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Overview Of Keeping Records

Keeping records is a good idea for the company director.

But not merely because for a company director it is a requirement under Section 386 of the Companies Act 2006, not merely because it is an offence not to do so under Section 387 of the Companies Act 2006, not merely because it is a requirement Paragraph 21 of Schedule 18 of the Finance Act 1998, not merely because of Paragraph 1 of Schedule 1 of the Company Directors Disqualification Act 1986, not merely because of Schedule 11 Paragraph 6 of the Value Added Tax Act 1994 (if it is registered for VAT) and not merely because of Regulation 97 of The Income Tax (Pay As You Earn) Regulations 2003 (if it has a PAYE scheme).

That legislation should provide more than gentle encouragement to keep records of both an accounting and indeed general nature. A failure to do so can amount to a criminal offence depending upon the precise statute in question. It is mandatory for a company director to keep records.

It is however not the only reason to do so.

There is another good reason to do so that arises from self interest and not due to the supremacy of Parliament; it is to ‘save your bacon’. It helped Alan Bates when the Post Office challenged an alleged shortfall at his Post Office. 

Keeping records is a good idea

Alan Bates And His Meticulous Record Keeping

On 13 January 2024 the Daily Telegraph in its article ‘He’ll never have to buy a pint again’: How a postmaster called Alan changed Britain reported that Alan Bates who has been instrumental in the progression of the subpostmasters campaign:

kept scrupulous accounts – refused to accept the Post Office’s version of events, even as it threatened his livelihood.

In the Pride of Britain Awards Alan Bates (winner in 2023) was commended for his record keeping and notably it helped him:

Alan, 68, became a subpostmaster when he and his partner took over a shop which included a post office counter in 1998. By the end of 2000, after the introduction of the Post Office’s new Horizon computer system, unexplained losses appeared in his accounts.

A man of meticulous record-keeping, Alan spotted errors early on when a shortage of £6,000 appeared on his books. “I managed to track that down after a huge amount of effort through a whole batch of duplicated transactions,” he recalls. “Once I’d seen that I thought, this system is not robust like they were claiming it was.”

Then in 2003, Alan’s contract was terminated. His careful record-keeping proved he was not at fault, but the Post Office said by then £1,200 was unaccounted for – a sum Alan said was never there in the first place and had simply appeared as a result of a glitch in the system.

At paragraphs 69 to 124 of the case of Bates & Ors v Post Office Ltd ((No.3) “Common Issues”) [2019] EWHC 606 (QB) it can be seen that Mr Bates was able to challenge the position of the Post Office. The judge referred to correspondence between Alan Bates and the Post Office over a 15 month period after he started reporting issues with the Horizon system. This started almost as it had been set up in his Post Office.

The Post Office Common Issues Judgment caused the judge to hold Mr Bates as a reliable witness:

I reject the criticisms made by the Post Office of Mr Bates and his evidence. I find that his evidence was careful, and he was an honest, thorough and reliable witness. Where he could not remember he would say so, and he would accept sensible points put to him if they were factually correct. Many of them were not, for example the number of SPMs in the Second Sight scheme who had problems with their contract. He is undoubtedly committed to resolving this dispute, and given the length of time he has been involved, he must have a degree of stamina and endurance that most people would not possess. The Post Office subjectively might view him as unreasonable or stubborn, as he simply refuses to let this matter drop, and has obviously over the years involved himself in the campaign to resolve these issues. Mr Bates has, from about December 2000 onwards, proved himself to be a considerable irritant to the Post Office so far as the Horizon affair is concerned. He was an irritant to them in 2001 when he simply refused, point blank, to pay the £1,000 odd demanded of him (that sum ultimately being written off by the Post Office the following year). He had undoubtedly continued to be an irritant to the Post Office from then on, both from the establishment of the JFSA onwards. He is persistent and no doubt possesses what might be termed staying power. There was nothing unreasonable or stubborn in his evidence before me, and none of the pejorative terms deployed by the Post Office to describe his evidence are justified, in my judgment. The Post Office must have decided to attack him because the whole case of the Post Office requires an assumption or acceptance that the predominant, or only, cause of shortfalls is fault (or worse) on the part of SPMs. The case by the Post Office is that careful and/or diligent and/or honest SPMs and/or their assistants do not experience shortfalls. Therefore, so far as the Post Office is concerned, in each branch where such shortfalls occurred, either the Claimants and/or their assistants must have at least some, and potentially all, of those characteristics. If it were otherwise, the Post Office edifice would run the risk of collapse.

Mr Bates was able to convince the Court of his position. He no doubt was assisted by a correspondence trail he presumably had retained. Also, a notable point is he did not have the luxury of records that a company director should have at their fingertips, namely access to all of the detailed transactional records.

Imagine if Mr Bates and others had from day one full access to the ledgers showing a proper breakdown of the transactions that culminated in his alleged shortfall(s) that the Post Office. He was handling property and money of the Post Office but unlike a company director he did not control the accounting system for the same, the Post Office did. However, notwithstanding that position, he refused to accept responsibility for a shortfall of £1,041.86. His tenacity and records meant the Post Office did not appear able to demonstrate his liability. Instead, it offered to write off his shortfall. 

How Do Records Assist The Company Director?

A company director is responsible for the assets of another. Yes, for many it will be the assets of a company that is owned by them as director but nevertheless, the company and the director are not the same legal people.

As a result, the company director is entrusted with ensuring they can fully and properly account for the company’s transactions. In particular where payments are concerned a director should ensure they can show the business purpose of the transaction. This is particularly relevant if there were to be any doubt as to whether the same was expenditure incurred for personal purposes. Company funds should really only be spent on business purposes. There are circumstances in which variation of this theme is permissible such as when a director is prepared to personally accept responsibility which can lead to an overdrawn director’s loan account. If the director is owed money by the company then this is also potentially fine. 

But what records are the ones of such transactions that should be kept?

What Payment Records Are A Good Idea To Keep?

There are two types of records typically that record transactions. There are independent records and records kept by the company. Both complement each other.

Outside of cash based businesses, most transactions involving payments will be recorded in a bank account but that merely evidences the transaction’s occurrence; it does not demonstrate the all important purpose of the payment.

The company director should keep their own list of the transaction in say dated order which identifies it and confirms the purpose of the payment. In many cases, the purpose of the transaction will be self-evident. In others, it will not be so. A fishmonger who buys fresh cod from a fish wholesaler to provide to customers keen to serve up cod and chips for a family dinner, hopefully, would have less need to write a detailed file note to explain such a transaction in comparison with an invoice supplied for a few cases of Puligny-Montrachet.

Most payment records should have a purchase invoice which is the independent evidence of the transaction. Hopefully, the description on the invoice will match the company’s listing. 

Potentially the best evidence to justify a payment by a director for the benefit of a company will generally be the documents supplied by a third party from whom services or goods have been obtained because such a document is not self-serving.

Oliver Elliot Comment

Oliver Elliot Comment !

The point that can be demonstrated by Alan Bates and his diligent record keeping is how when challenged, having a good set of your records really can enable you to justify and prove the position that you wish to put forward.

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Author: Elliot Green
Last Updated: May 20, 2024

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Disclaimer: Alan Bates And The Post Office Scandal Shows Keeping Records Is A Good Idea

This page is not legal advice and is not to be relied upon as such. This article Alan Bates And The Post Office Scandal Shows Keeping Records Is A Good Idea is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.

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