NICHOLAS BARNETT (as Liquidator of Glam and Tan Limited) & Anor v DANIELLE LITRAS

A company director may delegate particular functions where the delegation is reasonable, but remains responsible for supervising the delegate. A liquidator who establishes a prima facie case may rely on the absence of company records where those records were, or should have been, within the director’s control.

Company payments made without commercial purpose, adequate terms, documentation or security may breach the duty to promote the company’s success. Payments described as dividends are unlawful unless properly declared by reference to relevant accounts and available profits. Under section 212(3) of the Insolvency Act 1986, the court has a broad discretion to decide what contribution is just. Duress may justify withholding personal liability for losses beyond the director’s control, but not for payments received for the director’s own benefit.

The liquidator of Glam and Tan Limited sought relief against its sole de jure director, Danielle Litras, under section 212 of the Insolvency Act 1986. The application concerned payments from the company’s bank account, cash receipts retained from the business, sums treated retrospectively as dividends, and insurance proceeds received after liquidation.

The respondent accepted receiving some payments but contended that other payments benefited the company or were made under her estranged husband’s coercive control. The court considered alleged breaches of directors’ duties, the legality of the supposed dividends, the evidential consequences of missing records, and the discretionary nature of relief under section 212(3).

1. Directors’ duties and delegation. The submission that directors’ duties are wholly non-delegable was rejected. A director may delegate particular functions where the delegation is reasonable, having regard to the relationship between the parties, the nature of the task, and the delegate’s qualifications and trustworthiness. Delegation does not remove the duty to supervise the delegate, consistently with Re Barings plc (No 5) [2000] 1 BCLC 523.
2. Evidence. The liquidator established a prima facie case. In circumstances where relevant books and papers were, or should have been, within the director’s control, the director could not avoid liability merely by asserting that unavailable documents might have supported her case. The approach in Murad v Al-Saraj [2005] EWCA Civ 959 and Re Mumtaz Properties Ltd [2011] EWCA Civ 610 was applied, subject to assessment of the evidence that actually existed.
3. Payments and distributions. Loans to the respondent’s husband and associates, made without commercial purpose, clear terms, security or adequate documentation, breached section 172 of the Companies Act 2006. Payments exceeding recorded salary were not dividends: there had been no declaration, no qualifying accounts, and no evidence of sufficient distributable profits. The principles discussed in BM Electrical Solutions Ltd [2020] EWHC 2749 (Ch) and TMG Brokers Ltd [2021] B.C.C. 756 supported that conclusion. Cash receipts retained by the director, and insurance proceeds belonging to the company, were company assets for which she had to account.
4. Relief. Section 212(3) of the Insolvency Act 1986 confers a discretion to order restoration or such contribution as is just. The court applied the persuasive remedy discussion in Paycheck Services 3 Ltd, Re, Holland v Revenue and Customs Commissioners [2010] 1 WLR 2793, and the fact-sensitive approach illustrated by Re Loquitur Ltd [2003] EWHC 999. The respondent was not made liable for payments made under coercive control and beyond her control. She remained liable for £70,705.82 received for her own benefit or retained after liquidation, with interest at 1% above base rate.