Incomplete records will not avoid repayment of Directors' debts

A liquidator’s investigation into a family company resulted in the liquidator pursuing the directors (and other family members as de facto directors) for repayment of overdrawn loan accounts as well as compensation for misfeasance and breach of fiduciary duty.

The liquidator’s claim was based upon the incomplete books and records he had been able to obtain whilst the directors/family members relied upon oral evidence. The court considered the importance of written evidence not only for assessing credibility and supporting oral evidence, but also where it might be conspicuous by its absence and the inferences drawn.

The court considered that the liquidator had established a prima facie case and, given that the documents and records were under the control of the directors/family members, could presume that the claim would have been supported by documentation (that had gone missing).

Acting as liquidator we often face problems obtaining books and records which are necessary to carry out our investigation into the affairs of a company and the actions of directors. This case illustrates the importance of keeping full and proper records of account.

Caroline Stark is a Senior Manager at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Caroline you can call her on 01727 869141.

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