This judgment was handed down remotely at 10.30am on 7 March 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
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Chief ICC Judge Briggs :
Introduction
- The Official Receiver makes a claim against Mr Haq who was the sole director of Wifime Limited (the "Company") at the time it entered insolvent liquidation. The claim made is that Mr Haq acted in breach of his statutory duties and failed to account for payments made out of the Company at a time it was insolvent. In addition the Official Receiver seeks an order that Mr Haq pay an overdrawn directors' loan account ("DLA").
- In his opening Mr Haq explained that he had become an expert in the civil procedure rules and the case law applicable to the claim. He filed an Amended Points of Defence signed with a statement of truth but chose not to provide a witness statement. There was no evidence before the court to support his Amended Points of Defence, although he tendered evidence in opening and closing without being sworn-in.
- At the end of the trial I gave judgment for the Applicant. I reserved the reasons as I thought it better for Mr Haq to have them in writing. This short judgment provides the reasons.
The Company
- The Company was incorporated on 24 October 2013 and traded in providing technology services. Specifically it provided wifi services installing and running projects, mainly in schools. Mr Haq explained that the services offered by the Company grew and included cabling, whiteboard and other facilities. Mr Haq says that the Company was a:
"provider of WIFI Solutions to the UK Education Sector since 2005… [and provided] consultancy and related infrastructure services to a number of other sectors, nationally and internationally"
- Mr Haq was appointed a director of the Company, for the third time, on 20 July 2011 and acted as its sole director. He is the Company's only shareholder.
- In or around May 2014, the Company started defaulting in payment of its tax liabilities to His Majesty's Revenue and Customs. In his preliminary questionnaire Mr Haq says that the Company stopped trading in November 2016.
- On 21 November 2016 HMRC presented a winding up petition based on a failure of the Company to settle its National Insurance Contributions, Pay As You Earn, Value Added Tax, and Corporation Tax liabilities from 2014. Mr Haq says that he first knew the Company could not pay its debts when they became due in May 2016. He says he was alerted to the Company's financial difficulties by a combination of pressure from HMRC, "bailiffs started coming round", and two County Court Judgments from suppliers. The Company owed other debts to a landlord of premises it occupied in 2015, HSBC and Funding Circle.
- On 23 January 2017, a winding up order was made by the court with the Company carrying a total estimated deficiency to creditors of £278,207.62.
- One feature of this case was a decision made by Mr Haq following the year end 2014. That decision was to move to larger premises. Mr Haq later realised that the Company could not afford the new accommodation and relocated in the third quarter of 2015 to reduce costs. Nothing much turns on this event save that the timing of the move to larger premises coincided with an increase in the Company's financial difficulties. It is apparent from the year end accounts that the Company had never been very profitable and any confidence held by Mr Haq, that it was a profitable going concern, was sugar coated by officer optimism.
- The accounts for the year ending 31 October 2012 show that the Company had more liabilities falling due within a year than assets (including cash at bank). The profit and loss stood at £137 and Mr Haq owed the Company £30,049 on the DLA.
- The total assets less current liabilities stood at £2,844 for the year ending 2013, the profit and loss was £399. The DLA had reduced to £20,095.
- In submissions I was taken to the accounts for the year ending 2014. The accounts show negative net assets (£12,649) and a profit and loss account of £99. The DLA had been reduced to £289. Despite the poor trading results, a dividend of £76,000 was paid to Mr Haq.
- There was a drop-off in trade and profitability in 2015 so that the Company made a net loss of (£109,008). The DLA rose to £9,361.
- All accounts were signed off by Mr Haq but were produced by accountants for the Company. All accounts contain the following acknowledgment:
"The director acknowledges his responsibilities for:
(a) ensuring that the company keeps accounting records which comply with Sections 386 and 387 of the Companies Act 2006 and
(b) preparing financial statements which give a true and fair view of the state of affairs of the company as at the end of each financial year and of its profit or loss for each financial year in accordance with the requirements of Sections 394 and 395 and which otherwise comply with the requirements of the Companies Act 2006 relating to financial statements, so far as applicable to the company."
- The acknowledgement is important in this case as other than some receipts and bank statements, there are few company records. Mr Haq accepted the failure in his closing statement saying that the Company was a small company, run by a single director and that he was not well in 2015 and 2016 due to a break down in his marriage.
The OR's pleaded case
- The pleaded case against Mr Haq is that he should make a contribution to the Company for losses it made due to monies that he had received. The claims comprise:
i) A claim for payment of a sum outstanding of the DLA. The principal amount of the DLA Claim is £17,459.21. The Official Receiver claims interest on the basis that the accounts record that interest is due from Mr Haq on the DLA;
ii) Payments made for his benefit. The amount of the Payments is £121,456.03. The payments underlying this claim are divided into two categories:
a) those which appear in the Company's bank statements with the reference "Tamina Azad". Tamina Azad is Mr Haq's ex-wife, however he has stated in open correspondence that these payments were for his benefit. They total £115,928.28.
b) payments where the books and records show that they were made to Mr Haq. These payments total £5,527.75.
iii) The bank statements show cash withdrawals made of £33,682.50. There is no evidence to support that the cash withdrawals were used for the benefit of the Company.
- The Official Receiver gives credit for sums Mr Haq paid back to the Company from July 2016 reducing the pleaded liability.
The Points of Defence
- The Points of Defence provided by Mr Haq are as follows (where relevant):
i) No difficulties existed in 2014. The Company had run from inception and been successfully growing each year, year on year;
ii) There were no concerns regarding insolvency between January and September 2015;
iii) He had focused on growing the Company, acclimatising to the new location, following which downsizing;
iv) In 2015 he suffered from various mental health issues and was periodically hospitalised.
- As regards salary he pleads that the sums he received were agreed during the period the Company was insolvent and relies on the Duomatic principle.
- The DLA, he states, was intended to be reduced to zero once a dividend was declared at the year end. The dividend would off-set the DLA.
- Payments made to Tamina Azad were for him. The payments made to Mr Haq, and the cash withdrawals were made for the "genuine conduct of business".
The evidence
- The witness evidence of Yvette Hill, the Official Receiver, has been adopted by Victoria Prime who is the successor Official Receiver to Ms Hill.
- Ms Prime was sworn-in and verified that her witness statement was true and accurate. She produces records of HMRC's dealings with Mr Haq extending back to April 2015 when the Company was being chased for payment. Her evidence is that Mr Haq has been aware of the outstanding DLA since he signed off the accounts for the year ending 2015 (in July 2016) and despite chasing has failed to make payment.
- In her evidence in chief she provides an analysis of the Company's bank statements to demonstrate that £8,146.28 had been paid out of the Company's bank account. They are said by Mr Haq to represent sums spent on "expenses". There is no explanation as to the nature of the expenses and no evidence that the money spent was, in fact, for Company use. The expenses include "a large number of payments to Costa Coffee, grocery stores and food outlets." Ms Prime's evidence is that this is a sum that needs to be repaid.
- As regards cash withdrawals, Ms Prime's evidence is that there has been no explanation and "nor are there any records in what is in the Official Receiver's possession which would indicate how the cash withdrawn was expended."
- Ms Prime was not cross examined on this part of her statement.
- Her evidence is [17]:
"In the APOD, the First Respondent states that "All withdrawals were made for the genuine conduct of business, with the intention of promoting the success of the business". This is not a satisfactory response to justify cash withdrawals of £33,792.50 from the Company's bank account. The First Respondent has not sought to offer any other explanation as to the cash withdrawals, nor are there any records in what is in the Official Receiver's possession which would indicate how the cash withdrawn was expended."
- Ms Prime was not cross examined on paragraph 17 of her statement.
- The cash withdrawals have been analysed and compared with electronic payments made during the life of the Company [18]:
"The Company's books and records indicate that the First Respondent used electronic payment as the main method of payment when purchasing goods and or services on behalf of the Company. Having reviewed the extensive purchase receipts in our possession, I have been able to identify payments totalling £785 which may relate to cash purchases in respect of Company business. Most of the cash payments appear to relate to personal expenses, including "Creams" (an ice cream parlour at 157 The Broadway, Southall), and various cafes."
- Ms Prime was not cross-examined on this paragraph.
- Ms Prime sums up the case for the Official Receiver [19]:
"The duty remains with the First Respondent to prove, with supporting documentary evidence, that the entirety of the cash extracted by him from the Company's bank account related to legitimate business expenses (including cash receipts totalling £785 as mentioned in paragraph 18 above). If the First Respondent is unable to verify this, it is the Applicants' claim that such monies were not utilised by him for a legitimate business reason and, instead, were applied for his own personal benefit and/or for the benefit of others. The First Respondent is therefore liable to repay this sum to the Company."
- Ms Prime was not cross-examined on this part of her statement.
- Ms Prime addresses other aspects of the Defence. She says [8]:
"…the First Respondent states that "NI and PAYE contributions for 2014 were minimal and were simply put on hold whilst I dealt with the move and considered options". Unilaterally putting payment of the Company's outstanding liabilities "on hold" is not a valid Defence to an allegation of failing to discharge the Company's liabilities as and when they fell due."
- Ms Prime was not cross-examined on this evidence.
- Mr Haq pleads that he had no concern about insolvency in January 2015. This is a date when the Official Receiver claims the Company was insolvent and creditor interests intervened. Ms Prime says [9]:
"The First Respondent also states that "There were no concerns regarding insolvency on Jan /Sep 2015". That statement is not consistent with the First Respondent's decision to withhold payment of PAYE and NIC from HMRC detailed in paragraph 8 above…"
- Ms Prime was not cross-examined on this evidence.
- Finally, Ms Prime gives evidence that the solicitors acting for the Official Receiver provided Mr Haq with access to a platform that contained all the documents held by the Official Receiver, in relation to the Company. Mr Haq, equipped with the documents, has had an opportunity to interrogate the books and records and provide answers to the claim made. It is surprising that Mr Haq did not take advantage of this facility to aid him to make, file and serve a witness statement to support his Defence as he was ordered to do on 15 March 2024.
- His failure to provide a signed witness statement means that the court has only the core documents, and the evidence of the Official Receiver to evaluate. I remind myself that whilst the courts may justify making allowances to litigants in person in making case management decisions and conducting hearings, it will not usually justify a lower standard of compliance with rules or orders of the court: Barton v Wright Hassall LLP [2018] UKSC 12 at [18].
Cross-examination of Ms Prime
- I intervened to try to guide Mr Haq focus on cross-examining Ms Prime on her witness statement and the pleaded case. He chose not to follow my suggestions. He wanted to ask Ms Prime about how the Official Receiver collected information, why more than one Official Receiver/examiner had been involved in the case, why the solicitors had acted aggressively in correspondence, why the Official Receiver had taken time to discontinue the claim against the Second Defendant, what knowledge the Official Receiver had about the day to day workings of the Company, and how she had assessed the claim.
- Ms Prime explained that there was an absence of Company records, and she will assume that unexplained payments were for the benefit of the sole director and shareholder. She said that she reacted to new information received but was unable to reconcile the impugned payments and cash withdrawals with the receipts provided.
- Mr Haq, an articulate and intelligent man, found it difficult to focus on the issues before the court and would often use the opportunity to cross-examine, to give evidence. Some more salient questions and answers I noted were as follows:
Q. Surely you would do the investigations?
A. We asked you, as director, for an explanation.
Q. You don't know what the company does?
A. I don't see the relevance, the company is in liquidation and money has gone.
Q. Some businesses run out of cash, that does not mean they are insolvent?
A. The Company couldn't pay its debts, the use of cash and other payments made need to be explained.
- I have set out above the failure of Mr Haq to cross-examine Ms Prime on her witness statement.
- The evidence given by Ms Prime, that the impugned payments had been made from the Company's bank account, and that those payments (including cash withdrawals) had not been explained, and as such Mr Haq is liable to repay the impugned payments, was not decisively tested.
Legal analysis
Duties, obligations and the Companies constitution
- In Re Glam and Tan Ltd [2022] EWHC 855 (Ch) the company had traded since 2014 as a beauty salon. Its sole de jure director was the respondent to the application, Mrs Litras. She was absent from the business on maternity leave for nine months from July 2016. Soon after her return to work, HMRC issued a notice of distraint, following which the company went into creditors' voluntary liquidation in July 2017 with an estimated deficiency of £132,428. The application sought declarations and payment of £143,358.47. Claims included misfeasance (breach of duty), transaction at an undervalue and preference. The impugned payments fell into various categories: payments to third parties such as Mrs Litras's mother, her husband, her husband's cousin, Ticketmaster, HM Passport, a visa company, various supermarkets and others; payments to Mrs Litras herself; payments made for the benefit of the company; and finally payments made to Mrs Litras which were described as dividends.
- The duties of the director were summarised in a manner applicable to this case [14]:
"The Companies Act 2006 codifies the duties of a modern-day director in Chapter 2 of Part 10. The duties include a duty to exercise their powers for the purpose for which they are conferred (s.171 of the Companies Act 2006); to exercise the powers in what the directors consider in good faith to be likely to promote the success of the company for the benefit of the members as a whole (s.172)); a duty to exercise independent judgment (s.173); a duty to exercise reasonable skill and care (s.174) and a duty to avoid a situation giving rise to a direct or indirect interest which conflicts, or which might possibly conflict, with the interests of the Company (s.175)."
- The Points of claim seek a declaration that Mr Haq acted in breach of duty by paying away money of the Company for no commercial purpose. The alternative claim is a declaration that Mr Haq is liable to account as a fiduciary.
- In Stacks Living Limited & Ors v Shergill & Anor [2025] EWHC 9 (Ch) the court observed that [136]:
"a company director is treated as a trustee of the company's assets coming into his hands or which are under his control. He is under a fiduciary duty to the company to apply its assets only for the proper purposes of the company, and to account for their use"
- The fiduciary must make an account of all expenditure. As a company director this obligation is visited upon Mr Haq. There is much authority to support this proposition. It is not necessary to go beyond GHLM Trading Ltd v Maroo and others [2012] EWHC 61, Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 or Re Glam and Tan Limited. Ultraframe is cited in Gillman & Soame Ltd v Young [2007] EWHC 1245 where Robert Miles QC (as he was) provided a short and exact explanation [82]:
"Where a person in a fiduciary position receives property of his principal the burden is on him to account: United Pan-Europe Communications v Deutsche Bank [2000] 2 BCLC 461. This principle applies to company directors as it does to trustees: Ultraframe (UK) Ltd v Fielding … It is, therefore, for [the company] to prove that [the director] received a particular payment from the company; but where it does so, it is for him to show that the payment was proper."
- A company director does not have a right to be remunerated for any services performed for the company except as provided by its constitution or approved by the members. This rule is an aspect of the general principle that a director is not allowed to make a profit unless expressly permitted (the no profit rule).
- In so far as Mr Haq says that he worked for his salary, a quantum meruit claim by directors is precluded where the company's articles provide for the board or the members to determine their remuneration: Guinness PLC v Saunders [1990] 2 AC 663 where it was held that the law would not imply a contract for remuneration when the same could only be put into place under the articles of association by an appropriate resolution of the board.
Duomatic
- Mr Haq has said that as sole director and shareholder he is able to rely on informal unanimous consent: Duomatic Ltd, Re [1969] 2 Ch. 365, 373,
"where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be."
- There are distinct limitations to the Duomatic principle. For the purpose of this case it cannot be relied upon where a formal member's resolution would not have been valid. Thus the principle may not be invoked where the statutory provisions governing distributions has not been followed: Bairstow and others v Queens Moat Houses plc [2001] EWCA Civ 712. If a company is facing financial difficulties such that the interests of its creditors arises, it may not be possible to apply the Duomatic principle to ratify breaches of duty. In Re Finch (UK) Plc [2015] EWHC 2430 (Ch), the liquidators brought a joint action against the company's directors for, amongst other matters, misfeasance and breach of trust. The redemption of the redeemable shares could not be cured by application of the Duomatic principle since at that stage that company was in financial difficulties and there were insufficient profits for the redemption.
- In Stakefield (Midlands) and others v Doffman and another [2010] EWHC 3175 [44] Newey J said that the interests of creditors can "intrude" and the application of the Duomatic principle may be barred, even when a company may not technically be insolvent but is in financial difficulties to the extent that the interests of its creditors are at risk.
- The recent decision in BTI 2014 LLC v Sequana SA [2022] UKSC 25 is relevant to determine the time at which creditor interests intervene.
- An additional limitation is the necessity that shareholders understand that their consent is necessary for a proposed act: EIC Services Ltd v Phipps [2003] EWHC 1507 (Ch).
The burden of proof
- In his skeleton argument and in closing Mr Baldock submitted that the burden of evidential proof lay on Mr Haq to demonstrate that the impugned payments and cash withdrawals had been used in the commercial interests of the Company. He referred to various authorities to support the proposition:
"once a liquidator proves [a] relevant payment has been made, the evidential burden is on the respondents to explain the transactions in question. Depending on the other evidence, it may be that the absence of a satisfactory explanation drives the court to conclude that there was no proper justification for the payment" (para. [138]; referring to Re Idessa (UK) Limited (In Liquidation) [2011] EWHC 804 (Ch) ("Re Idessa"), para. [28] (see also Reynolds, para. [8] and Re Glam and Tan Limited [2022] EWHC 855 (Ch) ("Glam and Tan"), paras [29] to [32]).
- I have no doubt this is a correct formulation of the evidential burden. In Murad v Al-Saraj [2005] EWCA Civ 959 Arden LJ (as she was) explained [77]:
"for policy reasons, on the taking of an account, the court lays the burden on the defaulting fiduciary to show that the profit is not one for which he should account …The shifting of the onus of proof is consistent with the deterrent nature of the fiduciary's liability. The liability of the fiduciary becomes the default rule".
- The explanation given by the court in Murad leads to the duty to account. Mr Haq has a duty and is liable to account for any unauthorised profit he obtained as a result of his position: Al Nehayan v Kent [2018] EWHC 333 (Comm).
- The absence of documentary evidence is often part and parcel of small and medium sized company insolvencies (that is not to say that large companies cannot be in the same position). The courts have held that given the nature of the privilege of acting through a limited company and the position of director the court may infer from the absence of documentation that any explanation for is not to be believed: see Mumtaz Properties Ltd [2011] EWCA Civ 610 [17]:
"It was not open to the respondents … to escape liability by asserting that, if the books and papers and other evidence had been available, they would have shown that they were not liable in the amount claimed by the liquidator. Moreover, persons who have conducted the affairs of limited companies with a high degree of informality … cannot seek to avoid liability or to be judged by some lower standard than that which applies to other directors, simply because the necessary documentation is not available …"
- In summary it is for the company (or liquidator) to prove that the director received a particular payment from the company; but where it does so, it is for him to show that the payment was proper: Gillman & Soame Ltd v Young.
The application of the Duomatic principle
- The issue of insolvency and of financial difficulties, as demonstrated by the annual accounts and pressing creditors extending back to the year ending 31 October 2014, places a bar on reliance on the Duomatic principle. If I am wrong about that as a matter of fact, there is another requirement for the application of the Duomatic principle that Mr Haq is unable to overcome.
- Mr Haq as sole member may have been able to demonstrate that acting in his capacity as a member he knew that consent was required to allow a salary to be paid to him in his capacity as director. As Mr Haq has provided no evidence this is not a conclusion the court can reach.
- There is no evidence to support his knowledge of the Company's constitution or the necessity that he needed to think about and decide that he could draw a salary.
- I observe that the Official Receiver has accepted some payments can be treated as salary up to the income tax threshold. The Official Receiver does not accept there was a resolution approving higher rates of salary.
Decision on the issues
Issue 1- insolvency
- In a letter dated 7 September 2021 Clarke Willmott wrote to Mr Haq stating that:
"Upon reviewing the Company's books and records, it appears that the Company first encountered financial difficulties around May 2014 when it started defaulting in payment of its tax liabilities to Her Majesty's Revenue and Customs"."
- There does not seem to have been a substantive response to this review.
- There is no evidence to support a different finding than the date contended for by the Official Receiver. In an interview with the Official Receiver in February 2017 Mr Haq explained:
"costs spiralled out of all proportion to what we were expecting and we started to fall further behind. HMRC were writing to me, but because of the pressure of other debts I left much of this unopened."
- The primary evidence is the Company accounts, signed off by Mr Haq. I have set out above the performance of the Company through the lens of those accounts. It is relevant to reiterate that for the year ending 2014 the Company held negative net assets (£12,649) and a profit and loss account was positive to the tune of £99. The year ending 2015 accounts demonstrates the Company made a loss of £87,311 and a higher net loss of over £100,000.
- In his closing Mr Haq explained that he was choosing which creditors to pay and which creditors not to pay. He had paid the landlord and post office but not paid HMRC, Slough Borough Council, the Royal Mail or Comms Express.
- I find from January 2015, it is more likely than not that the Company was insolvent within the meaning of section 123 of the Insolvency Act 1986.
Issue 2- The DLA
- The sums in the DLA represent a sum owed by Mr Haq to the Company. The Amended Points of Claim plead [14.1]:
"The First Applicant avers that the principal amount outstanding thereon as at the date of these Amended Points of Claim is £17,407.28, which is calculated by taking the amount outstanding as of 31 October 2015 as indicated in the accounts, £9,361, giving credit for the credit balance of £56.25 in respect of the financial year ending 31 October 2016, and adding £8,146.28 in further expenses no captured on the Company's nominal ledger…"
- I am reminded that the evidence of the Official Receiver, which went unchallenged, is the sum recorded in the accounts for the year ending 31 October 2015 requires (i) the credit of £56.25 recorded in the nominal ledger and (ii) the addition of £8,146.28 for personal expenditure. I was informed at trial, that a reconciliation by the Official Receiver revealed a clerical error: the further expenses were undercalculated by £8.18. The reconciliation increases the expense figure by that sum to £8,154.46. As a result, the principal sought on the DLA Claim is £17,459.21. Mr Haq did not question the figures in his opening, closing or during the cross-examination of Ms Prime.
- The accounts record that interest accrues on the outstanding balance from 5 April 2015 until payment at a rate of 3.00% and prior to that date at a rate of 3.25%. I infer, as it is recorded in the accounts, that Mr Haq agreed to the payment of interest. There is no evidence to the contrary.
- In the Amended Points of Defence Mr Haq states: "I deny liability for interest on DLA." He does not dispute the fact that the overdrawn loan account should be paid and the denial of interest is a bare denial.
- The debt was demanded on 7 September 2021, and remains outstanding. I find it is due and payable, as amended, with the interest agreed as stated in the accounts for the year ending 2015.
Issue 3- the impugned payments
- The pleaded case of the Official Receiver is that some impugned payments were made direct to Mr Haq and some to his ex-wife Tamina Azad. The sum of the payments is £115,928.28. The Official Receiver traced the payments made from the Company's bank account with HSBC (Acc. No. 81762621; Sort Code 40-42-08) in the period 29 April 2014 to 30 November 2016.
- The Official Receiver traced payments totalling £5,527.75 made from the Company's bank account to Mr Haq in the period between August 2014 and December 2016.
- At an earlier hearing for summary judgment, Mr Haq explained that all the payments made to Tamina Azad were made to him.
- The amended Points of claim seeks recovery of all impugned payments. The amended Points of claim plead:
"The Applicants have not been able to locate any records to support and/or explain those payments and, accordingly, aver that there was no legitimate business, or other, reason for the First Respondent to cause, suffer or procure the Company to make the AH Payments to himself."
- In closing Mr Haq explained that he was responsible for fitting out the new offices when the Company moved. He used Company money for this purpose. There is no evidence that the court can rely on to support his contention. There are no documents to support his position and he did not cross-examine Ms Prime on the issue. Given the lack of evidence from Mr Haq, the case made by the Official Receiver is made out.
- I find there has been a failure to account. The Official Receiver has demonstrated that Mr Haq had control of the Company's bank account, used the money and he has failed to show the payments were proper.
- On the balance of probabilities, the failure to account is a failure of the sole director to act in a manner likely to promote the success of and benefit the Company as a whole. Mr Haq failed ensure that the company kept accounting records that comply with Sections 386 and 387 of the Companies Act 2006 as he certified in the accounts. By making personal use of the Company's money, I find that there was a failure of Mr Haq to recognise and avoid a situation where his interests conflicted with that of the Company.
Issue 3- Cash withdrawals
- The Company's bank statements discloses that in the period from 8 April 2014 to 8 December 2016, £33,792.50 was withdrawn from the Company's bank account. There are some receipts. There are parking receipts and receipts for coffee. In closing Mr Haq said that he worked from a café and purchased coffee while he worked. He took potential clients and employees to the café and bought them coffee. He said that he travelled throughout England and Wales spending money on petrol. He says these are all legitimate expenses.
- In Ms Prime's evidence in chief, she said that she was able to match only £785 to potentially legitimate business expenditure. The court is unable to take into account what Mr Haq said when referring to the difficulties of small businesses or how he spent money on coffee when entertaining potential employees. This is because he has provided no sworn evidence for himself or anyone else to support the new explanation. Even if the court were to accept his explanation, Mr Haq provided no detail as to who he was entertaining, no third party verification or any explanation as to why he was not working in the office the Company was paying for.
- Mr Haq has produced no working diary for Company appointments, no letters, e-mails, WhatsApp messages, texts, or any form of communication arranging meetings or demonstrating that there was a meeting where legitimate business expenditure could be made.
- I find there has been a failure to account. The Official Receiver has demonstrated that Mr Haq had control of the Company's bank account, used Company money and failed to show the cash withdrawals were made and used for a legitimate purpose.
- Mr Haq failed ensure that the company kept accounting records that comply with Sections 386 and 387 of the Companies Act 2006 as he certified in the accounts. By making personal use of the Company's cash, there was a failure by Mr Haq to recognise and avoid a situation where his interests conflicted with that of the Company. I find on the balance of probabilities, the failure to account is a failure of Mr Haq to act in a manner likely to promote the success of and benefit the Company as a whole.
Relief
- In his skeleton argument Mr Haq refers to section 1157 Companies Act 2006. He says, in his skeleton argument, that he acted honestly and reasonably and ought fairly to be excused.
- In Re In a Flap Envelope Company Ltd [2003] EWHC 3047 (Ch) the court found that it would be "highly unusual" for relief under section 1157 of the Companies Act 2006 to be granted to a director who had retained a material benefit from his breach of duty. That does not mean it is impossible: Humphrey v Bennett [2023] EWCA Civ 1433. Much depends on the facts. In Humphrey v Bennett Lord Justice Snowden explained what a defendant needs to do to rely on the statutory Defence [80]:
"A defendant who wishes to avail himself of section 1157 should plead the specific facts and matters upon which he intends to rely in order to demonstrate that there is a realistic prospect of a court granting him relief under that section at trial. If the matters pleaded by the defendant are inadequate, it will be open to the court to determine on a summary basis that he has no realistic prospect of obtaining such relief."
- Mr Haq does not plead the statutory defence in his Amended Points of Defence.
- If it is possible to interpret the Amended Points of Defence as including a reference to the statutory Defence (with the aid of generous reading) he has failed to specify facts and matters upon which he intends to rely in order to demonstrate he can succeed. In any event the burden lies with Mr Haq to prove honesty and reasonableness and Mr Haq has provided no evidence to support the Defence.
- Finally it is worth mentioning that where a director has taken company property and fails to demonstrate that he is lawfully entitled to the property he is not entitled to rely on the statutory Defence: Toone v Robbins [2018] EWHC 569.
- I find that the statutory Defence has not been pleaded sufficiently or at all. Given his failure to explain and account for monies he has received from the Company he is not entitled to relief and in any event I would, if the Defence was before me, exercise my discretion against such relief for the reasons I have set out.
Conclusion
- In my judgment Mr Haq is liable for the sums claimed namely, £155,248.53 after credits have been given plus interest where interest is applicable.
- The Applicant shall have carriage of the order.
