Varden Nuttall Ltd v Nuttall & Anor

A company director must maintain effective oversight of trust money administered through the company’s business. Delegation does not remove the duty to understand the system, ensure reconciliations are performed and resume control when safeguards fail.

Fees or payments extracted from insolvency estates through undisclosed arrangements with connected service providers constitute dishonest breaches of fiduciary and supervisory duties where they increase remuneration at creditors’ expense. Disclosure must be sufficiently full, fair and timely to permit informed approval.

By contrast, handling a VAT repayment through a global client account is not itself a breach, and accounting errors do not become dishonest breaches without proof of dishonest intent and resulting loss.

The claim was brought by the administrators of Varden Nuttall Ltd and supervisors of individual voluntary arrangements against Philip Nuttall, formerly a director of the company and, in some cases, a supervisor. Darren Varden did not defend the proceedings.

The claims concerned a shortfall in pooled trust accounts, the treatment of a VAT repayment, and arrangements under which payments were made to connected companies through IT, PPI and property appraisal service providers. The claimants alleged breaches of directors’ duties and dishonest breaches of supervisory duties. The central issues were whether the arrangements were improper or dishonest, whether loss was proved, and what relief should follow.

1. Shortfall and directors’ duties. Mr Nuttall breached his duties under sections 170 to 177 of the Companies Act 2006 by failing to maintain proper oversight of pooled trust accounts. He knew, or ought to have known, that the Barclays system required reconciliation between the actual client accounts and the virtual estate accounts. Delegation to an employee who was not a licensed insolvency practitioner did not relieve him of the duty to understand the system, check that reconciliation was performed and act when discrepancies emerged. The company was entitled to recover the admitted shortfall of £1.3 million and could elect for an inquiry into the true amount and associated reconciliation costs.
2. Dishonesty. Applying Ivey v Genting Casinos (UK) Ltd and Barlow Clowes International Ltd v Eurotrust International Ltd, dishonesty required proof of Mr Nuttall’s subjective knowledge or belief as to the facts followed by an objective assessment against ordinary standards of honesty. The CTDS, RMSL, EIC and HLL arrangements were secret methods of increasing fees from IVA estates for the benefit of connected companies. They were not shown to reflect genuine services or best value. The arrangements were dishonest because they lacked prior, full and fair disclosure and informed approval as required by SIP 9.
3. Limits of liability. Mr Nuttall was liable as supervisor only for payments made while he was formally appointed supervisor of the relevant IVA. The court declined to extend that liability to IVAs supervised by another office-holder merely because Mr Nuttall exercised practical influence.
4. VAT and accounting issues. Crediting a VAT refund initially to a global client account was not itself a breach. Certain deductions, including VAT-inclusive fees and outstanding minimum fees, were permissible. The claimants failed to identify estates where unauthorised deductions caused loss or where dishonesty was proved. Other accounting discrepancies were at most negligent errors, not dishonest breaches.
5. The dishonest-arrangement and shortfall claims succeeded in principle. Quantum and the consequential accounting inquiries were left for further directions.

not stated in the judgment.