Clarke Willmott’s restructuring and insolvency team secures important judgment

The two-day trial provides important assistance for officeholders regarding Company documentation and drawing salary.

The Restructuring and Insolvency team at national law firm Clarke Willmott LLP has secured an important judgment following a two-day trial at the Royal Courts of Justice.

Stephanie Bishop, a senior associate at Clarke Willmott, successfully acted for the Official Receiver (‘OR’) as Liquidator in a claim against a Company’s director for misfeasance, breach of duty, preference, and transaction at an undervalue. The claim arose out of the sale of the Company’s principal asset, its premises, and the dissipation of the proceeds.

Eight months prior to compulsory liquidation, the director had caused the Company, which manufactured and sold women’s clothing to well-known high street retailers, to sell the Company’s premises, receiving c.£420,000 in net proceeds. The director then caused the proceeds to be dissipated predominantly to himself and various third parties including his father. Furthermore, in the 18 months preceding the sale, the director had received a total of nearly £100,000 in unexplained payments from the Company.

The Royal Courts of Justice ruled in favour of the OR, awarding judgment, plus interest and costs, of circa £600,000.

Stephanie said: “This judgement is important and will be of assistance to our current clients and officeholders.

“A frequently run defence by directors in misfeasance claims is that payments to them reflect their salary and expenses, in the absence of any salary having been approved under the Company’s articles.

“The oft-cited “I was due salary” argument raised by directors in such cases was given short shrift by the Judge who said the director’s statement that drawing a salary was ‘for work that you do for a company’ was ‘to misunderstand the position’.”

The Judge rejected the director’s allegation that he had not been provided with access to the Company’s books and records which would have allowed him to prove his defence, as the evidence showed the OR had repeatedly offered the director an appointment to view the (voluminous) books and records, copies had been offered, and the director had never made his own proposals for inspection, nor had he asked for specific documents, despite having been provided with an inventory.

The Judge therefore refused to infer that there was anything in the records which would assist the director or undermine the OR’s case, as the director had had ample opportunity to inspect but had chosen not to do so.

Stephanie continued: “We’re pleased to have secured this judgment for our client. The Insolvency and restructuring team regularly run claims of this nature and we look forward to helping more clients in a similar position in the future.”

The trial took place in July 2023, with judgment handed down in November.

Katherine Hallett of Three Stone Chambers was instructed Counsel. You can read the full judgment here.