Core (UK) Limited v Benjamin Puncher & Anor

A company director cannot receive remuneration merely because the company’s affairs were conducted informally. The company’s constitution must be followed, or the shareholders must give informed and unanimous consent to the remuneration. Payments to a director or shareholder must be properly classified when made as expense reimbursement, salary or dividend; a later recharacterisation is impermissible. A payment outside those categories is a loan, subject to the statutory approval requirements. Summary judgment may nevertheless be refused where the defendant has a real prospect of obtaining relief in related proceedings which could affect the amount ultimately payable, and where determining the issue immediately would provide little case-management benefit.

Core sought summary judgment against its former director, Benjamin Puncher, for £266,503.70 comprising a £40,000 loan and payments admitted to have been made for personal expenditure. Puncher contended that some payments represented informal remuneration, that any balance could be set against future dividends, and that related unfair-prejudice proceedings could result in a share buy-out affecting the amount due.

The claim and the unfair-prejudice petition concerned overlapping facts and issues. The central questions were whether Puncher had a real prospect of successfully resisting immediate repayment and whether there was another compelling reason for the matter to proceed to trial.

1. The summary judgment application was dismissed. The admitted character of the payments did not determine whether judgment should be entered immediately. The court had to consider whether Puncher had no real prospect of succeeding on his defence or whether another compelling reason justified a trial.

2. A director’s remuneration must comply with the company’s constitution. Although informal and unanimous shareholder consent may support a course of action, the shareholders must have turned their minds to the issue of director remuneration. A director cannot avoid those requirements by claiming a quantum meruit for services.

3. Lawful payments by a company to a director or shareholder without a corresponding repayment obligation are confined to reimbursement of properly incurred expenses, salary or dividend. The payment’s classification at the time is decisive; it cannot later be rewritten. A payment outside those categories operates as a loan.

4. Under sections 197 and 213 of the Companies Act 2006, a loan to a director requires member approval and a contravening transaction is voidable at the company’s instance. Section 207 provides an exception where the cumulative borrowing is below £10,000.

5. The related unfair-prejudice proceedings could result in a buy-out and an order affecting the valuation of the parties’ shares and the treatment of the alleged improper payments. Puncher therefore had a real prospect of obtaining a result in which he was not required to pay the sum claimed, or any part of it. The overlapping issues would in any event require disclosure, witness evidence and trial, so immediate judgment would produce only marginal case-management benefit.

First-instance decision. The judgment does not state any prior appellate decision.