Director Failure To Account For Company Payments

Director Failure To Account For Company Payments and the matter of company record was the issue at large in the matter of Official Receiver v Haq (Re Wifime Ltd) [2025] EWHC 485 (Ch).

The Official Receiver acting as the liquidator of Wifime Limited (“the Company”) sued its only director and shareholder, Azam Haq and obtained an order for payment of £155,248.53 plus interest. The case was about the deployment of the Company’s money and sums either owed by Mr Haq under his overdrawn director’s loan account or payments made for his benefit.

Defending Director Receipt Of Company Payments

It looks like a case that the director, if minded to appeal, will likely face an uphill struggle. A lesson in this case is that directors need to keep company records to account for their deployment of company money otherwise, they face a real wrestle to justify their receipt of them. 

Mr Haq’s defence seems to have gotten off to a shaky start, as Chief Insolvency and Companies Court Judge Briggs noted the following in his introduction to the case:

In his opening Mr Haq explained that he had become an expert in the civil procedure rules and the case law applicable to the claim. He filed an Amended Points of Defence signed with a statement of truth but chose not to provide a witness statement. There was no evidence before the court to support his Amended Points of Defence, although he tendered evidence in opening and closing without being sworn-in.

Director Burden Of Proof

The only material company records were the accounts, some receipts and bank statements.

The central issues in the case were £115,928.28 of payments to Mr Haq’s ex-wife, which he had said were for his benefit and cash withdrawals of £33,682.50 that there were no records to show were for the benefit of the Company.

Ultimately, the burden was with Mr Haq as director and trustee of the Company’s assets (Stacks Living Limited & Ors v Shergill & Anor [2025] EWHC 9 (Ch)) to justify the payments and cash withdrawals: In Murad v Al-Saraj [2005] EWCA Civ 959 Arden LJ (as she was) explained [77]:

“for policy reasons, on the taking of an account, the court lays the burden on the defaulting fiduciary to show that the profit is not one for which he should account …The shifting of the onus of proof is consistent with the deterrent nature of the fiduciary’s liability. The liability of the fiduciary becomes the default rule”.

Entitlement To Wages – Guinness v Saunders

The judge poured cold water over any suggestion of some entitlement to the Company’s money on the basis of work undertaken due to the well known Guinness PLC v Saunders [1990] 2 AC 663 case.

When payments of company money are impugned, they are particularly susceptible to challenge if a company is insolvent when they are made. The recent decision in BTI 2014 LLC v Sequana SA [2022] UKSC 25  is relevant to determine the time at which creditor interests intervene.

Company Records Relevance

An absence of company records is not going to help a director. Far from it:

The absence of documentary evidence is often part and parcel of small and medium sized company insolvencies (that is not to say that large companies cannot be in the same position). The courts have held that given the nature of the privilege of acting through a limited company and the position of director the court may infer from the absence of documentation that any explanation for is not to be believed: see Mumtaz Properties Ltd [2011] EWCA Civ 610 [17]:

“It was not open to the respondents … to escape liability by asserting that, if the books and papers and 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 … 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 …”

Judgment Highlights

I find there has been a failure to account. The Official Receiver has demonstrated that Mr Haq had control of the Company’s bank account, used the money and he has failed to show the payments were proper.

On the balance of probabilities, the failure to account is a failure of the sole director to act in a manner likely to promote the success of and benefit the Company as a whole. Mr Haq failed ensure that the company kept accounting records that comply with Sections 386 and 387 of the Companies Act 2006 as he certified in the accounts. By making personal use of the Company’s money, I find that there was a failure of Mr Haq to recognise and avoid a situation where his interests conflicted with that of the Company.

…

In his skeleton argument Mr Haq refers to section 1157 Companies Act 2006. He says, in his skeleton argument, that he acted honestly and reasonably and ought fairly to be excused.

In Re In a Flap Envelope Company Ltd [2003] EWHC 3047 (Ch) the court found that it would be “highly unusual” for relief under section 1157 of the Companies Act 2006 to be granted to a director who had retained a material benefit from his breach of duty. That does not mean it is impossible: Humphrey v Bennett [2023] EWCA Civ 1433. Much depends on the facts. In Humphrey v Bennett Lord Justice Snowden explained what a defendant needs to do to rely on the statutory Defence [80]:

“A defendant who wishes to avail himself of section 1157 should plead the specific facts and matters upon which he intends to rely in order to demonstrate that there is a realistic prospect of a court granting him relief under that section at trial. If the matters pleaded by the defendant are inadequate, it will be open to the court to determine on a summary basis that he has no realistic prospect of obtaining such relief.”

Mr Haq does not plead the statutory defence in his Amended Points of Defence.

If it is possible to interpret the Amended Points of Defence as including a reference to the statutory Defence (with the aid of generous reading) he has failed to specify facts and matters upon which he intends to rely in order to demonstrate he can succeed. In any event the burden lies with Mr Haq to prove honesty and reasonableness and Mr Haq has provided no evidence to support the Defence.

Finally it is worth mentioning that where a director has taken company property and fails to demonstrate that he is lawfully entitled to the property he is not entitled to rely on the statutory Defence: Toone v Robbins [2018] EWHC 569.

I find that the statutory Defence has not been pleaded sufficiently or at all. Given his failure to explain and account for monies he has received from the Company he is not entitled to relief and in any event I would, if the Defence was before me, exercise my discretion against such relief for the reasons I have set out.