Director liable for personal expenditure

A company brought claims against its former director in respect of breaches of duty relating to the defendant’s employment, the use of company money for private expenditure, and his failure to account for the company’s property.

The judge reiterated the well-established principle that, where company property was received by or used for the benefit of a director or those closely connected to him, the burden of proof may shift to the director to establish that the payment was proper and not made in breach of his duties owed to the company.

On the facts, it was held that the director had fraudulently altered receipts for services relating to his and his wife’s vehicles and had fabricated evidence in court. He had claimed reimbursement for various other expenses incurred by his wife, without benefit to the company. He was also found liable for the disposal of company vehicles and IT equipment and was found to have misapplied company money.

The director was found to have breached his duties set out in s.171 (duty to act within powers), s.172 (duty to promote the company’s success), and s.177 (duty to declare personal interests) of the Companies Act 2006. There was no scope for the operation of the s.1157 defence, as he had acted neither honestly nor reasonably. The company’s claims succeeded in full.

Hamuel Reichenbacher Ltd v McDermott [2022] EWHC 623 (Ch)

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