Northern Powerhouse Developments Limited & Ors v Gavin Lee Woodhouse

The Claimants, acting by their joint liquidators, sought repayment of overdrawn directors' loan accounts and alleged breaches of directors' duties by the Defendant, who was the sole director of the companies. The court applied the balance of probabilities standard, giving primacy to contemporaneous accounting records over oral evidence. Key legal principles were sections 171 and 172 of the Companies Act 2006 (proper purpose and duty to promote the success of the company, including the creditor duty), the allocation of the burden of proof where a director challenges loan-account entries, and the Ivey test for dishonesty.

The judge found that the Defendant had used company funds for improper purposes (including inter-company transfers and personal expenditure), continued trading while the companies were insolvent, and operated directors' loan accounts in a way that did not promote the companies' interests. A contemporaneous internal valuation of MBi Smithy Bridge Ltd shares for £963,000 was held to be unreliable and the credit to the First Claimant’s loan account reversed. The court found the Defendant dishonest by objective standards and awarded the First and Second Claimants sums recoverable alternatively as simple debts or as remedies for breach of duty; judgment was entered for the Third and Fourth Claimants as admitted.

The proceedings were brought by four insolvent companies (the Claimants) acting by their joint liquidators against their sole director, Gavin Woodhouse. The claims concerned repayment of overdrawn directors' loan accounts and alleged breaches of statutory and fiduciary duties, including improper use of company assets, inter-company transfers, trading while insolvent and the operation of unregulated collective investment schemes. The Third and Fourth Claimants' claims for £20,000 each were admitted and judgment was to be entered. The First and Second Claimants sought quantification of indebtedness and, alternatively, equitable and proprietary remedies for breach of duty.

The court framed the central issues as:

• Whether the director had operated the First Claimant and SPVs lawfully;
• Whether the director wrongfully extracted monies and, if so, how much;
• Whether other wrongful deprivations occurred (for example inter-company loans); and
• What remedies should follow.

The judge heard documentary and witness evidence, emphasised preference for contemporaneous accounting records, and applied the established allocation of burdens where a director challenges loan-account entries. The defendant bore the onus to prove credits or incorrect entries; the Claimants bore the burden for their positive case (including any additions such as reversal of credits).

On the evidence the court found extensive personal and non‑business expenditure posted to the First Claimant's loan account and transfers that did not further the First Claimant's proper business purpose. The judge rejected the defendant's explanations (characterised as guesswork) and preferred contemporaneous invoices and ledger entries. A £963,000 credit to the First Claimant's loan account for the acquisition of the defendant's shares in MBi Smithy Bridge Limited was found to have been based on an unreliable internal valuation and was reversed as a compensatory measure. The court allowed limited adjustments (credits totalling £18,320) to the First Claimant's ledger where contemporaneous evidence showed the items were proper to credit.

The judge concluded that: the Defendant breached sections 171 and 172 of the Companies Act 2006 in relation to the First and Second Claimants; the conduct was dishonest by the Ivey standard; and the sums recoverable were £1,497,244.57 from the Defendant to the First Claimant (alternatively as a simple debt) and £798,963.17 to the Second Claimant (alternatively as a simple debt). The Third and Fourth Claimants were each entitled to £20,000 as admitted. The court did not finally determine ancillary remedies (for example tracing, proprietary claims, equitable compensation or continuation of freezing injunctions) and left those matters to be addressed in a subsequent hearing if the parties could not agree an order. The judge also held it was unnecessary to decide in detail whether the activities amounted to regulated collective investment schemes under FSMA because that issue would not affect the outcome.

At first instance the court found for the Claimants. The Third and Fourth Claimants' admitted claims were to be entered as judgment for £20,000 each. The court held that the Defendant breached his duties under sections 171 and 172 of the Companies Act 2006 in respect of the First and Second Claimants, acted dishonestly by objective standards, and was liable to repay sums shown on the loan accounts (with a reversal of the £963,000 credit relating to Smithy Bridge). The First Claimant was awarded £1,497,244.57 and the Second Claimant £798,963.17 (each recoverable alternatively as a simple debt); the judgment left the precise form of equitable or proprietary relief and interest to be determined if the parties did not agree an order. The court declined to decide the FSMA/unregulated scheme allegation in detail as unnecessary to the outcome.