Manolete Partners Plc v Graham Dowell Brown & Ors (Re New Line Polymers Limited (in liquidation))

The court considered claims brought by the liquidator (assigned to Manolete) against three members of the Brown family for breaches of directors' duties (principally under section 171(b) and sections 172–177 of the Companies Act 2006) and for recovery of payments as transactions at an undervalue under section 238 of the Insolvency Act 1986. The judge applied the established principle that once a liquidator proves payments from the company, the evidential burden shifts to the directors to explain them (Re Idessa; Re GHLM Trading), and considered the consequence of non-production or sanitisation of company records (Re Mumtaz).

The court found pervasive documentary gaps and problems of credit, but also that the Barclays credit-card expenditure held in named cardholders' names was consistently explained by the Browns as business cards used centrally and not in the exclusive possession of the named cardholder; those Barclaycard claims therefore failed. Conversely, the court found that a significant proportion of debit-card cash and gambling withdrawals and certain direct transfers to bank accounts were not satisfactorily explained and were to be repaid by Mr Brown. The judge rejected wide-ranging allegations of deliberate concealment by Mr Brown on the evidence before the court and held that many pleaded heads (car leases, payments to Newline Products, cheque payments, alleged removal of assets) were not made out.

Background and parties. New Line Polymers Limited was incorporated in 2012 by Graham Brown as a family R&D recycling business. After Middle Eastern investment, the company entered creditors' voluntary liquidation on 5 July 2017. Manolete Partners plc (assignee of the liquidator) brought proceedings against Graham Brown, his son Thomas and daughter Toni (Mrs Marley) for alleged breaches of fiduciary and statutory duties and for recovery of payments as transactions at an undervalue.

Nature of the claim and issues.

• The claim alleged breaches of duties under section 171(b) and sections 172–177 of the Companies Act 2006, breaches of trust/ unjust enrichment and, in the alternative for payments within two years of insolvency, transactions at an undervalue under section 238 Insolvency Act 1986. It also relied on the s.240(2) presumption in relation to connected persons.
• The court framed issues about (i) whether the payments identified were for the personal benefit of the Browns or for company purposes, (ii) the evidential position given missing or sanitised records, (iii) the effect of resignation on a director's obligation to deliver records, and (iv) whether the company was insolvent and hence rebuttal of s.240(2) presumption.

Court's findings on evidence and legal context. The judge emphasised extensive documentary deficiencies and the age of events. He applied the principles that directors must account for company money once payments are shown (Idessa; Re GHLM), and that non-production of records can prejudice a director (Re Mumtaz) but declined to apply a strict Mumtaz result against Mr Brown because evidence showed records existed, were shared with Newline Products and the bookkeeper Joshi Mani, and may have passed to Products rather than being deliberately destroyed by Mr Brown. The judgment accepted that a resigning director’s duties to ensure company records are retained are different in character from ongoing duties, and that the liquidator also had statutory powers (sections 234–236 Insolvency Act 1986) to require delivery of information.

Reasoning on principal heads. Credibility assessments distinguished Mr Brown (verbose, inconsistent), Thomas Brown (vulnerable but reliable) and Mrs Marley (credible, reliable). On the substantive heads: the Barclaycard credit-card claims failed because cards were business cards centrally used by the accounts function and receipts/controls supported a company use explanation. Debit-card cash and gambling withdrawals were inadequately explained and were treated as misapplied company funds. Certain direct payments to Mr Brown lacked adequate explanation: the judge accepted some were salary but concluded £281,438 of direct payments were made of which £27,788 were demonstrably remuneration, leaving £253,650 repayable for misfeasance. Transfers to unknown bank accounts (including a Barclays account later identified as Mr Brown’s) were found repayable (£268,351). Claims about leased luxury cars, intercompany payments to Newline Products, most cheque payments, and alleged removal of assets were not established on the evidence and were dismissed.

Outcome. The claim succeeded in part against Graham Brown for identified sums (certain debit-card payments, £253,650 of direct payments and £268,351 transferred to unknown accounts); the remainder of the claims against him failed; the claims against Thomas Brown and Mrs Marley were dismissed in full. The court explained reasons and emphasised the limitations introduced by missing contemporaneous documents and the liquidator’s evidence.

The claim was allowed in part. The court held that Manolete proved certain unexplained transfers and debit-card withdrawals attributable to Graham Brown so as to make him liable to account: specifically certain debit-card payments, £253,650 of direct payments (being direct transfers inadequately explained after crediting demonstrable salary) and £268,351 paid into unknown bank accounts. For other pleaded heads (Barclaycard personal expenditure, car leases, payments to Newline Products, many cheque payments, alleged removal of assets) the claimant failed to prove breach and those parts of the claim were dismissed. The claims against Thomas Brown and Toni Brown (Mrs Marley) were dismissed in their entirety. The decision turned on credibility, the evidential burden shifting principle for fiduciaries (Re Idessa et al.), the effect of documentary gaps, and the specific proofs available in the bank and payroll records.