BM Electrical Solutions Ltd & Anor v Belcher

Payments made by a company director cannot be retrospectively characterised as dividends unless a dividend was actually declared. A dividend must also comply with Part 23 of the Companies Act 2006, including the requirement that it be paid from profits available for distribution shown by the relevant accounts.

Where payments are made personally to a director, the evidential burden falls on the director to explain and justify them. An absence of documents is not determinative where credible oral evidence establishes that payments were made in good faith for proper company purposes. Unexplained personal payments may constitute repayable loans or a breach of fiduciary duty.

BM Electrical Solutions Ltd, acting through its liquidator James Duckworth, sought declarations against Michael Belcher, the company’s former sole director. The claim concerned bank transfers, cash withdrawals and miscellaneous expenditure made before the company entered liquidation.

The liquidator characterised the personal payments as loans, alternatively as sums recoverable for breach of fiduciary duty. Mr Belcher argued that payments were remuneration or dividends and that other expenditure was incurred for company purposes. The central issues were whether the payments were declared dividends, whether they were lawful distributions, and whether the remaining payments had been properly explained.

1. Outcome. Judgment was given for the company and liquidator in the sum of £193,029.97, subject to further submissions on costs and interest. The sum was recoverable as a debt on the director’s loan account, alternatively as equitable compensation for breach of fiduciary duty.
2. Payments made to Mr Belcher and recorded internally under a dividend code were loans because no dividend had actually been declared. Under Bond v Barrow Hermatite Steel Co. [1902] 1 Ch 353 at 362, a dividend must be declared before it becomes payable as a debt due by the company to its member.
3. Even if the payments were distributions, they were unlawful because the formal requirements of Part 23 of the Companies Act 2006 had not been satisfied. The company had not prepared relevant accounts establishing profits available for distribution. The court would, if necessary, have permitted amendment to add a claim under section 847 and an alternative misfeasance claim.
4. As to cash withdrawals and part of the miscellaneous expenditure, the court applied the approach in Toone v Robbins [2018] EWHC 569 and Re Idessa (UK) Ltd [2011] EWHC 804 (Ch). Once payment by the company was established, Mr Belcher had to explain it, but liability did not automatically follow from the absence of documentary evidence. His clear and credible evidence showed that those sums were used in good faith for subsistence, accommodation and other company purposes.
5. Payments to Bet365, Sky Bet and Leeds United were accepted as personal and were repayable. The director’s general statutory duties under sections 171–177 of the Companies Act 2006 included acting for proper purposes and in the company’s best interests. The duty to consider creditors in appropriate circumstances was noted by reference to BTI v Sequana [2019] EWCA Civ 112.