Court holds directors liable for £12.2m diversion of company funds

The Chancery Division has held two directors personally liable for breaching their statutory fiduciary duties after causing more than £12.2 million to be diverted away from their insolvent company to a connected entity.

In SJ Pay Limited (in liquidation), the joint liquidators brought claims against Shahid and Shams Urrehman, who were found to be de facto and de jure directors respectively. The Court concluded that the directors had breached their duty to promote the success of the company and to act in creditors’ interests by diverting payments received from the company’s two largest clients to another company, Vision Payroll Limited.

The directors sought to justify the transfers by relying on a purported agreement dated January 2021, said to transfer the relevant business to Vision. The Court rejected this defence, finding that the agreement was not genuine and that no effective transfer of the business had taken place. Agencies and workers were not informed of any transfer, no new contracts were entered into, and the company continued to meet payroll and operating costs. The alleged entitlement to a share of Vision’s profits was never honoured and was not disclosed when the company entered liquidation.

Applying established principles on directors’ duties, including the obligation to prioritise creditors when a company is insolvent or nearing insolvency (the so-called “creditors duty”), the Court ordered the directors to pay equitable compensation. This was calculated as the diverted sums less appropriate credits for payments made to workers. 

The decision reinforces the principle that directors cannot legitimise the diversion of company income through undocumented or ineffective arrangements, particularly where creditors’ interests are at stake. In addition, de facto directors will be held to the same standards as appointed directors.

Kaye and others v Vision Payroll Ltd (in liquidation) and others [2025] EWHC 3034 (Ch)