Hunt (As the Liquidator of Wow Internet Ltd) & Anor v Majid

The liquidator sought recovery of sums withdrawn from the company bank account by the sole director, Mr Majid, alleging breaches of statutory and fiduciary duties. The court applied the established evidential burden on directors to provide satisfactory contemporaneous evidence that payments were legitimately incurred and to explain withdrawals, particularly where insolvency had occurred. In the absence of adequate accounts, Sage records, corroborative third‑party evidence and plausible contemporaneous explanations, the court drew adverse inferences and gave the benefit of doubt to the liquidator. The judge found multiple categories of improper payments (including payments for another company, unrepaid director’s loan, withdrawals after liquidation and numerous unexplained or personal expenditures) and ordered recovery of the claimed sums in full.

Background and parties: Wow Internet Limited entered creditors' voluntary liquidation in July 2014. The company had one director, the respondent, Mr Qasim Majid. The applicants were the company acting by its subsequently appointed liquidator, Mr Hunt. The liquidator restored the company and investigated payments from the company bank account.

Nature of the application: The liquidator sought recovery of monies allegedly wrongfully withdrawn by the director, originally claimed as £64,897.61 but reduced at trial to £52,431.30.

Issues framed:

• whether the director breached statutory and fiduciary duties by causing or permitting improper payments;
• the effect of insolvency on the duties owed and the standard of proof / evidential burden;
• whether contemporaneous records and/or corroborative evidence existed to justify payments;
• whether relief under section 1157 Companies Act 2006 was appropriate.

Facts and evidence: The liquidator reviewed bank records and obtained limited documentation from the prior liquidator. The respondent asserted he had provided records to the prior liquidator and relied on that liquidator's alleged advice; he produced limited documentary support and made late concessions under cross‑examination. Significant documentary gaps were found (missing Sage records, missing invoices, lack of petty cash register and lack of corroboration from accountants or third parties).

Court’s reasoning: The court applied authority holding that where a company has made payments and accounting records are deficient, the director bears the evidential burden to show payments were legitimate; absence of expected contemporaneous documents permits adverse inferences. After insolvency, directors must consider creditors' interests as paramount and an objective test applies where there is no evidence of subjective consideration. The respondent failed to discharge the evidential burden in respect of five heads of claim: payments to a firm that acted for another company, an overdrawn director’s loan, withdrawals after liquidation, numerous payments that were personal or unexplained, and unexplained pre‑insolvency cash withdrawals. Relief under section 1157 was rejected because the respondent had not produced adequate contemporaneous evidence to show he had acted reasonably in the circumstances.

This first‑instance claim was allowed: the Applicants' claim succeeds in full. The court concluded the respondent failed to discharge the evidential burden to show the challenged payments were for proper company purposes, accounting records were deficient and adverse inferences were warranted, and relief under section 1157 was not appropriate.