Director ordered to repay more than £1m taken from insolvent company
A director has been ordered to repay more than £1m he took from his company at a time when it was insolvent.
The case involved a director who ran an insulation business. His wife ran a similar enterprise. Both companies relied on a government scheme to survive. The government changed the rules of the scheme altering the viability of the director’s company.
He responded by paying his wife’s business £584,442 to cease trading temporarily. His company began to have cash flow problems so he provided it with substantial loans from his personal account. The business continued to struggle and he was threatened with winding-up petitions.
The director then made three loan repayments totalling £531,000 from the company to his personal account.
Soon afterwards, the company was declared insolvent and the administrators applied for repayment of all the sums paid to the director and his wife’s business.
The director submitted that his company was not insolvent at the time of the transactions and it had tried to be fair to creditors by paying the oldest debt first.
The court ruled against him. It said that the repayments had put him and his wife’s business in a better position than they would have been in the event of liquidation. There was no commercial reason to make the three loan repayments to the director.
The third payment was made on the same day that he filed a notice to appoint administrators. The only explanation was that he was influenced by a desire to prefer his debt over others.
He was ordered to repay all the sums with interest.
Please contact Jon Alvarez if you would like more information about the issues raised in this article or any aspect of company law.