of probabilities – is that the Fieldings were most unlikely to have intended to use their own personal funds to repay the debts of a company (CCL) already in administration for that purpose, as opposed to intending to make those payments on behalf of the new company (BGL) to enable that company to have the benefit of the existing supplier base. In the circumstances I consider it unlikely that the postings to the loan ledger which, I am satisfied, were entered by the previous employees referred to by Mr Fielding, were not entered on the instructions or with the agreement of the Fieldings. In the circumstances I am satisfied that these are payments made intentionally on behalf of BGL and in good faith so as to benefit BGL and, hence, that they should be included in the proof of debt claim. There is no question of the Fieldings being "bound" by these entries in such circumstances.
80. .19 The fourth point taken related to payments 8, 9, 40 and 42. The point taken was that even though certain of these payments were entered into the loan ledger after 30 September 2008, nonetheless they appear in the director's loan account for BGL and, hence, cannot also be claimed in a separate category as part of this element of the proof of debt claim. However, as Mr Fielding says and Mr Briggs submits, there is no evidence that the director's loan account shown in relation to this ledger has been included in the revised proof of debt claim upon which I am adjudicating, so that in fact there is no double claim.
81. .20 In the circumstances I am satisfied that this claim succeeds in the adjusted amount of £178,487.91.
82. .21 I again emphasise however that in my view the full position did not become apparent until after the Fieldings had responded to the liquidator's evidence and that before that the liquidator was justified in raising the queries which he did.

5. The Vital claim

83. .1 As I have said this is a substantial claim for £1,561,316.21 gross and £861,317.21 net, being invoices for stock provided by Vital to BGL which the Fieldings claim under an assignment between Vital and them entered into on 21 December 2009, which is not now challenged. The value of the claim is still disputed and the liquidator admits no more than £974,256.48 gross, although as I have already explained in [1.12] above the liquidator does not make or accept any reduction from this gross valuation.
84. .2 The basis of the case as advanced by the Fieldings is as follows. Vital was a company which was effectively a joint venture between Mr Fielding and Mr Whitelock, operating in the combined heat and power sector and hence with no direct business connection with that of the Burnden Group conservatory business. However after the first pre-pack various important suppliers of the predecessor companies refused to supply BGL on credit terms and insisted on dealing only with Vital, which they were aware was a successful and profitable company. It was agreed between Mr Fielding and Mr Whitelock that Vital would order and pay for products from these suppliers and sell them on to BGL, with Mr Fielding agreeing to guarantee repayment. A significant indebtedness built up and prior to the administration of BGL the agreement was formalised by an assignment under which the Fieldings agreed to pay Vital what it was owed by BGL in consideration for Vital assigning to the Fieldings all sums due to it from BGL.
85. .3 The liquidator was, perhaps unsurprisingly, initially suspicious as to the genuineness of the assignment, given that it had never previously been referred to by the Fieldings in support of this claim. However the Fieldings were able to adduce evidence from Mr Joyce, a partner with Addleshaw Goddard, who had acted for the purchasers in relation to the second pre-pack administration, in which he confirmed that at the time of the second pre-pack administration he had sent a letter in which he had made contemporaneous reference to the assignment. It followed that unless that statement was untrue, and I hasten to add that there is absolutely no evidence whatsoever to suggest that it is not true, the assignment must have been in existence by this time and, hence, there is no reasonable basis for disputing its validity. The liquidator, acting reasonably, sensibly conceded this point at the start of the hearing before me.
86. .4 However Mr Andersen had also reviewed the BGL Navision ledgers which recorded inter-company trading to the net value of £974,256.48 and the liquidator's stance was that this was the maximum amount which he was prepared to accept.
87. .5 In response the Fieldings:

(i) Noted that the contemporaneous letter from Addleshaw Goddard referred to by Mr Joyce said that the debt assigned was approximately £1.6 million, which – as they submitted – was consistent with the debt being of the order which they contended for.

(ii) Relied upon the ledgers totalling £1,686,855.38 as due to Vital which the administrators were provided with in 2010 and the liquidator was provided with on his appointment in 2011. It appears from the witness evidence of Mr Beckett [¶33] that these would have been produced by Mr Hutchinson, so that there is no reason to regard them as inaccurate and, indeed, the liquidator did not challenge them at the time.

(iii) Relied upon the Vital accounting ledgers which showed the amounts due in accordance with the claim made by the Fieldings as stated above.

(iv) Explained that it was not surprising that there was a difference between the BGL ledgers and the Vital ledgers because, they said, there would be time delays between the transactions being entered into Vital's books and entered into BGL's books [¶59 Mr Fielding 3rd] and that the most significant discrepancy related to the 2 months leading up to BGL entering administration due to the pressure on staff at that time [¶60-2].

88. .6 In his evidence in reply the liquidator made certain observations as to whether or not the evidence from Vital's ledgers was consistent with the information available in Vital's publicly available accounts. By a responsive witness statement made on 28 September 2016 the solicitor for the Fieldings provided an explanation which he had been given by Tenon, Vital's auditors. It appears to me that this does provide an adequate explanation for the apparent discrepancy, and I accept it.
89. .7 However at the October hearing Mr Pickering submitted, in response to point (iv) at para 5.4 above, that a closer examination of the competing ledgers showed that this explanation for the difference was flawed, because: (i) it could be seen that the last date on which they matched was June 2009, well before the 2 months preceding the second pre-pack administration; (ii) there was one example where the BGL ledger could be seen to have been more accurately entered than the Vital ledger, where 3 transactions were processed in the Vital ledger later than posted in the BGL ledger.
90. .8 In response Mr Fielding provided an explanation as to why the example given was simply a tidying up error, because the payments had initially simply been wrongly allocated to the wrong BGL trading division. That seemed to me to be a perfectly reasonable explanation, and I accept it. He did not specifically address point (i) above. However in his submissions Mr Briggs made the point that even if the discrepancies did begin at an earlier date nonetheless that did not invalidate the essential point being made which was that – as could be seen from a comparison of the two ledgers at the later stage – there was a significant discrepancy between the number of transactions being recorded at this point on the Vital and on the BGL ledgers, which the liquidator had not sought to explain in his response.
91. .9 In his further submissions Mr Pickering noted Mr Fielding's failure to address what he submitted was now the discredited explanation as to the difference between the two ledgers and submitted that if the Fieldings wished to maintain a claim based on the Vital ledger as opposed to the BGL ledger then it was incumbent upon them to provide a detailed forensic analysis which would explain and justify the differences and explain why the company's ledgers were to be rejected in favour of Vital's.
92. .10 Whilst I do acknowledge the force of Mr Briggs' submissions, both as to the coincidence between the Vital ledger and the more contemporaneous values put on the claim, and as to the discrepancy between the number of transactions posted to each ledger in the last few months, nonetheless and on balance I do not consider that the Fieldings have discharged the burden of proving that the Vital records should be preferred to the BGL records. Since the Fieldings were directly involved with both companies over the period in question they ought to be in a better position to provide a detailed and convincing explanation as to the discrepancies and as to why the court ought to prefer the Vital records. Since the correspondence between the Vital records and the contemporaneous records is approximate rather than precise that does not seem to me to be compelling. Accordingly I prefer the liquidator's case in relation to this element of the claim.
93. .11 It follows that whilst I accept the liquidator's valuation of the claim, making no deduction for the value of stock given the liquidator's position, as being £974,256.48, the amount to be allowed is limited to that advanced by the Fieldings, taking their credit into account, namely £861,317.21.

6. Rent, rates and buildings insurance

94. .1 This claim for £436,402.74 was said to be the outstanding rental, rates and building insurance charges on Century House and Bankfield Works.
95. .2 As regards Bankfield Works there is a fundamental problem with the claim which is, as Mr Fielding had stated himself in his second witness statement and also freely admitted in his third witness statement once the point had been raised at the October 2016 hearing, that the premises are and were owned by the Fielding pension fund, rather than the Fieldings themselves. There is no evidence whatsoever of any lease which would entitle the Fieldings to make this claim in their own right, or of any agreement under which they would be entitled to make this claim as agent for the pension fund. Mr Fielding also admitted that no invoices were ever issued to BGL in respect of its occupation of these premises. In his submissions in reply Mr Briggs accepted that in those circumstances its claim was limited to the sum claimed in relation to Century House, namely £355,069.56. There is however, I make clear, no basis for considering that the Fieldings always knew that this was a bogus claim which was dishonestly advanced.
96. .3 Whilst the liquidator was initially prepared to admit a claim for only £171,016, based on his analysis of what he understood to be the relevant ledgers, by the October 2016 hearing he had revised this admission down to £42,062.46.
97. .4 The Fieldings have been unable to produce any formal lease between themselves and BGL as regards Century House. Nonetheless it is not disputed that BGL did occupy these premises for the purposes of its business in the period between the two pre-packs. The liquidator also accepted [Andersen 1st ¶68] that BGL was "more likely than not to have incurred a debt arising from its occupation of premises". The Fieldings have been able to produce invoices from Mr Fielding to BGL for rent, rates and service charges in relation to Century House dating from 30 September 2008 through to 31 July 2009.
98. .5 Prior to the October 2016 hearing there was an issue as to which BGL ledger(s) accurately recorded the relevant liabilities as regards the premises. Mr Fielding had referred to an analysis undertaken by Mr Hutchinson of the BGL rent ledgers from which he had concluded that Mr Andersen had mistakenly failed to distinguish between vendor purchase ledgers and internal ledgers used to allocate costs as between the three divisions of BGL. By the date of the October 2016 hearing the liquidator appeared to have accepted this analysis and, relying on the vendor purchaser ledger at [B/884], adopted the position that only the balance as shown on that ledger, namely £44,062.64, was due.
99. .6 The real issue between the parties is now as to whether or not there are further sums due to the Fieldings from BGL in respect of Century House which are not included in the ledger. Mr Fielding accepts that the ledger ends – as did the invoices – on 31 July 2009, but his case and his evidence is that after this date no invoices were sent simply because BGL was already in arrears, with no immediate prospect of being able to pay any invoices, so that the decision was taken not to issue any further invoices in respect of which a VAT liability for invoices would be incurred. He says that for the same reason a "credit memo" was applied to write off the previous 3 months' rent. He says, however, that this does not mean that the liability to pay this rent was also written off and instead that it continued to accrue until the date of the second pre-pack.
100. .7 The first argument advanced by the liquidator is that in the absence of any formal lease for a defined period BGL could only have occupied the premises under a tenancy at will which could be determined or varied by agreement without formality or difficulty.
101. .8 As to this, whilst as I have said the Fieldings have been unable to produce a lease which covers the period in question, they have produced a formal lease relating to the premises entered into in January 2010, following the second pre-pack, between Vital as landlord and the successor company to BGL as tenant. This refers to a superior lease of the property made between the Fieldings as landlord and Vital as tenant dated 15 April 2008. Mr Fielding also refers to the annual accounts of BGL for the year ended 30 June 2008 which record that it had lease liabilities for a period exceeding 5 years in the same amount as claimed in the invoices for Century House. This, I accept, is reasonable evidence that there was a formal lease in existence at that stage. Whilst the liquidator has relied on the Fieldings' response in 2012 to his questionnaire, where it is stated that "after researching the matter it would appear that [BGL] never entered into a formal lease, if it did we cannot find it", I do not consider that this can outweigh the documentary evidence, in circumstances where it appears intrinsically unlikely that the auditors would have included this reference in the audited accounts had they not verified the existence of such a lease. Furthermore, whilst it would appear on the balance of probabilities that the lease must have been entered into by Vital as landlord, the terms of the assignment as between Vital and the Fieldings are plainly wide enough to include this liability nonetheless.
102. .9. I also accept Mr Briggs' submission that even if there was only a tenancy at will that does not affect the basic premise that if – as on the evidence is the case – BGL continued to occupy and undertake business from the premises until the second pre-pack, there is no basis for considering that a decision was taken to bring any such tenancy at will to an end before that date. Thus the liability to pay rental and other charges would continue unless or until some event had occurred whereby that liability was validly and permanently extinguished.
103. .10 This brings me on to the second argument advanced by the liquidator, which is that conscious decisions must have been taken to issue credit notes and not to continue issuing invoices, in circumstances where the commercial backdrop at the time explains why it would have been in the commercial interests of both BGL and the Fieldings to take these decisions, and that the Fieldings cannot now resile from these decisions. Mr Pickering submitted that in legal analysis this amounted to a waiver.
104. .11 In his evidence in response Mr Fielding asserted that the credit notes recorded on the ledger in May and June 2009 were not made on his instructions and, having spoken to Mr Hutchinson, he is unable to assist further other than to suggest that it may have been an accounting error made by one of the junior accounts operatives. I am unable to accept this explanation. It was not an explanation advanced in para 70(d) of Mr Fielding's third witness statement, where he specifically referred to and gave a different explanation in relation to one of these two credit notes, which is that it was a genuine credit note, but did not extinguish the underlying liability for rent. In the absence of a proper explanation for the change in the evidence, and in the absence of a confirmatory witness statement from Mr Hutchinson, and given the substantial amounts in question, I am able to and do reject this explanation as incredible.
105. .12 The argument advanced by Mr Briggs however was that even so neither crediting an invoice nor not issuing an invoice could operate as a legally binding or enforceable agreement to extinguish the underlying contractual obligation. He referred me to the well-known sections in Chitty on Contracts in relation to forbearance and waiver and submitted that on the facts of this case there was no basis for a submission that the liability had been written off or waived such as to have permanent extinctive effect. He submitted that there was nothing beyond the ledger itself to establish what had happened and that there was no reason not to accept Mr Fieldings' explanation that it was done purely to avoid a VAT liability accruing in circumstances where there was no prospect of BGL paying the rent. In the absence of consideration, or some legally enforceable waiver, he submitted that this would not prevent the Fieldings from making this claim notwithstanding the issuing of the credit memos or the non-issuing of subsequent invoices.
106. .13 In response to this the liquidator sought to adduce evidence and make submissions based on the accounting treatment of these claims and in particular the absence of accrual provisions which, it is submitted, would have been the correct approach if a decision had been made to defer but not to write off the claim for rent. It does not seem to me however that this evidence, insofar as it is documentary evidence to which I can have regard as opposed to inadmissible evidence from a solicitor as to accounting practice and procedure, really assists me in determining the fundamental issue, which is whether or not a legally enforceable or binding decision was made to write off the rent on a permanent basis.
107. .14 In my view the evidence does not demonstrate that the claims were written off in such a manner. I do not consider that this ledger evidence of itself is sufficient, and there is really nothing more. It is just as consistent in my view with a decision being taken not to pursue payment of the rent on a temporary basis, and to leave open the option of seeking to claim the rent at some later stage. What the VAT implications of this claim now having been made on this basis are is not a matter for me, but I do not consider that the VAT position should impinge on my decision one way or another.
108. .15 In the circumstances I assess this claim in the amount of £355,069.56.
109. .16. Again, however, I accept that this is not a claim which I consider the liquidator could reasonably have determined until the Fieldings had filed their evidence in response.

7. The director's loan account claim

110. .1 As I have said this is claimed in the extremely modest amount of £4,954.73, however the liquidator's position is that the Fieldings are liable to repay a negative balance of £260,544.
111. .2 The starting point is the original ledger at [B/403]. This is said to be the ledger which was produced in December 2009 and contains a number of entries which were disputed by Mr Fielding. It is common ground that these entries amount in total to £60,661.81, and the liquidator does not seek to contest the challenge to these entries or otherwise seek to bring them into account.
112. .3 It is also common ground that the ledger contains £1,862,828.65 for the leasehold improvements claim. Since this has been withdrawn by the Fieldings, it can no longer be included, and has not been included.
113. .4 The remaining difference between the sum claimed by the Fieldings and the negative balance asserted by the liquidators appears to be the £265,500 which is represented by payments which have been posted to the loan account as payments made to the Fieldings. (There is a small arithmetical difference between this £265,500 and the difference between the sum claimed by the Fieldings and the balance claimed by the liquidator, which appears to be £265,498.73, but no-one has suggested that this needs to be resolved or affects the outcome.)
114. .5 There appears to be no dispute that these payments were in fact made. However the Fieldings' case is that they were made as, and ought to be treated as, payments made towards the rental liability on Century House, whereas in error they have been posted to the directors loan account. In contrast, the liquidator's position is that they were made as, and ought to be treated as, payments made towards the now withdrawn leasehold improvements claim, and thus are properly to be included within the directors loan account.
115. .6 However Mr Fielding said and Mr Briggs submitted that even if I were to accept the liquidator's argument about this, since I have also allowed the Fieldings' rental claim, which itself gives credit for these payments, the only consequence is that they would then be entitled to withdraw the credit from the rental claim, so that the proof of debt would still be in the same overall amount. In his responsive submissions Mr Pickering did not specifically challenge this point, and it seems to me to be one which is well made. It follows that this issue is now academic, whereas I accept that it would not have been if I had rejected the rental claim.
116. .7 If I had needed to decide the point, I would have accepted that the evidence shows that at the time the payments were in fact treated as payments towards the leasehold improvement claim, in circumstances where at that time it was in the Fieldings' interests for the payments to be allocated in that manner. However even so, the only consequence of that decision would have been that once that claim was withdrawn the payments could quite properly be allocated to any other genuine liability of BGL to the Fieldings whether to rent or otherwise.
117. .8 I therefore accept that the Fieldings are entitled to claim £4,954.73 on this account.

8. The RBS overdraft payment

118. .1 This is the amount which the Fieldings say that they paid the bank on behalf of BGL. The claim is now advanced only in relation to one specific payment, being a payment in relation to a liability to a company known as the Burnt Tree Group, in the sum of £18,227.49.
119. .2 The liquidator's position is that nothing is due in relation to this element of the claim, because the bank account was in credit at the time of the administration.
120. .3 Whilst I understand and accept the general principle, I am satisfied on the evidence in this case and the submissions of Mr Briggs that the Fieldings, having paid the Bank which would otherwise have been entitled to claim against BGL for this debt, are entitled to be subrogated to the Bank's claim.

9. Conclusions

121. .1 My conclusion is that the proof should be admitted as follows:

Item	Allow to the Fieldings	Allow to the liquidator
1. Rollover debt	£3,150,000	-
2. Ransom / ROT	£178,487.91	-
3. Vital	£861,317.21	-
4. Rent / rates / buildings insurance	£355,069.56	-
5. Directors' loan	£4,954.73	-
6. Bank payment	£18,227.49	-
7. Balance due to the Fieldings	£4,568,056.90
8. Credit for payment made by administrator		£1,300,000
9. Final balance allowed to the Fieldings	£3,268,056.90

122. .2 I should not conclude this judgment without expressing my appreciation of the detailed and helpful written and oral submissions from both counsel and the industry displayed by the respective solicitors. I found the cross-referencing of the witness statements to the evidence bundles particularly helpful in wading through the documentary evidence.