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

The Official Receiver, as liquidator, succeeded in a claim against the sole director and shareholder, Mr Azam Iqbal Haq, for breach of statutory and fiduciary duties and for failing to account for company monies. The court found the Company insolvent from January 2015 within the meaning of section 123 of the Insolvency Act 1986 and held that once payments and cash withdrawals from the company's bank account were proved, the evidential burden shifted to the director to show the payments were proper. Having produced no sworn evidence to explain or justify the payments, Mr Haq failed to discharge that burden.

The court applied the statutory and common law duties of directors (including duties in ss.171–175 Companies Act 2006) and the established no-profit and duty-to-account principles: where a director receives company property the director must account unless he proves the payment was proper. The Duomatic principle was considered and rejected as a defence because creditor interests had intervened and because there was no evidence that the sole shareholder understood consent was necessary.

The Official Receiver established a directors' loan account (DLA) debt of £17,459.21 (principal) plus other impugned payments and unexplained cash withdrawals; the court awarded judgment for the Applicant in the total sum claimed of £155,248.53 (after credits) plus interest where applicable and refused to grant relief under section 1157 Companies Act 2006 because the statutory defence was not pleaded or evidenced.

Background and parties: Wifime Limited, incorporated to provide wifi and related technology services to schools and other clients, entered insolvent liquidation following substantial unpaid tax and other liabilities. The Official Receiver, as liquidator, sued the sole director and sole shareholder, Mr Azam Iqbal Haq, seeking repayment of an overdrawn directors' loan account, recovery of payments made from the company's bank account that were said to be for Mr Haq's benefit (including payments to his ex-wife), and repayment of unexplained cash withdrawals.

Nature of the claim/application: The Applicants sought declarations of misfeasance/breach of duty and an account, repayment of the DLA and impugned payments and cash withdrawals, and interest. The claim relied on statutory duties (Companies Act 2006) and equitable fiduciary principles requiring a director to account for company assets improperly used.

Procedural posture: First instance trial before Chief ICC Judge Briggs. The defendant appeared in person, filed an Amended Points of Defence but did not file a sworn witness statement. The Official Receiver led sworn evidence. Judgment was given for the Applicant and reasons were reserved and delivered.

Issues framed:

• Whether the Company was insolvent and, if so, from what date (relevance to creditor interests and the applicability of the Duomatic principle).
• Whether the sums recorded on the directors' loan account were due and payable.
• Whether the payments traced from the Company (including payments to the defendant and to his ex-wife) and cash withdrawals were for legitimate company purposes or required repayment.
• Whether the defendant could rely on the Duomatic principle or on relief under section 1157 Companies Act 2006.

Court's reasoning and conclusions: The court relied heavily on the company's signed accounts and the Official Receiver's bank reconciliation and witness evidence. The accounts demonstrated negative net assets from the year ending 31 October 2014 and worsening losses in 2015, supporting a finding of insolvency from January 2015 under section 123 Insolvency Act 1986. Once the Official Receiver proved payments were made from the company account, the evidential burden shifted to Mr Haq to show the payments were proper; he produced no sworn evidence and did not adequately explain the impugned payments or cash withdrawals. The court therefore held he had breached statutory and fiduciary duties (including duties under ss.171–175 Companies Act 2006 and duties to keep accounting records under ss.386–387 Companies Act 2006) and was liable to account. The Duomatic principle could not be relied on because creditor interests had intruded and because there was no evidence that any shareholder assent satisfied the necessary formalities. The defendant had not pleaded or proved the statutory defence under s.1157 Companies Act 2006; the court would have exercised its discretion against relief in any event. Judgment was entered for the Applicant for the sums claimed (£155,248.53 after credits) plus interest where applicable.

Context and implications: The judgment reiterates established principles that directors of small companies are required to maintain and produce accounting records, that unexplained withdrawals give rise to a duty to account, and that relief under s.1157 is unlikely where a director retains a material benefit and cannot demonstrate honesty and reasonableness.

The claim succeeded. The court held that Mr Haq had breached statutory and fiduciary duties, failed to account for company monies and was liable to repay the overdrawn directors' loan account, impugned payments and unexplained cash withdrawals. Judgment was entered for the Applicant for £155,248.53 after credits plus interest where applicable. The court refused relief under section 1157 Companies Act 2006 because the defence was not pleaded or evidenced and, in any event, would have been refused in the exercise of discretion.