Anthony Davidson and Andrew McTear (acting as Joint Liquidators of Kieran Looney & Co Ltd) v Kieran Joseph Looney

The liquidators brought proceedings under section 212 of the Insolvency Act 1986 seeking recovery of payments and/or the balance on a director's loan account. The court held that the payments made by the Company to or for the benefit of its sole director, Mr Looney, were not shown to be loans or to have been made for proper company purposes and, in large part, constituted unlawful returns of capital. The judge applied the established tests for proper purpose and for a director's duty to promote the success of the company (Companies Act 2006 ss 171 and 172), found breaches of fiduciary duty (including s 175), and held the claimant liquidators had proved the payments.

The court rejected submissions that the payments were justified as loans or bona fide company liabilities, allowed limited credits to the director's loan account (including credit for a yacht purchased for the company's use but also debiting the sale proceeds), refused relief under Companies Act 2006 s 1157, and held the misfeasance claims were not statute-barred under the Limitation Act 1980 s 21(1)(b). The judge found Mr Looney to be a debtor of the company in the sum of £1,583,502 on the evidence and declared in favour of the liquidators, with further submissions to be heard on the amount to be ordered paid.

Background and parties:

• The Company, Kieran Looney & Co Ltd, a consultancy incorporated in 2009, had a sole director and shareholder, Mr Kieran J. Looney. HM Revenue & Customs obtained a winding-up order in February 2016 and the Secretary of State appointed joint liquidators on 15 June 2016.
• The liquidators alleged payments from the Company to or for the benefit of Mr Looney totalling over £2.1 million between May 2011 and February 2016 and alternatively claimed a debit balance on his director's loan account.

Nature of the application:

The liquidators sought (a) a declaration that Mr Looney was guilty of misfeasance under Insolvency Act 1986 s 212 and an order for repayment of the payments (or such sum as the court thinks fit), and (b) alternatively, a declaration that the director's loan account was overdrawn and an order for repayment.

Procedural matters:

• The respondent applied for relief from sanctions to rely on a late witness statement; relief was granted in large part (excluding a late contention that the Company owned the intellectual property in the Trafigura materials) after application of the Denton test and consideration of CPR rules.

Issues framed by the court:

1. What was the nature of the payments?
2. Whether the payments were made in breach of duties under Companies Act 2006 ss 171, 172 and 175.
3. Whether any breaches were capable of ratification and, if so, whether they were ratified.
4. Whether the claims were statute-barred.
5. Whether the respondent was entitled to relief under CA s 1157(1).
6. If liable, what sum should be ordered to be paid; and the correct balance of the director's loan account.

Court's reasoning and conclusions:

• The judge accepted the liquidators had proven the payments and, applying authorities on evidential burden, concluded that the respondent had not shown they were loans or payments for proper company purposes. The respondent had taken money "as and when" and failed to observe formalities or to provide corroborating documentation.
• Most of the payments to or for the benefit of Mr Looney were unlawful distributions of capital because no proper dividend procedure or consideration existed; other transfers to family members were improper though not distributions to the director in his capacity as shareholder.
• The court applied the proper purpose test (Extrasure/Scattergood) and the duty to promote the company's success (CA s 172). From about 31 January 2014 the company was cashflow insolvent and the director owed duties to consider creditors' interests; payments after that date therefore compounded the breach.
• Ratification failed because many wrongs were unlawful returns of capital and because the company was insolvent after January 2014; informal unanimous consent (Re Duomatic) was not established.
• Limitation did not bar the claims because misappropriation by a director is treated as conversion and falls within Limitation Act 1980 s 21(1)(b) (Burnden Holdings v Fielding).
• The respondent was not entitled to relief under CA s 1157(1) because he had not acted reasonably and had not given consideration to the company's interests.
• On the loan account analysis the court accepted a £930,000 credit for a yacht acquired for the company but also debited the £800,000 sale proceeds which had not been accounted for, resulting in a net finding that the respondent was a debtor of the company in the sum of £1,583,502. The court found for the liquidators and directed further submissions on the amount to be ordered paid.

Wider context: The judgment applies well-known principles on directors' fiduciary duties, proper purpose, unlawful distribution and the treatment of misapplied company funds in insolvency, emphasising evidential burdens and the need for documentary proof when substantial retrospective re‑allocations are asserted.

This is a first instance judgment. The court found for the applicants (the joint liquidators) and held that, in respect of the payments made by the company to or for the benefit of Mr Looney, he had breached fiduciary duties (Companies Act 2006 ss 171, 172 and 175) and that many of the payments were unlawful returns of capital. The court refused relief under CA s 1157(1) and held the misfeasance claims were not time‑barred. On the director's loan account the judge credited the account with a £930,000 acquisition of a yacht but debited the unaccounted sale proceeds of £800,000, resulting in a finding that Mr Looney was a debtor of the company for £1,583,502; the court found for the liquidators and directed further submissions on the precise sum to be ordered paid.