‘One E Tax provided the tax advice to the company in relation to the EFRBS and the corporate tax deductibility of the EFRBS contributions…. My role was to ask One E tax pertinent questions on behalf of the company and to help collate the various documents required to implement the planning.’
‘15. In relation to the next contribution in June 2012, given the significant profit made as shown by the management accounts, it was felt that a further EFRBS contribution could be made. I cannot recall having any discussions with the company at this time or during the following months leading up to August 2012 on cash-flow problems. On the contrary, I recollect that our discussions about the company’s prospects and profit were very positive and this is why a second contribution was made.’
‘while it is not open to a party to invite a judge to find, or for a judge to find, that the evidence of a witness which he has not challenged was given in bad faith or negligently or irrationally or was false for the reason that the witness had not had an opportunity of dealing with those points, the judge still has to consider whether to accept the evidence in the context of other evidence in the case and to decide how much weight to give it. Accordingly these paragraphs do not, in my judgment, prevent the judge from preferring other conflicting evidence or attaching a different significance to facts than the witness did if in the course of his evaluation of the evidence the judge thinks that the witness must be incorrect.’
‘It is clear that established, definite insolvency before the transaction or dealing in question is not a pre-requisite for a duty to consider the interests of creditors to arise. The underlying principle is that directors are not free to take action which puts at real (as opposed to remote) risk the creditors’ prospects of being paid, without first having considered their interests rather than those of the company and its shareholders. If, on the other hand, a company is going to be able to pay its creditors in any event, ex hypothesi there need be no such constraint on the directors. Exactly when the risk to creditors’ interests becomes real for these purposes will ultimately have to be judged on a case-by-case basis.’
‘I can see no reason why the developed understanding in Australia of the nature of the exercise required by the phrase ‘unable to pay debts as they become (or fall ) due should not be recognised when the same phrase is, for the first time, deliberately inserted into the English insolvency test [in s123 IA 1986]. The Australian approach makes commercial sense, whereas the blinkered approach of ignoring the future does not’
‘The question is not whether, viewed objectively by the court, the particular act or omission which is challenged was in fact in the interests of the company; still less is the question whether the court, had it been in the position of the director at the relevant time, might have acted differently. Rather, the question is whether the director honestly believed that his act or omission was in the interests of the company. The issue is as to the director’s state of mind. No doubt, where it is clear that the act or omission under challenge resulted in substantial detriment to the company, the director will have a harder task persuading the court that he honestly believed it to be in the company’s interest; that that does not detract from the subjective nature of the test.’
‘[14] In my judgment, contemporaneous written documentation is of the very greatest importance in assessing credibility. Moreover, it can be significant not only where it is present and the oral evidence can be checked against it. It can also be significant if written documentation is absent. For instance, if the judge is satisfied that certain contemporaneous documentation is likely to have existed were the oral evidence correct, and that the party adducing oral evidence is responsible for its non-production, then the documentation may be conspicuous by its absence and the judge may be able to draw inferences from its absence…. [17] Put another way, it was not open to the respondents to the proceedings in the circumstances of this case to escape liability by asserting that, if the books and papers or other evidence had been available, they would have shown that they were not liable in the amount claimed by the liquidator. Moreover, persons who have conducted the affairs of limited companies with a high degree of informality, as in this case, cannot seek to avoid liability or to be judged by some lower standard than that which applies to other directors, simply because the necessary documentation is not available.’
‘I am satisfied that whether it is to be viewed strictly as a shifting of the evidential burden or simply an example of the well-settled principle that a fiduciary is obliged to account for his dealings with the trust estate that Mr Aslett is correct to say that once the liquidator proves the relevant payment has been made the evidential burden is on the Respondents to explain the transactions in question. Depending on the other evidence, it may be that the absence of a satisfactory explanation drives the court to conclude that there was no proper justification for the payment. However it seems to me to be a step too far for Mr Aslett to say that, absent such an explanation, in all cases the default position is liability for the Respondent directors. In some cases, despite the absence of any adequate explanation, it may be clear from the other evidence that the payment was one which was made in good faith and for proper company purposes.’
‘….what is important is the adequacy of the fiduciary’s evidence as an explanation for the transactions with which the court is dealing. Such evidence may take different forms: it might justify a transaction which is ‘readily … explained or accounted for by the documents or the ordinary motives of people’ (paragraph 24), or its justification ‘may be clear from .. other evidence’ (paragraph 28). There is no absolute default position. Unsurprisingly, then, the court must look at the evidence and the facts quite closely and in the round.’
‘I should add that the Court must also be alert to the dangers of hindsight. By the time an application comes before the Court, the conduct of directors has to be judged on the basis of statements given to the official receiver, no doubt frequently under stress, and a comparatively small collection of documents selected to support the official receivers and respondents’ respective positions. On the basis of this the Court has to pass judgment on the way in which the directors conducted the affairs of the company over a period of days, weeks or, in this case, months. Those statements and documents are analysed in the clinical atmosphere of the courtroom. They are analysed, for example, with the benefit of knowing that the company went into liquidation. It is very easy therefore to look at the signals available to the directors at the time and to assume that they, or any other competent director, would have realised that the end was coming. The court must be careful not to fall into the trap of being too wise after the event.’
‘It is necessary to be particularly cautious in applying hindsight to cases involving personal liability, e.g. for wrongful trading, or the setting aside of a preference. Business life is neither static nor certain. Information has constantly to be updated, predictions made about a range of uncertain events, snap judgements formed, rapid decisions taken and adaptations continually made in the light of the shifts in customer demand, tax changes, industrial actions, political events, international relations, and the like. Just as it is all too easy for historians to pick their way leisurely across the battlefields of Waterloo identifying Napoleon’s errors in the confusions engendered by blazing guns, cavalry charges, mud, darkness, uncertainty as to the current arrivals or dispositions of troops and ignorance of the intentions of the enemy, so also a professional acquainted with subsequent events in a company’s life is all too readily beguiled into the view that he would have done things differently, that what is now apparent was obvious from the start.’
‘(a) the execution of the deed of addition would, in the opinion of the directors, be for the benefit of the trade of the Company, and thus of the Company, and in consequence (b) the draft deed of addition be and is hereby approved and Martyn Ware and Paul Hughes be and are hereby authorised to sign, execute and deliver it as a deed on behalf of the Company.’ ‘(a) the execution of the deed of addition would, in the opinion of the directors, be for the benefit of the trade of the Company, and thus of the Company, and in consequence (b) the draft deed of addition be and is hereby approved and Martyn Ware and Paul Hughes be and are hereby authorised to sign, execute and deliver it as a deed on behalf of the Company.’
‘2.1 The Chairman reminded the directors of the need to consider their general duties, including those contained in the Act, in considering the matters put to the Meeting. 2.2 Each director present declared the nature and extent of their interest in the proposed transaction to be considered at the meeting in accordance with the requirements of section 177 of the Act and the Company’s articles of association (‘the Articles’) as follows: . Paul Hughes declared that by entering into the Tripartite Deed, his debt to the Company, in the amount of£220,000 would be repaid; . Martyn Ware declared that by entering into the Tripartite Deed, his debt to the Company, in the amount of£220,000 would be repaid; … 2.4 It was further noted that certain matters in relation to the directors which may otherwise give rise to a conflict or potential conflict of interest under section 175 of the Act (including their position as potential beneficiaries of the EFRBS) has been [sic] specifically authorised by way of a written resolution passed by the shareholders of the Company during an adjournment of the board meeting held on9th March 2012 for the purpose of, inter alia, adopting the EFRBS. 3. PRODUCTION AND APPROVAL OF DOCUMENTS 3.1 The Chairman noted that the Deed of Addition and Contribution Agreement whereby the Company was to make a further contribution (in the form of its beneficial interest under the Deed of Covenant executed by it) to the EFRBS, the execution of which on behalf of the Company had previously been authorised, had been duly executed and delivered by or on behalf both parties on20th March 2012 3.2 the Chairman noted that Paul Hughes was indebted to the Company in the amount of£220,000 and that Martyn Ware was indebted to the Company in the amount of£220,000 3.3 There was produced to the meeting a draft Tripartite Deed between (1) the Company (2) OneE Trustee Services (Cyprus) Limited as Trustee of the EFRBS (the ‘Trustees’) and (3) Paul Hughes (the ‘Borrower’) under which - Paul Hughes as Borrower would become obliged to pay the Trustees£220,000 - indebtedness of that amount from the Borrower to the Company would be repaid and - the Company would be released from its obligation under the deed of Covenant so far as concerns that amount. 3.4 There was produced to the meeting a second draft Tripartite Deed between (1) the Company (2) OneE Trustee Services (Cyprus) Limited as Trustee of the EFRBS (the ‘Trustees’) and (3) Martyn Ware (the ‘Borrower’) under which - Martyn Ware as Borrower would become obliged to pay the Trustees£220,000 - indebtedness of that amount from the Borrower to the Company would be repaid and - the Company would be released from its obligation under the deed of Covenant so far as concerns that amount. 3.4 After duly considering its terms the Chairman noted that execution of the Tripartite Deeds would be in the interests of the Company and resolved that they should be executed and unconditionally delivered as deeds on behalf of the Company with Martyn Ware and Paul Hughes authorised to execute them and unconditionally deliver them as deeds on behalf of the Company.’
‘The Chairman noted that it is proposed that the Company set aside amounts to reward employees with a view to those amounts becoming repayable to an Employer Financed Retirement Benefit Scheme (‘EFRBS’). Declaration of Interests & Conflicts of Interest Each director present declared the nature and extent of their interest in the proposed transaction to be considered at the meeting in accordance with the requirements ofsection 177 of the Companies Act 2006 (‘the Act’) and the Company’s articles of association, as follows: . Paul Hughes declared that himself and his family members would be potential beneficiaries of the EFRBS . Martyn Ware declared that himself and his family members would be potential members of the EFRBS It was noted that the directors would give due consideration to the provisions of the Act before entering into any transactions that were resolved upon during the meeting. Resolution to make awards to employees involving an EFRBS The chairman proposed that value equal to£150,200 should be set aside by the company for awards to be made to reward employees in respect of their service during the accounting period to20th June 2012 . The awards will be paid to an EFRBS created or to be created for the benefit of key employees of the company and their families (and other persons related to or connected with them). The proposed list of key employees is: Paul Hughes Martyn Ware The chairman noted that, at this stage, no final decisions were being made on the allocation of the sum set aside for employee awards between different employees and their families etc as the Board wished to give further thought to the matter. The Board also reserved the right to add employees and their families etc to the list and in extreme cases to delete names from the list, but at this stage the Board was content that the employees named in the list were the most appropriate. However, as a result of this Resolution the Board accepted that it would be creating a present constructive obligation to make a payment to the structure, once established, of value equal to£150,200 and that a transfer of economic benefits would be required to settle that obligation. After due consideration of the above proposed, IT WAS RESOLVED that in the next accounting period a payment of value totalling£150,200 will be made in respect of the services provided by employees in the current year ended30th June 2012 , such payment being made or otherwise becoming payable to a sub-fund of the EFRBS created for some or all of the key employees of the company. Alternatively the payment will be made or covenanted to other parties on the condition that the amounts will at some future time become payable to someone chosen by the trustees of the EFRBS.’
‘The directors shall be entitled to such remuneration as the company may by ordinary resolution determine and, unless the resolution provides otherwise, the remuneration shall be deemed to accrue from day to day.’
‘The simple fact of the matter is that at20 March 2012 the Company was balance sheet solvent and paying its debts as and when they were due and there were funds in account. This excludes the fact that significant stock was held at that time together with an order book which enables the Company to generate further cash. For example, at31 March 2012 , the company held stock of£442,547 at page [25]. As a guide, the cost of a container of panels of between£80,000 to£100,000 would produce retail sales of around£450,000 because of known and established profit margins.’
‘Our fee for the planning will be£44,000 (plus VAT). This fee relates to the Planning as detailed within the Letter of Engagement. This fee … will be payable in two stages. Fees of£22,000 (plus VAT) will be payable on commencement of our work. The remaining£22,000 (plus VAT) will become due on completion of the planning. Completion takes place when the company makes the payments to the participating employees.’
‘Paul, Martin, Glyn, Just to inform you that the CIS (Construction Industry Tax) return has been balanced for the period end 5/3/12. The payment of£6590.68 is due17/3/2012 but because this is a Saturday and the bank will not process HMRC payments on a weekend I have lined up payment for Thursday 15th March. This is so it will not coincide with Friday payments that week for suppliers, installers, sales reps and payroll. I have also balanced the period end PAYE return and have lined up payment for the same day. This payment is Tax£3572 and Nat Ins£4177.86 total£7749.86 going out 15th March. No penalties this month. Julie Llewellyn.’
‘Dear Sir/madam, PAYE payment overdue for 2011-2012 Our records show that your PAYE payment is overdue. Please pay now’
‘Risen reminder Extra 15 days credit given by Risen. Due dates now.. Friday08/06/2012 =£94,080 (Was25/05/2012 -250w container one) Monday11/06/2012 =£94,080 due (was28/05/2012 - 250w container two)….’
‘Hi Daniel Please can you accept my sincere apologies for the situation that has been created by us Many PV companies in the UK are going out of business at present because of the lack of clarity on the new Greendeal initiative. As I have explained we want to stay in business and trade our way out of this. [he then put forward a payment plan for outstanding invoices spanning into the future as far as July 2013] His email concludes ‘Please can you also let me know if we require more panels what price it will be and how we can trade’
‘Solvency – The Director will need to contemplate what effect the EFRBS Arrangements will have on the Company’s working capital position. If there is or may be any question as to the Company’s solvency and/or its ability to pay its debts (within the meaning ofsection 123 Insolvency Act 1986 ) either at the time that the EFRBS Arrangements are approved or as a result of implementing the EFRBS Arrangements, then the Directors’ duty to act in the interests of the Company’s creditors may override their other duties. Directors should seek specific advice on what actions they should take at that time’
‘The contrast with the way the directors behaved in Re Continental (No 4) could hardly be starker.’
‘My Lords, the short answer to the quantum meruit claim based on an implied contract by Guinness to pay reasonable remuneration for services rendered is that there can be no contract by Guiness to pay special remuneration for the services of a director unless that contract is entered into by the board pursuant to article 91. The short answer to the claim for an equitable allowance is the equitable principle which forbids a trustee to make a profit out of his trust unless the trust instrument, in this case the articles of association of Guinness, so provides. The law cannot and equity will not amend the articles of Guinness. The court is not entitled to usurp the functions conferred on the board by the articles.’
‘Equity forbids a trustee to make a profit out of his trust. The articles of association of Guinness relax the strict rule of equity to the extent of enabling a director to make a profit provided that the board of directors contracts on behalf of Guinness for the payment of special remuneration or decides to award special remuneration. Mr Ward did not obtain a contract or a grant from the board of directors. Equity has no power to relax its own strict rule further than and inconsistently with the express relaxation contained in the articles of association…. … Similarly, the law will not imply a contract between Guinness and Mr Ward for remuneration on a quantum meruit basis awarded by the court when the articles of association of Guinness stipulate that special remuneration for a director can only be awarded by the board.’
‘These indeed demonstrate that the directors of a company, like other fiduciaries, must not put themselves in a position where there is a conflict between their personal interests and their duties as fiduciaries, and are for that reason precluded from contracting with the company for their services except in circumstances authorised by the articles of association. Similarly, just as trustees are not entitled, in the absence of an appropriate provision in the trust deed, to remuneration for their services as trustees, so directors are not entitled to remuneration for their services as directors except as provided by the articles of association. Plainly, it would be inconsistent with this long–established principle to award remuneration in such circumstances on the basis of a quantum meruit claim. But the principle does not altogether exclude the possibility that an equitable allowance might be made in respect of services rendered.’
‘Whether any such an allowance might ever be granted by a court of equity in the case of a director of a company, as opposed to a trustee, is a point which has yet to be decided; and I must reserve the question whether the jurisdiction could be exercised in such a case, which may be said to involve interference by the court in the administration of a company’s affairs when the company is not being wound up.’