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The Director’s Loan Account is a post arising from the case Manolete Partners Plc v Matta & Ors [2020] EWHC 2965 (Ch). So what happened when Manolete met Matta in the ring?

Another case about transactions involving Directors and their loan accounts. This case comes hot on the heals of earlier posts on Wow Internet and Ouch! Director Dividends.

The Director’s Loan Account at the date of commencement of Administration was one of the more impressive of the Saint George Investment Holdings Limited’s assets, at an eye-watering £1,368,623, based on the former Administrators’ Estimated financial position as at 4 October 2016.

The final progress report of the Administrators on 22 March 2019 was notable concerning the overdrawn Directors Loan Account and payments to connected parties, all being sold for £50,000. The judgment confirmed that this was a sale via an assignment to Manolete Partners Plc (“Manolete”).

Of the four bulls that charged into the ring here, the matador may have been keeping a particularly watchful eye on the overdrawn Director’s Loan Account. Did that bull have any interesting maneouvres? Did the matador need to be particularly agile? Let’s find out.

It was notable what the judge said at paragraph 31:

Dr Matta did not dispute that the payments were made in respect of personal expenditure, nor did he submit that they were in the best interests of the Company. Dr Matta explained that he had intended to convert the DLA into dividends, but that this intention had been thwarted by the Company’s eventual administration. Dr Matta did not explain why he took no steps to deal with the longstanding indebtedness under the DLA during the period leading up to formal insolvency, but stated that he had never been advised to regularise the position with the DLA…I accept the submissions of Mr Channer that a director’s powers to authorise payments from a company’s funds are not granted to enable directors to pay for or fund very significant personal items of expenditure on a long term basis.

 

It would seem that was enough for the matador to outflank this particular bull, making short work of it but what about the other three bulls involving the following slightly more modest sums:

(a) Between July 2015 and September 2016 Mrs Matta received payments amounting to £17,287.68 from the Company’s payroll.

(b) Between March 2015 and September 2016 Ms Matta received payments from the Company’s payroll totalling £54,368.85.

(c) Between 20 July 2015 and 28 January 2016 the Company paid the total sum of £70,000 to the Fourth Respondent.

The audience may have the prospect of a further viewing of these remaining heads of claim because the judge decided that they could not be determined on a summary basis at such a short hearing, when matters such as solvency remained at large:

On the basis of the evidence as it stands and in the context of a short two hour hearing, with no ability to probe the evidence in any depth, it is not possible to reach any conclusion about matters such as the nature of the duties carried out by Ms Matta and Mrs Matta; whether these were carried out under a contract of employment (albeit unwritten) and whether they provided value to the Company (and if so, how much); the basis on which Ms Matta was paid under the settlement agreement in June 2015; and the nature and basis of any duties subsequently carried out by Ms Matta for which she was paid from the Company’s payroll.
While I can see that there is a significant question about the propriety and value to the Company of payments made to Ms Matta after the payment of the settlement monies, taken in the round, I am unable to reach a conclusion about the nature of the relationship between Ms Matta and the Company. The same goes for the payments made to Mrs Matta, about which there was even less evidence.
As to whether these were payments made at a time when the Company was unable to pay its debts within the meaning of section 123 of IA 1986 at the time when each of the disputed payments was made, I find it very difficult to see how this can be established without a proper review of the evidence which goes far beyond what is possible in a summary hearing such as this.
The courts have held in the past “… that the question whether the Company was unable to pay its debts within the meaning of section 123 at the time when each of the disputed payments was made is a question that cannot possibly be determined on a summary basis“. [Phillips & Another v McGregor-Paterson [2009] EWHC 2385 (Ch) Henderson J, paragraph 47]

Disclaimer: The Director’s Loan Account is for informaton purposes only. It is not legal advice and not to be relied upon. No liability accepted.

Elliot Green

Licensed Insolvency Practitioner & Chartered Accountant. We Know Insolvency Inside Out.