Insolvency court finds director liable for misfeasance

Background

The High Court, presided over by Chief Insolvency and Companies Court Judge Briggs, recently delivered a judgment in the case of The Official Receiver, acting as liquidator for Wifime Limited (in liquidation), against Azam Iqbal Haq. The case involved allegations of breach of statutory duties by Mr Haq, who was the sole director of Wifime Limited when it entered insolvent liquidation.

The Company and Its Financial Difficulties

Wifime Limited, incorporated in 2013, provided technology services, primarily to the UK education sector. Despite initial growth, the company began defaulting on its tax liabilities in 2014. By November 2016, the company ceased trading, and a winding-up petition was presented by HMRC due to unpaid taxes. The company was officially wound up in January 2017 with a total deficiency to creditors of £278,207.62.

Claims Against Mr Haq

The Official Receiver claimed that Mr Haq failed to account for payments made out of the company at a time it was insolvent. Specific claims included the repayment of an overdrawn directors' loan account (DLA) and unauthorized payments made for Mr Haq's personal benefit. The court was asked to order Mr Haq to repay these amounts.

Defence by Mr Haq

Mr Haq, representing himself, argued that he had focused on growing the company and was unaware of any insolvency issues until mid-2016. He also claimed that personal payments were legitimate business expenses and that he had suffered from mental health issues during the relevant period.

Evidence and Findings

The court found that Mr Haq had failed to provide sufficient evidence to support his claims. The Official Receiver's evidence demonstrated that Mr Haq had used company funds for personal expenses without proper accounting. The court noted that Mr Haq did not provide a witness statement or cross-examine the Official Receiver's witness effectively.

Legal Analysis

The judgment highlighted the duties of a director under the Companies Act 2006, including the duty to act in the company's best interests and to avoid conflicts of interest. The court found that Mr Haq breached these duties by failing to account for company funds and using them for personal benefit.

Conclusion

The court ordered Mr Haq to repay £155,248.53 to the company, including amounts from the overdrawn DLA and unauthorized payments. The judgment serves as a reminder of the serious responsibilities directors have in managing company finances, particularly during insolvency.

Learn More

For more information on shareholder law, see BeCivil's guide to Shareholder Law.

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