Background

The claims were for an unlawful distribution of dividends of £560,000, a debt claim of £94,668.12 pleaded as both a debt and a breach of duty, and a separate breach of duty claim for use of company money to refurbish the Defendants’ home of £225,852.48 and an amount of £30,226.56 used to refurbish another property formerly owned by them. A claim for conversion of goods owned by the company was not pursued at the trial.

Decision and Reasoning

The first day of trial saw a flurry of applications

• The Defendants applied to stay the trial to challenge the validity of the office holder’s appointment as both Administrator on 1 November 2017 and the conversion to CVL on 5 November 2019. The former had already been the subject of a failed application in March 2020; the latter was refused on the merits.
• The Defendants applied (again) to introduce evidence from their accountant, this time with signed evidence. Relief from sanction was given to allow this evidence, it being central to the largest claim for unlawful dividends.
• The Defendants’ solicitors, having made the above applications applied to come off the record. The Defendants then sought an adjournment of the trial (orally) to seek legal representation, which was refused.
• A creditor of the company applied to become a Claimant in the case, effectively seeking to consolidate his claim against Mr Rutter for a guarantee. This application was refused as there was insufficient legal connection.

Costs orders followed the event with amounts summarily assessed and payable by the Defendants in six weeks. The trial commenced properly on the second day allotted to it. The evidence from the accountant, was critical to the timing of the distribution of the declared dividend, a point lost by the Claimant on the facts as they were found at trial. A significant amount of argument and analysis of what amounts to a “distribution” is contained within the judgment (Paragraphs 70 – 122).

Commentary

The overdrawn loan account claim did not succeed as a debt, as the Defendants were able to offset monies paid by them under personal guarantees to creditors of the company in December 2020, in order to stave off bankruptcy proceedings. The alternative pleading (almost overlooked due to the hectic start to the trial) did succeed as a breach of duty claim in the sum of £94,688.12. Relief pursuant to S.1157 CA06 was refused.

Likewise, after hearing the evidence, the breach of duty relating to the refurbishment works succeeded along with a proprietary claim to the monies utilised for the Defendants' home, expressed as an equitable lien.

In total a money judgment of £350,747.16, plus interest of £40,707.96 with an equitable lien in respect of £252,062.73 was ordered, plus 80% of the Claimant’s costs to be paid by the Defendant.

Read the full judgement

Alison Kirby
Associate Director for the East