Director must account for company assets

Liquidators brought claims against a director under s.212 Insolvency Act 1986 in respect of payments totalling more than £2m. They alleged that the payments, which had been made to the director or to third parties for his benefit (including payments in relation to a car and a yacht), were not made for a proper purpose and were a misapplication of company funds. In the alternative, they claimed that he had an overdrawn Directors' Loan Account (DLA) exceeding £1.7m which needed to be repaid.

Following the winding up order, the director had filed four sets of revised accounts at Companies House without the liquidators’ authority. Those accounts declared material sums owed by the company to the director, because he had personally made payments for the benefit of the company. The director argued that the payments were loans made by the company to him, that they formed part of his DLA, and that the overall position was that his DLA was in credit.

The court reiterated the long-established principal that as a matter of law, once a liquidator has proved that a payment has been made to or for the benefit of a director, the evidential burden shifts to the director to explain what the payment was for.

The director had failed to discharge this burden. There was no evidence that the payments were loans. In fact the court found that the majority of the payments were either unlawful distributions of capital or were improper payments. The director had acted in breach of his fiduciary duties. 

In respect of his DLA, the director had failed to prove that his DLA was in credit and the court found that in fact, he was a debtor of the company for a sum exceeding £1.5m.

The court invited further submissions on the amount to be paid by the director, as the deficiency in the liquidation is likely to be less than the value of the claims.

Anthony Davidson and Andrew Mctear (acting as Joint Liquidators of Kieran Looney & Co Ltd), Kieran Looney & Co Ltd v Kieran Joseph Looney [2023] EWHC 197 (Ch)

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