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

Company directors must account for company money they receive, but liability does not follow automatically from an unexplained payment. The court must assess all the evidence, including whether the payment was made in good faith for proper company purposes.

A former director’s obligation concerning company records is principally to ensure, on resignation, that the company retains possession of and access to its maintained records. The former director is not automatically responsible for later failures to deliver records to a liquidator, particularly where the records remained under the control of continuing directors or another company.

Claims must be determined on the pleaded case. Unpleaded complaints about excessive remuneration, luxury expenditure or inadequate stewardship cannot be used to recast inadequately particularised misfeasance claims.

Manolete Partners plc, as assignee of the liquidator and the company, brought misfeasance, breach of duty, unjust enrichment and transaction-at-an-undervalue claims against three former directors of a company operating in the waste-recycling sector.

The claims concerned personal expenditure on company cards, direct payments, luxury cars, payments to a connected company, unexplained cheques and bank transfers, removal of assets, and payments made to two family members. The respondents disputed that the payments were personal or unauthorised and relied on salary, business expenditure, loans and inter-company arrangements.

The central issues were whether the pleaded claims were established on the evidence, how the evidential burden operated where company records were incomplete, and whether the former principal director was responsible for the subsequent absence or non-delivery of records.

1. Disposition. Mr Brown was held liable for specified debit-card payments, £253,650 of direct payments and £268,351 paid into unknown accounts. The remaining claims against him were dismissed. The claims against Thomas Brown and Toni Brown were dismissed in their entirety.
2. Proof and evidential burden. Where a director has received company money, the evidential burden is on him to explain the payment. That does not create an automatic rule of liability. The court must consider the whole evidential picture, including whether the payment was made in good faith for proper company purposes. The company-card claims failed because the cards were centrally controlled and used for business purposes by multiple people. The debit-card evidence established certain personal expenditure by Mr Brown, but not all alleged travel payments.
3. Records and resignation. A director who resigns must ensure that the company is put in possession of, and has access to, its maintained records at the date of resignation. That obligation does not generally extend to post-resignation matters. The evidence did not establish that Mr Brown caused the later loss or withholding of the company’s records. The strict approach in Re Mumtaz Properties Ltd was therefore inapplicable on these facts, although the incomplete records and the respondents’ failure to inspect available material remained relevant to the wider evidential assessment.
4. Pleading and statutory duties. Insolvency alone does not establish breach of directors’ duties. A claimant must plead and prove the relevant breach and compensatable loss. The claims concerning luxury cars, payments to Newline Products and removal of assets failed because the pleaded cases were inadequately particularised or unsupported by sufficient evidence. Legitimate inter-company transactions and salary payments were established on the evidence.

First-instance decision. No prior appellate decision is stated in the judgment.