Investigate Transactions Through Accountant's Files

Investigate Transactions Through Accountant’s Files

Investigate Transactions Through Accountant’s Files is a post flowing from the liquidators’ claims in the case of Solid Homes Ltd, Re [2020] EWHC 2913 (Ch). The judge did not appear to take the view that the claims were ‘solid’. The lot got dismissed.

There can be little doubt that in the case of corporate insolvency such as in a Liquidation, that one of the most useful sources of information to either obtain financial information by an office-holder or to reconstruct the accounting records is unsurprisingly the files of a company’s accountants.

This was yet another case (as they have recently turned up like buses) of payments to company directors that were said to be dividends, that a liquidator sought to challenge.

Obtain The Accountant’s Files

There was no new law in this case that might not also have been seen in recent posts on Wow Internet or Ouch! Director Dividends but what was conspicuous because of judicial comments was that it was one in which the accountant’s files would not appear to have been obtained and or enquiries of the accountants had not been undertaken in respect of a set of accounts at the heart of impugned dividend transactions:

“In my judgment, having failed to make enquiries of the accountants who prepared them, and having chosen not to put in evidence the SAGE records which the Liquidators contend do not correlate to the figures in the accounts, the Liquidators attempts to undermine those accounts failed.”

With the various anomalies arguably floating about in this case, perhaps it might be considered that the Liquidators were a little unlucky that none of their claims were deemed by the Court to be ‘solid’.

Transactions for No Director Personal Benefit

Another notable feature sprouting is the difficulty of a liquidator pursuing a Director for payments that the Director appears not to have had the personal benefit of. This was highlighted by the following which included the s1157 defence being approved:

I would hold that she should be relieved of liability in relation to the full value of the First Payment pursuant to s 1157 CA06. Considering the Liquidators’ primary case, there is no claim that she acted other than honestly in relation to the First Payment. She did not benefit in any way from the banker’s draft. Once she discovered the money had been taken from the account, she took steps immediately to prevent it from happening again. In the light of the circumstances as I have interpreted and described them, in my judgment, Ms Smith acted reasonably.

Perhaps this issue, albeit on a case with a very different set of facts, shows the arguably different position adopted by the Court in Wow Internet.

Dividends From Inference

It is also fascinating to note that the Court appears to have drawn inferences to justify the characterisation of a certain payment as a dividend:

In my judgment, the Company’s history of dividends and Ms Smith’s consistent statements that the amounts were to be paid as such following the sale of the Ashmore Road development supports a conclusion that the First and Second Payments were dividends and not simply payments for which the Company’s two directors and shareholders gave no consideration.

Disclaimer: Investigate Transactions Through Accountant’s Files is not legal advice or to be relied upon as such.