The Official Receiver & Anor v Azam Iqbal Haq, (Re Wifime Limited (in liquidation))

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.

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.

1. Liability and disposition. Judgment was given for the Official Receiver. Mr Haq was liable for £155,248.53, after credits, together with applicable interest.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.

First-instance judgment. The Official Receiver’s claim succeeded against Mr Haq; the claim against the Second Defendant had previously been discontinued.