GHLM Trading Ltd v Maroo

The claim concerned multiple complaints arising from an acquisition and management of a Spanish retail clothing business, focusing principally on (i) unexplained credit entries to the directors' loan account (DLA), (ii) a disputed £412,000 liability relating to stock, (iii) a sale of stock to Brocade purportedly to settle amounts due to the Maroos and Brocade, (iv) remuneration paid to the Maroos, and (v) a company car. The court applied principles governing fiduciary duties of directors, the evidential consequences where directors control company books, and the relevance of creditors' interests where a company is insolvent or of doubtful solvency (including the authorities on preferences and directors' duties).

Key findings: the judge concluded that a large proportion of the DLA credit entries were not satisfactorily justified and should be disregarded; GHLM had assumed a limited liability in respect of the £412,000 (payable only as and to the extent of proceeds of sale of stock) and Brocade was entitled to £200,071 of that figure; the sale of stock to Brocade was effected in breach of the Maroos' duties and the contract was void, requiring Brocade to account for sums it received on resale but allowing Brocade to revive its claim against GHLM; GHLM’s claim to recover remuneration paid to the Maroos failed; the counterclaim for non‑delivery was dismissed; and the claim against the administrator in Portugal was not proved. The court declined to grant relief under section 1157 Companies Act 2006.

Background and parties:

• GHLM Trading Limited (the claimant) was the vehicle for a Spanish retail clothing venture. The defendants were Mr Anil Maroo and Mrs Nita Maroo (directors and principal operators), Brocade International Limited (a company associated with the Maroos) and Mr Jose Paulo Loureiro (a Spanish/Portuguese administrator/agent).
• The business was acquired following investment of £1 million by the Binani family interest; the Maroos remained directors and significant inter-company and personal transactions followed.

Nature of the claim and relief sought:

• GHLM advanced a range of claims including recovery of sums on the directors' loan account, challenge to a sale of stock to Brocade as a breach of fiduciary duty, repayment of remuneration on the ground of non-disclosure/wrongdoing, recovery in relation to a Mercedes car and a claim against Mr Loureiro in relation to disposition of stock. The defendants counterclaimed for unpaid remuneration and for short delivery of goods.

Issues identified by the court:

1. Whether entries on the DLA were properly justified.
2. The character and extent of the agreed £412,000 liability ascribed to GHLM.
3. Whether payments to or for the benefit of Brocade were improper.
4. Whether Majestique/related pre-existing debts were improperly satisfied.
5. Whether the sale of stock to Brocade involved breaches of duty and what remedies follow.
6. Whether remuneration claimed by the Maroos was due and whether sums already paid should be recovered for non-disclosure/wrongdoing.
7. Issues concerning the Mercedes car and the claim against Mr Loureiro.

Court reasoning and conclusions:

• Directors' loan account: the judge applied authorities on fiduciary accountability and the evidential consequences where company books are in the control of directors, concluding that a substantial proportion (£773,935.19) of DLA credit entries were not satisfactorily justified and should be disregarded. The judge accepted that some payments had been made by the Maroos on GHLM’s behalf but found many of the entries unsupported by contemporaneous documentation and relied upon the Maroos’ unreliable evidence.
• £412,000 stock liability: on the evidence the court treated the £412,000 as a qualified liability payable only as and to the extent of proceeds of sale of stock; Brocade was entitled only to £200,071 of that sum (sales and realisations identified by the judge).
• Sale of stock to Brocade: the company was insolvent or of doubtful solvency by the relevant time and the Maroos, in arranging sales to Brocade that advanced their own interests, breached their duties to the company and creditors; Brocade (owned/controlled by the Maroos) had notice of the breach. The contract was held to be void; Brocade must account for sums received on resale but may revive its underlying claim against GHLM; no compensatory or profit-based award was made.
• Remuneration: the court found that a large sum of remuneration fell due by reference to the agreed rates, and that Brocade (not the Maroos personally) held an entitlement to unpaid remuneration of €241,755 subject to set-off. GHLM’s claim to recover remuneration already paid for failure to disclose was not made out on the evidence and was dismissed.
• Mercedes and Loureiro claims: limited adjustments were made to DLA credit in respect of the Mercedes and the claim against Mr Loureiro was dismissed for lack of proof that the defendant could have stopped the shipment.
• Relief under s.1157 Companies Act 2006 was not granted.

Wider commentary: the judge noted the comparative rarity and limits of relief where statutory insolvency remedies are not engaged, emphasised the fiduciary burden to account and the evidential consequences where records are controlled by directors, and applied established equitable principles on void/voidable transactions entered into in breach of fiduciary duty.

First instance: the court made multiple findings and determined issues in part for both parties. The judge found that many credits to the directors' loan account were not satisfactorily justified and should be disregarded; treated the £412,000 figure as a limited, stock‑linked liability and credited Brocade with £200,071 of it; held that the sale of stock to Brocade was in breach of the Maroos' duties and the contract was void (Brocade must account for resale proceeds but may revive its claim against GHLM); dismissed GHLM’s claim to recover remuneration paid for non‑disclosure and dismissed the counterclaim for non‑receipt of goods and the claim against Mr Loureiro. The court refused relief under section 1157 Companies Act 2006. The judgment thus allowed parts of GHLM’s case and dismissed others, resolving the principal contested accounting and fiduciary issues on the facts and law set out in the judgment.