MANOLETE PARTNERS PLC v EBRAHIM DALAL & Ors

The claim, brought by the assignee of the liquidator of Bolton Poultry Products Ltd, raised issues of directors' duties under the Companies Act 2006, alleged misappropriation of cash (the "Additional Sales Receipts"), tracing of company money into property, and the law of proprietary remedies. The court applied the statutory definition of "director" (s.250 Companies Act 2006) and the duties in ss.171–177, and considered the circumstances in which a director must have regard to creditors (s.172).

The judge found that the Claimant had not proved on the balance of probabilities that there were the large-scale additional cash sales alleged: the Business Economics Exercise relied upon by HMRC was insufficiently supported and the court's own re‑calculation (using FSA throughput figures, wastage and sampled prices) produced sales broadly consistent with the reported accounts. For that reason the Claimant's broad claim that company money funded multiple property purchases failed.

Separately, the judge held that a £250,000 payment from the company to Sajid (via Ebrahim) to assist the purchase of the Brinksway property was made in breach of duty by Ebrahim, who was on notice of HMRC's substantial claim and therefore should have considered creditor interests. The company could trace that sum into the Brinksway property and elect a proportionate proprietary interest or an equitable lien. The Claimant also succeeded in recovering three specific cheque payments totalling £38,373.78 (payments to Ebrahim, Sajid and Anisha). The remaining claims were dismissed.

Background and parties: The Claimant sued as assignee of the liquidator of Bolton Poultry Products Ltd. Defendants were members of the family who ran the business: Ebrahim (sole registered director from 2008), his son Sajid, daughter‑in‑law Anisha and the estate of Johra. HMRC had investigated the company under COP9 and raised discovery assessments based on a Business Economics Exercise which produced a large figure for unreported sales.

Nature of the claim: The Claimant alleged (i) substantial unrecorded cash sales (the "Additional Sales Receipts"); (ii) misapplication of company funds to buy property (traceable proprietary interests); (iii) breaches of directors' duties by payments to family members (repayment of director's loan account and bonuses); and (iv) transfer of goodwill to a successor company without payment.

Issues for decision: (i) whether Sajid and Anisha were de facto directors after 20 June 2008; (ii) whether the company made the alleged Additional Sales Receipts, having regard to the HMRC Business Economics Exercise and the FSA slaughterhouse throughput records; (iii) whether company money could be traced into properties including the Brinksway property; (iv) whether specific cheque payments were improper and recoverable.

Reasoning and outcome on major issues:

• De facto directorship: Applying authorities on de facto directors and the objective tests (including S.250 and case law), the judge concluded the Claimant failed to show Sajid or Anisha performed functions that could only be discharged by a director after they ceased to be registered in 2008. The business remained under Ebrahim's control; cultural evidence and contemporaneous statements supported that conclusion.
• Additional Sales Receipts: The court analysed the components of HMRC's Business Economics Exercise: FSA bird throughput figures, average bird weight, wastage and by‑product saleability, whether parts or whole birds were sold, sampled invoice prices and bad debt allowance. The judge accepted the FSA throughput numbers but, on the evidence, adopted a conservative 2 kg average live weight, a 5% mortality/unsaleable allowance, wastage and parts/whole proportions as derived in the judgment and sampled prices for whole birds (£1.75/kg) and parts (£2.37/kg). The resulting estimate produced sales broadly consistent with the company accounts; on the balance of probabilities the Claimant did not prove the existence of the massive additional cash receipts alleged.
• Tracing and Brinksway property: The court found, on the documentary material and accountant records, that the company probably owed Ebrahim a director's loan credit and that in September 2014 the company paid £250,000 (via or ascribed to repayment to Ebrahim) which was used towards buying the Brinksway property. Given the HMRC enquiry and the realistic prospect of a substantial creditor claim, the judge held Ebrahim ought to have considered creditors' interests and that an objective test of breach applied. He breached his duties in causing the payment; the company retained a proprietary interest in the £250,000 and could trace it into the property. The Claimant may elect a proportionate proprietary interest or an equitable lien.
• Other payments: Specific cheque payments to Ebrahim (£24,373.78) and £7,000 payments to each of Sajid and Anisha were held to be unjustified and recoverable. Payments shown to be for supplies by A & Adam Holdings were rejected by the Claimant and not recovered.

Procedural posture and additional points: This was a first instance trial. The judge emphasised the parties bore their respective burdens of proof: the Claimant to prove additional receipts and the defendants to justify payments they received. The decision involved careful assessment of sparse and imperfect evidence and the judge explained why, despite uncertainties, he reached the conclusions set out as the best estimate available on the evidence.

The claim is allowed in part. The court dismissed the central allegation that there were large unrecorded Additional Sales Receipts, finding the Claimant had not proved that on the balance of probabilities. However, the court held that a £250,000 payment from the company (intended by Ebrahim as repayment of a director's loan and as a gift) was caused in breach of duty while the company was likely insolvent or at significant risk from HMRC; the company may trace that sum into the Brinksway property and elect a proportionate proprietary interest or an equitable lien. The court also ordered repayment of specific unjustified cheque payments to Ebrahim (£24,373.78) and £7,000 each from Sajid and Anisha; other claims failed.