Importance Of Company Records To A Director – “Not a Shred Of Evidence To Support What You’re Saying”

The importance of company records to a director is a post that comes from another case from the Mumtaz Properties catalogue; it is PK Investments Ltd v Sabaratnam & Anor (Re Finno Medical Ltd – Insolvency Act 1986) [2024] EWHC 2188 just out.

It is a successful application for summary judgment. 

The importance of company records to a director could not realistically be overstated, leaving aside the discrete Section 386 of the Companies Act 2006 obligations which of course alone should be sufficient to address the matter of why directors need to keep company records.

The exchange with the liquidator was interesting which can be seen below in judgment highlights.

Payments were made to third parties and a connected company for no benefit was suggested.

The Director disagreed and said they were for benefit.

The issue with a lack of books and records is that a defendant director who needs books and records to support their case was said to have to show there are some which can be assembled and they are relevant. It perhaps shows you that keeping company records can rescue directors.

What is interesting about this case is the problem a director may face when they seek to assert all the records have already been handed over to the liquidator.

Of course, what this may mean is that the scope for introducing records is then reduced by virtue of the assertion they have nothing because they have been produced already.

Judgment Highlights

An exchange with the liquidator which the Court referred was as follows:

“LOUISE BRITTAIN: The trouble with all of this, Mr Sabaratnam, is there’s not a shred of evidence to support what you’re saying here.
SEBAJEEVAN SABARATNAM: The evidence is actually my emails being actually saved on the computer.
LOUISE BRITTAIN: Well, we can’t find it.
LOUISE BRITTAIN: You never delivered up your laptop to us.
SEBAJEEVAN SABARATNAM: I don’t have the laptop. I lost the laptop, the company laptop, I lost it in Paris.
LOUISE BRITTAIN: You lost the laptop in Paris.
SEBAJEEVAN SABARATNAM: Yes.
LOUISE BRITTAIN: Okay. All right.
SEBAJEEVAN SABARATNAM: It was a long time ago.
LOUISE BRITTAIN: Right. Okay. Well, you need to find some evidence, Mr Sabaratnam, because at the moment, it looks like there’s £900,000 that has gone off to Hong Kong potentially.
SEBAJEEVAN SABARATNAM: Yeah, I’ll find the information to you.
LOUISE BRITTAIN: Yeah, so you need to find all this evidence you’re talking about, because there isn’t any that we can find.”

The Court said:

The question that arises is how should the court treat evidence of a director unsupported by the company’s books and records? In Wetton v Ahmed; Re Mumtaz Properties Ltd [2011] EWCA Civ 610 Lady Arden said [15]-[17]:

“15. That was the predicament in this case. The liquidator could not show that Munir and Zafar were de facto directors from the Company’s books and papers because the directors had not handed over the necessary documents to the administrators. The judge held, in the context of Munir’s denial that he was a de facto director despite the fact that he had acted as chairman of the meeting convened to pass a resolution for voluntary liquidation, that, had it been necessary to do so, he would have been entitled to draw adverse inferences against the respondents to the proceedings

17. Put another way, it was not open to the respondents to the proceedings in the circumstances of this case to escape liability by asserting that, if the books and papers or other evidence had been available, they would have shown that they were not liable in the amount claimed by the liquidator. Moreover, persons who have conducted the affairs of limited companies with a high degree of informality, as in this case, cannot seek to avoid liability or to be judged by some lower standard than that which applies to other directors, simply because the necessary documentation is not available.”

The lack of books and records to support a defendant director’s case is not just an issue on an application for summary judgment. Owing to the nature of the proceedings a defendant director without books and records to support his case but who says they will be available at trial must demonstrate to the satisfaction of the court that (i) the books and records exist; (ii) that they are readily accessible and (iii) the books and records are relevant to the issues.

…

The liquidator’s position is that evidence to justify the impugned payments has never been delivered up. This was put to Mr Sabaratnum who did not challenge the liquidator’s assertion…

It follows that there is no material to support at least a prima facie case that the impugned payments were for the benefit of the Company.