Toone & Anor v Robbins & Anor

A sole shareholder’s failure to record a decision in the company’s minute book does not, without more, invalidate that decision where the articles do not make validity conditional on compliance with the recording requirement. However, directors who receive company money must account for it. Once payment is proved and the directors cannot establish a lawful basis, the benefit of the doubt belongs to the company or its liquidators, not the recipients. A director cannot avoid repayment by invoking unjust enrichment or by re-characterising an unlawful dividend as remuneration. The statutory power to relieve liability does not permit a director to retain unauthorised remuneration.

Pinetum Ltd’s joint liquidators appealed findings by Chief Registrar Baister concerning payments made to its directors, Dean and Richard Robbins, before the company entered liquidation. Payments recorded as wages were held to be authorised remuneration, while payments recorded as dividends were held to be unlawful and repayable.

The appeal challenged the treatment of an unrecorded payment of approximately £10,092 as remuneration and argued that the failure to comply with the company’s articles invalidated the remuneration decisions. The directors brought an out-of-time cross-appeal, contending that the payments recorded as dividends should instead be treated as remuneration. The central issues were the effect of the minute-book requirement, the burden of proof concerning unexplained company payments, and whether unlawful dividends could be re-characterised or retained.

1. Appeal partly allowed; cross-appeal dismissed. The decision that the payments recorded as wages were not recoverable was upheld, but the order treating the unexplained payment of £10,092 as remuneration was set aside. The directors were required to repay the sums each had received.
2. Article 8.1 permitted a sole shareholder to take a decision with the effect of a decision in general meeting. Article 8.2 required the decision to be recorded in writing and entered in the minute book. Properly construed, Article 8.2 was not expressed as a condition of validity. The same conclusion was supported by section 357(5) of the Companies Act 2006, which provides that failure to comply with the statutory requirement does not affect the validity of the decision. The Chief Registrar’s conclusion was therefore correct, although the reasoning differed.
3. Once company payments to directors were established, the directors bore the evidential burden of explaining them. The absence of a satisfactory explanation does not invariably establish liability, since other evidence may show that a payment was made in good faith for proper company purposes. But where the court has to decide the matter on the burden of proof, any doubt is resolved in favour of the liquidators. Directors cannot rely on defective record-keeping to obtain a favourable assumption.
4. The directors could not rely on section 1157 of the Companies Act 2006 to retain money received without lawful authority. Relief from liability could not confer an entitlement to remuneration contrary to the company’s articles.
5. The payments recorded as dividends were unlawful distributions. They could not be re-characterised as salary, and the directors could not rely on unjust enrichment or an agreement between themselves and the sole shareholder. A dividend paid out of capital is unlawful regardless of the directors’ intentions or the technicality of the error. The court declined to adopt the analysis in Global Corporate Ltd v Hale.

The Joint Liquidators’ costs were to be an expense of the winding-up, with the directors jointly and severally liable for 20% of the appeal and cross-appeal costs.

1. High Court (Chancery Division): Appeal from findings and orders made by Chief Registrar Baister. The appeal was allowed in part and the cross-appeal was dismissed.