Summary
A company director who receives company money must account for it and show that each payment was proper. Once the liquidator proves receipt of a payment, the evidential burden rests on the director. Inadequate company records may support an inference that unexplained payments were unauthorised.
The Duomatic principle cannot validate an act where the statutory requirements for a distribution were not met, or where creditor interests have intervened. It also requires informed shareholder consent. Relief under section 1157 of the Companies Act 2006 requires a properly pleaded and evidenced case of honesty, reasonableness and fairness. A director who retains company property without accounting for it will rarely obtain that relief.
Factual background
The Official Receiver, as liquidator of Wifime Limited, claimed against its sole director and shareholder, Azam Iqbal Haq. The claims concerned an overdrawn directors’ loan account, payments made for his benefit, and unexplained cash withdrawals. The Company had entered insolvent liquidation following substantial unpaid liabilities.
The central issues were when the Company became insolvent, whether Mr Haq had accounted for the payments and withdrawals, whether informal shareholder consent could validate salary or other payments under the Duomatic principle, and whether he could obtain relief under section 1157 of the Companies Act 2006.
Held
- Liability and disposition. Judgment was given for the Official Receiver. Mr Haq was liable for £155,248.53, after credits, together with applicable interest.
- Insolvency. On the accounts, unpaid tax liabilities and the evidence of creditor pressure, the Company was more likely than not insolvent from January 2015 within section 123 of the Insolvency Act 1986.
- Accounting obligation. A director receiving company property stands in a fiduciary position and must account for expenditure. The Company had to prove receipt of particular payments. Once receipt was shown, Mr Haq had to establish that the payments were proper. The unchallenged evidence showed payments to or for his benefit and cash withdrawals which he failed to explain with reliable evidence.
- Directors’ duties. The unexplained personal payments and withdrawals breached the duties reflected in sections 171, 172, 173, 174 and 175 of the Companies Act 2006. Mr Haq also failed to ensure that adequate accounting records were kept as required by sections 386 and 387.
- Duomatic. Informal unanimous consent could not be relied upon where the Company was facing financial difficulties and creditor interests intervened, or where the statutory requirements for a distribution had not been satisfied. In any event, Mr Haq had not proved informed consent to the proposed salary arrangements.
- Statutory relief. The section 1157 defence was not properly pleaded. Mr Haq provided no evidence establishing honesty or reasonableness. Given his failure to account for company money retained by him, relief would in any event have been refused.
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Appellate history
First-instance judgment. The Official Receiver’s claim succeeded against Mr Haq; the claim against the Second Defendant had previously been discontinued.
Key cases cited
21 authorities cited.
- BTI 2014 LLC v Sequana SA and others [2022] UKSC 25
- Barton v Wright Hassall LLP [2018] UKSC 12
- Neil Leslie Humphrey & Anor v Paul Craig Bennet & Anor [2023] EWCA Civ 1433
- Mumtaz Properties Ltd, Re [2011] EWCA Civ 610
- Murad & Anor v Al-Saraj & Anor [2005] EWCA Civ 959
- Bairstow & Ors v Queens Moat Houses Plc [2001] EWCA Civ 712
- Stacks Living Limited & Ors v Balvinder Shergill & Anor [2025] EWHC 9 (Ch)
- NICHOLAS BARNETT (as Liquidator of Glam and Tan Limited) & Anor v DANIELLE LITRAS [2022] EWHC 855 (Ch)
- Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Kent [2018] EWHC 333 (Comm)
- Toone v Robbins [2018] EWHC 569
- Finch (UK) Plc & Ors v Finch & Anor [2015] EWHC 2430 (Ch)
- GHLM Trading Ltd v Maroo and others [2012] EWHC 61
- Idessa (UK) Ltd, Re [2011] EWHC 804 (Ch)
- Stakefield (Midlands) and others v Doffman and another [2010] EWHC 3175
- Gillman & Soame Ltd v Young [2007] EWHC 1245
- Ultraframe v Fielding [2005] EWHC 1638
- EIC Services Ltd & Anor v Phipps & Ors [2003] EWHC 1507 (Ch)
- Re In a Flap Envelope Company Ltd [2003] EWHC 3047 (Ch)
- United Pan-Europe Communications NV v Deutsche Bank AG [2000] 2 BCLC 461
- Guinness plc v Saunders (Guinness plc v Ward) [1990] 2 AC 663
- In re Duomatic Ltd [1969] 2 Ch 365
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Cases citing this case
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