Henderson & Jones Limited v Garry Patrick Price

A debit balance in a director’s loan account is capable of evidencing money received by the director. Once receipt of company money is established, the evidential burden shifts to the director to prove entitlement or proper justification. Informal company administration does not reduce the standard of proof. The Duomatic principle cannot validate a dividend where no actual decision to declare it was made, or where the company was insolvent or the dividend would cause insolvency. Relief under section 1157 of the Companies Act 2006 is unavailable for a claim seeking repayment of sums received by the officer. A Part 36 offer made less than 21 days before trial does not attract the usual consequences unless the court abridges the period.

The claimant, an assignee of claims formerly belonging to Hunnyhill Electrical Limited, sought repayment of a debit balance recorded in the company’s director’s loan account. The defendant disputed liability and relied on alleged remuneration, business expenses and dividends. He also challenged limitation, assignment and the alternative claims in breach of duty and unjust enrichment.

The court determined whether the claim was time-barred, whether the assignment was valid, whether the ledger accurately recorded sums received, and whether the defendant had proved any entitlement to retain them.

1. Limitation. The primary claim was a debt repayable on demand. Under sections 5 and 6(2)–(3) of the Limitation Act 1980, time began to run when demand was made. The claim was therefore issued in time. The alternative trust-property claim was also within time under section 21(1)(b).
2. Assignment and ledger. The deed assigned the relevant claims absolutely and notice had been given. The assignment was valid. The QuickBooks director’s loan account, supported by the company’s accounts and the defendant’s own admissions, was the best evidence of the sums received. Informality in the company’s affairs did not permit the defendant to avoid the evidential effect of the ledger.
3. Evidential burden. Once receipt of company money by a director was established, the burden shifted to the defendant to prove entitlement or proper justification. He proved entitlement to £5,700 remuneration and a £30,000 dividend declared for the year ending August 2011. He failed to prove entitlement to the remaining sums, including the alleged 2012 dividends and business expenses.
4. Duomatic principle and dividends. The principle could validate the £5,700 remuneration because an actual decision had been made by the sole director and shareholder. It could not validate the alleged 2012 dividends because no declaration had been proved. In any event, a dividend declared after the substantial HMRC demand, without sufficient accounts and in circumstances rendering the company insolvent, would have been unlawful.
5. Section 1157. Applying Toone & Murphy v Robbins, section 1157 of the Companies Act 2006 did not relieve the defendant from liability to repay sums received. Judgment was entered for £94,596.10, with interest at 2 per cent from 3 June 2015. The alternative unjust-enrichment claim was also considered established, although it was unnecessary to decide it.
6. Costs. The defendant was ordered to pay costs on the standard basis up to 7 August 2020 and on the indemnity basis thereafter. An interim payment of £75,000 was ordered.