Director ordered to pay £20,000 after breaching his duties

A director has been ordered to pay £20,000 for breaching his legal duties shortly before his company went into liquidation.

The director had run a freight-forwarding company from 2011 until its voluntary liquidation in 2015. He had been the sole shareholder.

His father had previously been a co-director of the company and continued to work for it. The company operated from the father’s home.

The director made the following transactions from the company between 2014 and 2015: two payments of £5,000 to a family friend, which he claimed was to repay a loan; two payments of £5,000 to the tax office, which he claimed were wages to his father paid directly to the tax office for the purposes of his father's self-assessment; £360 paid to his mother, which he claimed was in exchange for Euros necessary for a business trip; two cheques made out to cash for £3,000 and £4,000, which he claimed were to repair a company lorry that had broken down in Germany; and a business rates payment in connection with an individual's account of £1,897, which was paid into his mother's account as the business rates were overdue and it prevented the bailiffs from seizing assets from the family home.

Once the company had gone into liquidation, the director set up a new freight-forwarding company of which he was the sole shareholder. The new company took on two of the old company's contracts valued at £20,000.

The director stated that those contracts were directly attributable to a relationship between his father's company, which was absorbed by the old company, and the client, and as such the new company was taking advantage of that relationship, not the relationship between the old company and the client.

The new company went into liquidation in 2017.

The liquidator asserted that the director had transferred the goodwill of the old company, namely the two contracts, at an undervalue and in breach of his duties as a director, and that the other transactions were also in breach of his legal duties.

The court held that the repayments to the director's family friend had been properly made. However, other payments, including those to his father and mother, could not be justified.

The director was held liable to pay a total of £20,360, comprising of £10,000 from the goodwill contracts transferred from the old company, £10,000 from the payment for his father's salary and £360 from the payment made to his mother.

Please contact Niel Cuffe on 020 8290 7405 or at ncuffe@judge-priestley.co.uk  if you would like more information about the issues raised in this article or any aspect of company law.