James Kaye & Ors v Vision Payroll Limited & Ors [2025] EWHC 3034 (Ch)

[2025] EWHC 3034 (Ch)Case No BL-2023-000704
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 21/11/2025
Before
MASTER KAYE SITTING AS A DEPUTY HIGH COURT JUDGE
Between
MR JAMES KAYE and MR NICK MORGANClaimantsSJ PAY LIMITED (in Liquidation)ClaimantVISION PAYROLL LIMITEDDefendantsMR SHAHID URREHMANDefendantMR SHAMS URREHMANDefendant
Richard Chapman KC (instructed by Primas Law Limited) for ClaimantsJames Couser (instructed by direct access) for Second and Third DefendantsHearing Hearing dates: 17,18,19,20 and 21 March 2025
Approved JudgmentThis judgment was handed down remotely at 10.00am on 21 November2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives..............................MASTER KAYE SITTING AS A DEPUTY HIGH COURT JUDGE

Master Kaye sitting as a Deputy High Court Judge :

[1]This claim is brought by the joint liquidators of SJ Pay Limited, currently James Kaye and Nick Morgan, and SJ Pay Limited (in Liquidation) (“the JLs”) (“the Company”) (together “the Claimants”).[2]The Second Defendant and Third Defendants, Shahid and Shams are brothers. I will refer to them by their given names, to avoid confusion. No disrespect is intended. Where I refer to them together, I shall refer to them either as the brothers or as the Active Defendants as context permits.[3]Shams had been the de jure director of the Company since its incorporation on 13 July 2010. Shahid had been a de jure director from time to time but shortly before trial conceded that he had been a de facto director at all material times. Both Shahid and Shams are accountants.[4]The First Defendant was incorporated on 21 December 2020 with the name SJ Payment Services Limited. It changed its name to Vision Payroll Limited on 7 November 2022 (“Vision”). Its sole de jure director was Teresa Clive(also an accountant) whom I will refer to by her given name, Teresa, no disrespect is intended.[5]Vision was subject to a winding up order on the petition of HMRC dated 29 November 2023, consequently, the claims against and involving Vision are stayed. The JLs were appointed as its liquidators on 11 December 2023. Conflict liquidators were appointed for the purposes of these proceedings.[6]Although the Company was incorporated on 13 July 2010 it was dormant until about April 2017. From about April 2017 the Company traded as an umbrella payroll services company until it entered creditors voluntary liquidation on 15 November 2022 when the JLs were appointed. Vision was also an umbrella payroll services company. Both the Company and Vision say that they outsourced the day-to-day administration of their accounting and payroll services and its day-to-day administration to a company in Pakistan AD (Overseas) Limited (“ADL”).[7]James Morgan KC sitting as a High Court Judge in Scenic International Group Limited (In Provisional Liquidation) v Adenaike and others [2024] EWHC 2791 (Ch) at [11] to [13] (“Scenic”) explained the purpose of an umbrella company: [11] The Company has been described as an “umbrella company” by which it is meant that it acted as the employer of workers supplied by employment agencies to end user customers. The end user customers were predominantly in the public sector, in particular in the health sector. [12] IR35 is legislation designed to stop so called “disguised employees” getting a tax advantage by working through a personal services company. In very broad terms, if a worker’s engagement was deemed to be “employment” then they would be within IR35 and a liability arose for PAYE / NIC. Conversely, if the worker could properly be recognised as an independent contractor then they would be outside IR35. Under IR35, liability for PAYE / NIC was originally on the worker but, since 2017 in the public sector and 2021 in the private sector, determinations have been the end user’s responsibility and unpaid tax can be recovered from the fee payer, usually the employment agency. [13] Properly run umbrella companies are a solution to these issues. By joining an umbrella company, a worker becomes an employee and therefore placed outside the scope of IR35. As the employer, the umbrella company is responsible for deducting PAYE / NIC. In turn, this provides protection to the recruitment agency and to the end user against non-payment or under-payment of PAYE / NIC and the resultant financial or regulatory issues. In return, the umbrella company will generally be entitled to a fee. As discussed in more detail below, the employment agencies with which the Company dealt therefore sought (and obtained) contractual protection and other assurances from the Company that it was indeed employing the workers and deducting PAYE / NIC.[8]Consistent with the purpose of an umbrella company, the Company entered into contracts with recruitment agencies (“the agency” or “agencies”) to administer payroll for the workers the agencies recruited and supplied to their clients in the healthcare and social care sector (“the worker(s)” and “the clients”) as its (the Company’s) employees. As in Scenic these contracts included other assurances such as warranties and guarantees and/or declarations that the workers were employees of the Company. The purpose of the agency contracts was therefore to pass liability for accounting for the workers’ PAYE and NIC (and any associated VAT on the supply) to the Company to relieve the agencies of the obligation to pay PAYE and NIC (and any associated VAT). In return the Company was paid a fee calculated as 7% of the gross supply in respect of each worker. The agencies then entered into separate agreements with their clients.[9]The Company entered into its own separate direct agreements with each of the workers. If the Company had been complying with the terms of the agency contracts those workers would have been employees of the Company. However, Shams and Shahid insisted that(i) it was for them to determine separately with the workers (based on their own assessment) whether the workers were to be treated as employees or self-employed and(ii) the vast majority of the workers were self-employed independent contractors. Shahid and Shams considered that the Company’s agreement with each worker took precedence over their contractual obligations to the agencies. There was no legal basis for that assumption, and it was wrong. As a consequence, neither the agencies nor the Company paid the tax for the workers the Company treated as self-employed.[10]Shahid, Shams and Teresa say that on 4 January 2021 the Company entered into an agreement with Vision by which Vision took over the Company’s relationship and business with Liquid and Sanctuary, the Company’s two largest agency clients (“the Agreement”).[11]From 5 January 2021 Vision administered the payroll for the workers recruited through Sanctuary and Liquid whose payroll had previously been administered by the Company (“the relevant workers”) and (“the relevant business”). In fact,(i) the administration of the payroll for the workers continued to be administered day to day by ADL(ii) Liquid and Sanctuary were not told that the administration of the relevant business had moved to Vision,(iii) Liquid and Sanctuary had not consented to it(iv) Liquid and Sanctuary did not enter into any new agreements with Vision and(v) there was no evidence of any consent to or transfer of the workers or any new agreements with any of them. The Company continued to (i) pay ADL, (ii) pay Teresa and (iii) manage payroll (through ADL) for the workers recruited through the other agencies with whom it had contracts.[12]The Agreement did not provide for any payment by Vision at the outset for the transfer of the relevant business but instead included a provision that the Company be paid quarterly, 10% of Vision’s net profits derived from the relevant business (that is 10% of the net profit arising from the 7% fee). It is common ground that no such payments were ever made or in fact demanded (“the Vision debt”).[13]The JLs have calculated that the total sum paid to Vision by Sanctuary and Liquid from 5 January 2021 (to May 2023) in relation to the relevant business and therefore diverted away from the Company was £12,259,923.54 (£5,690,654.87 for Sanctuary and £6,569,268.67 for Liquid) (“the diverted payments”).[14]A rough calculation of the gross amount of the Vision debt arising from the diverted payments is approximately £70,000 (£12.25m less 20% VAT (approx. £10m) x 7% (approx. £700,000 gross profit) x 10% (approx. £70,000)). This equates to a gross figure of about £28,000 per annum or £7,000 per quarter.[15]This claim was issued on 18 May 2023. The particulars of claim (“POC”) are dated 16 June 2023. The JLs obtained a freezing order against Vision on 19 May 2023 which was continued on 8 June 2023. HMRC also obtained a freezing order against Vision. The Agreement and the Vision debt were not referred to or relied upon by the brothers or Teresa in response to the freezing orders.[16]The substance of this claim is an allegation of breach of fiduciary duty and/or breach of duty of care against Shams and Shahid, in diverting or permitting the diversion or failing to prevent the diversion of the diverted payments. The claim also advances a claim for relief on the basis that the diverted payments were made for no consideration or for an undervalue and were entered into for the purpose of putting assets beyond the reach of creditors in particular HMRC.[17]The JLs claim the total of the diverted payments on the basis that the diversion of those payments to Vision was a breach of trust and that in principle the total sum of the diverted payments should be recovered for the benefit of the Company and its creditors. In simple terms the diverted payments should be repaid to reconstitute the trust fund.[18]However, the JLs accept that Vision paid the relevant workers from 5 January 2021 from the diverted payments and consequently submit that the proper measure of equitable compensation is the diverted payments with appropriate credits including the sums paid to relevant workers which would otherwise have had to have been paid by the Company. They claim the difference between the total of the diverted payments and the sums paid by Vision to the relevant workers (“the net diverted payments”) which they have calculated as £3,972,893.80 (being a broad-brush flat rate of 30% of the total diverted payments).[19]This claim is not advanced as a labour supply fraud claim nor a claim that is focussed on the amount of unpaid tax. Whilst HMRC are said to be investigating issues of labour supply fraud the JLs’ claim is a claim that the brothers acted in breach of duty in depriving the Company of the net diverted payments. The position in respect of the payments or lack thereof to HMRC is relied on to support the breach of duty claim.[20]The Active Defendants complain about the robustness of the calculation of the credits allowed against the diverted payments. There is only limited evidence supporting some of those credits. However, that complaint only goes to the question of what if any credit there should be against the diverted payments not the amount of the diverted payments themselves.[21]On 27 July 2023 Vision and the Active Defendants filed their defences. The Active Defendants now rely on their amended defence (“AD”) dated 15 February 2025.[22]The Agreement was only disclosed by the Active Defendants and Vision with their defences. The brothers say that the Agreement is evidence of a commercial transaction transferring the relevant business to Vision in the best interests of the Company. That must also mean that they also say that the decision to enter into the Agreement was a decision undertaken exercising reasonable care, skill and diligence. The other substantial limb of Shahid’s defence had been that he was not a de facto director of the Company which was conceded shortly before the commencement of the trial.[23]The claimants requested further information, to which the Active Defendants responded but did not serve a Reply.[24]A substantial part of the POC, AD and evidence were devoted to the issue of whether Shahid had been a de facto director of the Company at the relevant time. Shahid’s late concession meant that the POC, AD, skeletons, evidence and documents were substantially superseded.[25]The claimants served a Notice to Prove pursuant to CPR 32.19 in respect of the Agreement requiring the Active Defendants to prove the authenticity of the document referred to in their Defence as the [ Agreement], being a document apparently dated 4 January 2021. For the avoidance of doubt, insofar as the document was signed by the parties said to have signed it (“the Purported Signatories”), the Second and Third Defendant are required to prove the authenticity of the date on the document (and so, if signed by the Purported Signatories, the Second and Third Defendant are put to proof as to when this took place).[26]The Active Defendants had to advance credible evidence to prove that the Agreement was what it purports to be – an agreement to transfer the relevant business to Vision signed and dated on 4 January 2021.

Representation:

[27]I have had the benefit of written and oral submissions from both counsel. I am grateful to both of them but in particular I would like to thank Mr Chapman KC for the courtesy he extended to Mr Couser who had only recently been instructed and to Mr Couser for work he had undertaken on short notice to represent the Active Defendants.[28]However, the Active Defendants had been represented by solicitors and counsel until after the PTR and then instructed direct access counsel for the trial. All the statements of case and witness evidence had been prepared whilst they were represented. They were not in any real sense unrepresented parties.[29]I have considered and reflected on counsels’ submissions and the written and oral evidence and documentation relied on by the parties and taken it into account when reaching this decision even if I do not set out every argument or every piece of evidence advanced or relied on. Witnesses: Witness statements and affidavits:

Witnesses:

[30]The Claimants relied on Mr Morgan’s evidence contained in three affidavits sworn on 18 May 2023, 25 May 2023, 5 June 2023 and three witness statements dated 1 February 2024, 30 August 2024 (“Morgan 3”) and 11 February 2025 (“Morgan 4”) and Mr Kaye’s witness statement was dated 30 August 2024.[31]Mr Morgan and Mr Kaye are insolvency practitioners and office holders, Mr Morgan is also an accountant. They had no direct knowledge of the facts prior to their appointment in November 2022.[32]The JLs relied on Mr Morgan’s evidence in support of the claim for equitable compensation. He in turn relied on spreadsheets analysis and calculations undertaken by the JLs’ team and their solicitors. Some of the figures and spreadsheets relied on emanated from HMRC. There was no witness statement from HMRC nor from Liquid or Sanctuary. There was no expert forensic accountancy evidence.[33]The Active Defendants relied on Shahid’s four witness statements dated 30 November 2023, 8 January 2024, 15 February 2024 and 2 September 2024 and Shams’ witness statement dated 2 September 2024. Teresa appeared as a witness for the Active Defendants; she had filed an affidavit as the director of Vision dated 25 May 2023 and a later a witness statement dated 21 August 2024.[34]The Active Defendants relied on three other witnesses:(i) Bryan Lucas whose redacted witness statement was dated 30 November 2024(ii) Mohammad Latif whose witness statement was dated 9 November 2024; and(iii) Asad Urrehman (“Asad”) Shahid and Shams brother, whose witness statement was dated 16 January 2025.[35]Mr Morgan, Mr Kaye, Shahid, Shams and Teresa gave evidence at trial. At the end of the first day of trial the parties agreed that it was no longer necessary for Mr Lucas to give live evidence.[36]Shams and Shahid had been unable to obtain the necessary permissions or make the appropriate arrangements in Pakistan and Dubai for Mr Latif and Asad to give evidence remotely. Mr Latif would have required the assistance of a translator (despite having provided a witness statement in English). I will need to consider the weight to give to that evidence. 28 February 2023:[37]A meeting took place at the offices of the Company on 28 February 2023. It is the focus of Mr Lucas and Mr Kaye’s evidence and concerns an issue of mistaken identity.[38]Mr Kaye had attended the Company’s remote creditors meeting on 15 November 2022. It was common ground that Shams attended the creditors meeting. The point of contact for the JLs following that meeting was in fact Shahid.[39]Mr Morgan and Mr Kaye and Mr Lucas attended the meeting on 28 February 2023. It had been intended that Mr Morgan and Mr Kaye would meet Shams, but Mr Lucas explained that there had been a change of plan about a week before as Shams was unwell and that instead Shahid attended the meeting.[40]Both Mr Morgan and Mr Kaye said that they had checked the identity of the person they met against photos sent to them by their office and were convinced they met Shams. They considered that the discussions and answers given at the meeting indicated it was Shams. Mr Lucas and the Active defendants said the opposite – they say it was Shahid and it was clear it was Shahid from the discussions at the meeting. When the Active Defendants denied that it was Shams who attended the meeting the JLs did not believe them.[41]Mr Lucas’s current business is that of insolvency referrals. He had referred work to the JLs before. He referred Shams to the JLs. He explains that his direct dealings were with Shahid because Shams was unwell. In a sense he was independent on this issue of identity. His evidence was that not only was it Shahid at the meeting but that he had told Mr Morgan that it would be.[42]Mr Kaye ultimately conceded in light of the evidence that he may have been mistaken about who was at the meeting. Mr Morgan also ultimately accepted that he must have been mistaken. It was not therefore necessary for Mr Lucas to attend to give evidence. Mr Couser submitted that Mr Morgan’s reluctance to accept that he may have been mistaken about who he had met was evidence of confirmation bias which pervaded his evidence. Mr Morgan admitted to a healthy scepticism generally given his role as an insolvency practitioner but did not accept that this gave rise to confirmation bias.[43]The focus on the identity of who was at the meeting on 28 February 2023 was out of all proportion to its significance in this case. The suggestion that the JLs may have been misled implies some positive intention on the part of Shahid to mislead them. This would have been inconsistent with Mr Lucas’ evidence explaining the reason for the change and confirming who was in attendance. There was simply no reason for Mr Lucas to have got it wrong or to have sought to mislead Mr Kaye or Mr Morgan. Further there was nothing to be gained by Shahid who at the time did not accept that he was a de facto director. Likewise, the submission that Mr Morgan’s evidence was undermined as a consequence was equally unpersuasive. It appears to have been a simple case of mistaken identity.

Mr Morgan

[44]Mr Morgan’s evidence was focussed on the JLs’ investigations and quantum. Mr Couser challenged him about the JLs’ decision to issue the claim urgently coupled with a freezing order without sending a letter of claim. He suggested that Mr Morgan had formed a view (the confirmation bias argument) and had simply gone ahead rather than for example using his powers under the Insolvency Act 1986 (“IA 1986”) to interview Shahid and Shams. Mr Couser argued that had Mr Morgan taken that alternative course the existence of the Agreement and the Vision debt would have been disclosed earlier, and Mr Morgan would have been less suspicious of it. Mr Morgan acknowledged that there were other tools available to the JLs but did not accept Mr Couser’s criticisms.[45]This seemed to be the wrong way around. The failure to disclose the Agreement, and the Vision debt (said to provide the justification for the diverted payments) in the statement of affairs in November 2022 or subsequently until the defence was filed in July 2023 despite numerous opportunities to do so rests entirely with Shahid and Shams (and Vision).[46]Mr Morgan did have a healthy scepticism about Shams and Shahid’s explanation about how the Company conducted its business. The late disclosure of the Agreement and the Vision debt only exacerbated it. In the events that occurred that does not appear to me to have been unreasonable.[47]It is for the JLs to determine when and how they pursue claims against directors. If there were a proper ground for complaint about the conduct of the JLs that is a matter internal to the liquidation and does not affect these proceedings.[48]Mr Couser further criticised Mr Morgan for failing to take forward an appeal against HMRC’s determination in relation to PAYE and NIC for the Company. However, those tax assessments did not relate to the relevant workers or the diverted payments at all (since they have been diverted) so have no relevance to this claim. But further any criticism of Mr Morgan in relation to that would be internal to the liquidation. However, the fault, if any, lay with Shahid and Shams not the JLs.[49]The JLs had been advised that an appeal was unlikely to be successful but that it might be appropriate to file a protective appeal whilst they sought information from the brothers about their assertion that the workers were self-employed and not employees. The brothers did not provide that information. The JLs’ solicitors explained to the brothers’ legal team on 11 October 2024 “your clients cannot seek to insist that HMRC Notices are appealed whilst providing no grounds for this action.” I do not consider that Mr Morgan can be criticised for the decision not to file a protective appeal in those circumstances.[50]The criticisms of Mr Morgan did not persuade me that he was an unreliable witness. I was satisfied that Mr Morgan was an honest witness doing his best to assist the court.[51]The position in relation to the calculation of the equitable compensation was more nuanced not because Mr Morgan was an unreliable witness but rather because of the quality and nature of the underlying data he relied on. The sample used to calculate the Sanctuary credits was very small in terms of number, value and the period it covered.[52]Mr Morgan was resistant to the suggestion that despite being an accountant himself, it might have been better to have an independent forensic accountant expert to assess the financial information for the purposes of calculating the equitable compensation explaining that there was very little information, evidence or documentation to enable any forensic analysis to be undertaken by an expert. It might be said against him that was exactly why it might have been helpful to have an independent expert consider the information available.

Shams, Shahid and Teresa

[53]When assessing witnesses and their evidence the court should be astute to the unreliability or fallibility of human memory. In many cases there is a natural even if unconscious tendency to reconstruct memory. Here the problem was not the fallibility of memory but the apparent lack of any memory at all.[54]The key events giving rise to this claim occurred over a few weeks between December 2020 and January 2021. Despite the apparent significance of these events, particularly for Shams and Teresa none of Shams, Shahid and Teresa had any clear recollection of them and there was no consistency between them. The oral evidence was neither consistent with their own written evidence or each other.[55]There was a considerable amount of deflection between them with the result that some questions were not answered at all. There did not appear to have been any attempt to reconcile their evidence with the available documents. The carefully drafted trial witness statements could not be maintained when the oral evidence differed from it and/or the documents.[56]For Shams and Teresa these inconsistencies appeared to stem at least in part from a failure to understand the umbrella business and their duties as directors. Neither appeared to have any real day to day involvement in running of the Company or Vision instead relying on Shahid and through him ADL.

Shams

[57]Shams has been unwell for some years. His health deteriorated in 2019 and deteriorated again towards the end of 2020. He explained that from about 2019 he was reliant on Shahid to run the Company and trusted him. He was rarely in the office.[58]His lack of involvement with the day to day running of the Company was clear from the documents and even clearer when he gave evidence. His written evidence which implied that he was involved in the day to day running of the Company, was not sustainable. The inconsistencies between the written and oral evidence undermined his credibility and appeared to demonstrate a propensity to mislead.[59]Although he accepted that he was ultimately responsible for the Company he deferred to Shahid throughout his evidence. His evidence was littered with “I don’t know”, “I don’t recall” and “Shahid will know”. He confirmed that it was Shahid, not him, who was the contact for ADL. Shams was clear that it was Shahid, and through Shahid, ADL who were running the Company operationally. In that sense Shams’ oral evidence that he deferred to Shahid – “ask Shahid”, appeared to be entirely credible and true. Had the de facto director issue not been conceded Shams’ oral evidence would have holed it below the water line.[60]He had little understanding of the legal framework within which the Company worked. He did not appreciate or else he did not care that if the Company entered into a contract on one basis that it could not simply decide to work on a different basis.[61]Shams explained that he was thinking of closing down the Company, at the end of 2020. He appeared to be completely unaware that the relevant business had been transferred to another company in 2019 and that the payments relating to the relevant business had been diverted to that company (see below). This only emphasised his failings as a director.[62]Whether he was deliberately misleading and untruthful or simply did not know or understand, he was an unreliable and unsatisfactory witness whose evidence was in fact misleading.

Teresa

[63]Shahid incorporated Accounts Direct Limited in May 2009 and later changed its name to Skytax Accounting Limited (“Skytax”). Teresa initially worked at Skytax whilst studying accounting and subsequently transferred to the Company from March 2019. When Vision was incorporated in December 2020, she was relatively recently qualified and just 30 years old.[64]She was a nervous and quite anxious witness. She had found the events of the last few years too much and said she had blocked out some of the events. She explained that she knew she had made mistakes and that she had not had enough experience to know what she was doing. That may well be true but that did not explain the inconsistencies between her written and oral evidence. It is clear from her oral evidence that even now she does not understand.[65]Although the claim against Vision has been stayed it is necessary to consider her evidence and her credibility because the brothers relied on her evidence in support of their defence.[66]Like Shams her evidence was repeatedly that she could not recall or recollect events or circumstances. Her answers were a mixture of I don’t know, I don’t remember, I can’t answer, I can’t recall, I don’t have an answer, or I can’t help even on issues which would have been central to Vision such as the Agreement and its terms and Vision’s arrangements with ADL.[67]Although she recalled feeling happy and excited about setting up her own business in December 2020, she appeared to have no clear recollection of anything else. She was hopelessly vague and most of the time she seemed to be speculating about what might have happened. This was less surprising than it seemed at first. It became clear in cross examination that in reality her day-to-day role in respect of the relevant business, relevant workers and the other agencies and workers had not changed after the incorporation of Vision.[68]She assumed that ADL were responsible for the day-to-day operation of Vision and she relied heavily on Shahid. Whilst there was a dispute between Shahid and the JLs about the extent of his involvement, Teresa’s evidence was that she was overwhelmed by and had not in fact taken on the additional role of running Vision. Her reliance on a combination of Shahid and ADL was supported by some of the limited documents available. That was the case even if the use of Shahid’s electronic signature was a function of ADL’s management of Vision.[69]However, Teresa’s evidence was not at all credible or reliable and was not consistent with the written evidence she had given. It was difficult to accept that she really could not remember anything at all about these important and significant events in her life even if she had not fully understood them. On balance therefore I am driven to conclude that even if she had never fully understood what was going on and/or the purpose for which Vision was set up that her answers were not truthful. She too was an unreliable and unsatisfactory witness.

Shahid

[70]Shahid’s evidence was also littered with “I don’t know” and “I don’t recall”. In addition, any document or event that was not consistent with the brothers’ position was described as a mistake, error, oversight, or something that had been missed. Given Shahid’s obviously central role in the events giving rise to this claim his lack of recall was not credible and neither was it credible that there were so many uncorrected errors or mistakes in documents relating to his role in the Company and/or Vision.[71]When this is added to his unsustainable and plainly untrue denial that he was a de facto director, his evidence was further undermined. Mr Couser’s submission that he should be given credit for ultimately conceding the de facto director issue did not begin to address the lack of truthfulness in his evidence. Shahid is a professional accountant who was legally represented but who determined to pursue an unsustainable defence that he was not a de facto director until a few hours before the start of the trial. That persistence not only undermined his evidence but undermined Shams’ too.[72]Shahid was the point of contact for the Company with ADL. He was responsible for setting up the Company’s administrative systems with ADL in 2017. These systems included template emails and electronic signatures which named Shahid as either director or managing director of the Company and which were used on multiple documents relating to the Company including contracts, guarantees and warranties with the agencies. Shahid said that he only described himself as a manager. I do not accept that evidence. None of these alleged errors had been corrected between 2017 and 2022. Exactly the same “errors” were made when ADL started to undertake work for Vision, and no attempt appears to have been made to correct them between 2021 and 2023.[73]It is clear that Shahid was held out as a director or managing director of the Company on numerous documents to numerous third parties throughout the period and that it was never corrected.[74]Shahid’s oral evidence undermined the brothers’ reliance on the Agreement and the transfer of the relevant business to Vision. He explained that in February 2019, it appears unknown to Shams or Teresa, the Liquid and Sanctuary business (the same relevant business) was transferred to Shahid’s company SJ Pay Umbrella Limited (“Umbrella”) who then administered it through ADL until the Agreement.[75]The transfer of the relevant business to Umbrella was consistent with, and supported by, the limited documents available. It was not mentioned in the brothers’ defence nor in any of the written evidence and nor was there any explanation about how it interacted with the Agreement. If the relevant business had already been purportedly transferred to Umbrella in 2019 it was not clear what the Agreement purported to transfer in 2021 or why it was needed.[76]Shahid’s evidence came across as far more calculated than Shams and Teresa. I do not consider him to be a truthful or credible witness.[77]Mr Chapman submitted that the inconsistencies and deflection between Shams, Shahid and Teresa demonstrated a preparedness to mislead the court or third parties and/or that at times their evidence was untruthful.[78]There was considerable force in this submission. Each of Teresa, Shams and Shahid were untruthful or misleading to a greater or lesser extent. I do not accept Mr Couser’s submission that the inconsistencies and errors were the mark of honest witnesses.[79]In such cases the court would usually prefer documentary evidence where there was a conflict with the witness evidence. However, this is not a case where the court is able to fall back on a myriad of documents to fill in the gaps since the books and records of the Company up to April 2022 are said to be lost or at least not accessible. That also weighs against Shams and Shahid who as directors had a duty to maintain them. The absence of any documents to support the evidence advanced by Shahid, Shams and Teresa weighs heavily against them.[80]I have to consider what weight to give to Mr Latif and Asad’s evidence.[81]ADL was incorporated in Pakistan in 2014 by Asad and Mr Mohammad Adil Khan (“Mr Khan”) who were also accountants. Asad says that although he remains a director, Mr Khan had sole management responsibility from the end of 2014 until he disappeared in 2022. He says he became aware that Mr Khan had disappeared in about April 2022 and speculates about what may have happened to him. Although Asad could not be cross examined, his evidence did not appear to advance the brothers’ defence.[82]Mr Latif joined ADL in 2017 where he worked for Mr Khan. He explains that he communicated with the Company’s agencies, clients and workers by email and made payments to or requested information from the workers directly. He confirms that ADL would sign contracts electronically on behalf of the Company and send out emails on its behalf using Shahid and Shams’ names/signatures.[83]Mr Latif says that Mr Khan had told him that Liquid and Sanctuary had been transferred to Vision. He confirmed that Mr Khan disappeared in 2022. He says that the staff at ADL no longer had access to the records of the Company and could not process payroll as Mr Khan had had the login details. This was curious given Teresa’s evidence about her ability to continue to operate Vision with ADL’s assistance after Mr Khan’s disappearance. Mr Latif explained that he still had the ability to log into the Company bank account using Shams’s log in details. He says he left ADL in October 2022 which appears to be consistent with Shahid’s evidence that he travelled to Pakistan in about September 2022 and discovered that ADL had closed/disappeared.[84]Mr Chapman did not have the opportunity to cross examine Mr Latif about ADL’s relationship with the Company, Vision and Shahid or the events following Mr Khan’s disappearance. There are no documents against which to verify Mr Latif’s evidence. Further whilst his written evidence was in English there was permission for an interpreter which given the difficulties with the other written evidence was a factor that I have to consider. It seems to me that in so far as Mr Latif’s evidence touches on any of the issues that have to be determined I should give it very little weight. Of course, any delegation of responsibility to a third party (ADL) does not change or diminish the duties of the directors. They remain responsible for the actions of that third party authorised by them to undertake certain functions on behalf of the Company. The Legal Principles: Breach of Duty:

The Legal Principles:

[85]The claim against Shams and Shahid was focused on the claim that they were in breach of their fiduciary duties to the Company.[86]A de facto director is someone who has assumed responsibility to act as a director despite never having been appointed as a de jure director. Consequently, a de facto director owes the same duties as a de jure director (Umbrella Care v Nisa [2022] EWHC 86 (Ch) (“Umbrella Care”) per Edwin Johnson J at [89]). Those fiduciary duties are owed to the Company and not to the shareholders. The factual examination of Shams and Shahid’s conduct would be the same whether they are de jure or de facto directors.[87]A number of the general duties of a director were codified in ss. 171 to 177 Companies Act 2006 (“CA 2006”) and take effect in place of certain of the prior common law rules and general equitable principles as they apply to directors (s. 170(3)). As a director controls the assets that belong beneficially to the company, the law treats directors as analogous to trustees of those assets (Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) at [1253] and Umbrella Care at [103] to [105]). Assets acquired by a director in breach of trust are held as constructive trustee.[88]Whilst the POC did not seek to limit the scope of the claim for breach of directors’ duties, in closing Mr Chapman narrowed his focus to ss.172 and 174 CA 2006.[89]Section 172 CA 2006 – the duty to promote the success of the Company provides: “(1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole…[90]If the director considered whether the conduct in issue was in the best interests of the company, then the court is required to consider whether the director subjectively had a good faith belief that what he did was in the best interests of the Company.[91]When considering the subjective state of mind of a director, the court is assessing the evidential question of whether the directors acted in good faith and considering the director’s state of mind when making the decision which is being challenged. Section 172 (1) (a) to (f) provides a list of non-exhaustive factors to be considered when assessing whether the directors acted in good faith often referred to as the stakeholder factors. This does not require a finding of dishonesty; it is sufficient that the interests of the company are subordinated by the transaction.[92]Where there is no evidence of any actual consideration by the director of what is in the best interests of the company, it is long established that the test is objective. Whether an intelligent and honest person in the position of a director of the company concerned could, in the circumstances, have reasonably believed that the transaction was for the benefit of the company.[93]Section 172(3) CA 2006 provides that the duty to promote the success of the company “has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of the creditors of the company.”[94]Where the director knows that the company in question was insolvent or bordering on insolvency the duty under s. 172(1) would be modified such that it would extend to the interest of creditors while the duty owed to the company continues to be to act in good faith in the interests of the company(BTI 2014 LLC v Sequana SA [2022] UKSA 25) (“the Sequana duty”). Insolvency on either the cash flow or balance sheet base suffices. However, a distinction is to be drawn between the position where the company is in fact already insolvent and where it may become insolvent. In the latter scenario the fact that the s. 172(3) duty is triggered is only the starting point in establishing breach of duty, which will turn on the particular facts (Hunt v Singh [2023] EWHC 1784 (Ch)).[95]Section 174 CA 2006 – the duty to exercise reasonable care, skill and diligence provides:(1) A director of a company must exercise reasonable care, skill and diligence.(2) This means the care, skill and diligence that would be exercised by a reasonably diligent person with– (a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and (b) the general knowledge, skill and experience that the director has.[96]Assessing this duty has both an objective element (s.174(2) (a)) and a subjective element (s.174(2)(b)). When considering the director’s conduct in respect of the subjective element of the test the court considers the specific context and the director’s knowledge and skill relevant to that specific context (Brooks v Armstrong [2015] BCC 661 at [173]).[97]The duty in s.174 is focussed on negligence rather than intention but otherwise largely overlaps with s.172. Both counsel accepted that s.174 added little to the main complaint under s.172.[98]Whilst a director can delegate their functions, they must still supervise the discharge of those functions. The level of supervision required depends upon the facts of any particular case. This was explained in Re Barings plc (No 5), Secretary of State for Trade and Industry v Baker and others (No 5) [1999] 1 BCLC 433,Jonathan Parker J (as he then was) at [B7] (p489):
“[B7] In summary, the following general propositions can, in my judgment, be derived from the authorities to which I was referred in relation to the duties of directors: (i) Directors have, both collectively and individually, a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company’s business to enable them properly to discharge their duties as directors. (ii) Whilst directors are entitled (subject to the articles of association of the company) to delegate particular functions to those below them in the management chain, and to trust their competence and integrity to a reasonable extent, the exercise of the power of delegation does not absolve a director from the duty to supervise the discharge of the delegated functions. (iii) No rule of universal application can be formulated as to the duty referred to in (ii) above. The extent of the duty, and the question whether it has been discharged, must depend on the facts of each particular case, including the director’s role in the management of the company.”
[99]Further, a director cannot rely upon their own inadequate record keeping or upon the informal approach to the conduct of the companies’ affairs to escape liability - see Re Mumtaz Properties Limited [2011] EWCA Civ 610Arden LJ at [16] and [17]:
“[16] The approach of the judge in this case was to seek to test the evidence by reference to both the contemporary documentary evidence and its absence. In my judgment, this was an approach that he was entitled to take. The evidence of the liquidator established a prima facie case and, given that the books and papers had been in the custody and control of the respondents to the proceedings, it was open to the judge to infer that the liquidator’s case would have been borne out by those books and papers. [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.”
[100]Consequently, whilst in principle the Company through its directors could appoint ADL (or authorise Shahid to appoint ADL) to undertake particular functions by way of delegation that did not change Shahid and Shams’ duties as directors of the Company. Nor can they absolve themselves of any responsibility towards the Company or its creditors for the loss of the Company’s books and records on the basis that the third party to whom various functions had been delegated had lost access to them.[101]If the Company ceased to be able to operate effectively, including being able to make its tax submissions to HMRC, after Mr Khan’s disappearance because it is said he was the only one with access to the Company’s books and records that only needs to be said to make it apparent the extent of Shahid and Shams’ failings as directors of the Company.[102]Since Teresa/Vision seem to have been able to continue to operate with the assistance of and through ADL (who continued to use Shahid’s name and signature) after April 2022, that raises a question mark about the extent to which access to documents, books and records had really been lost.[103]Shams lack of knowledge about day to day running of the Company does not protect him from a breach of duty claim either. Neither his absences from the day to day running of the Company whether due to ill health or otherwise, nor any acts of omission or even ignorance of the law can absolve him of responsibility as a director.[104]Likewise, Shahid cannot deflect responsibility or liability away by relying on the disappearance of Mr Khan, the loss of access to books and records, the multiple alleged errors or mistakes in the use of his name or by seeking to pass responsibility on to his brother Shams.[105]A claim had also been advanced against Shahid and Shams under ss.423 to 425 IA 1986. The question is whether the diverted payments are fraudulent transactions for the purposes of section 423 IA 1986. It is common ground that a claim under this section does not require the JLs to prove fraud.[106]The relevant parts of section 423 provide as follows:(1) This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if – (a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration; (b) ...; or (c) he enters into a transaction with the other for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by himself.(2) Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for – (a) restoring the position to what it would have been if the transaction had not been entered into, and (b) protecting the interests of persons who are victims of the transaction.(3) In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose – (a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or (b) of otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make. ...[107]There is no need to establish a substantial purpose; it is sufficient for the debtor to have entered into a transaction for a prohibited purpose even if this was for one or more other purposes as well (see JSC BTA Bank v Albyazov [2018] EWCA Civ 1176, [2018] BPIR 898 per Legatt LJ (as he then was) at [14]). Further, it is the purpose of the transaction which is relevant rather than just its consequence (see in a tax avoidance context Purkiss v Kennedy [2024] EWHC 1081 (Ch), [2024] STC 1060).[108]However, it is a restitutionary claim rather than compensatory, the Court only has the jurisdiction to make an order against a party who has received a benefit from the transaction (Johnson v Arden [2018] EWHC 1624 (Ch)) and so is aimed at the counter-party such that the quantum of any claim would be focussed on any of the diverted payments received by Shams and Shahid.[109]Mr Chapman submitted, and Mr Couser agreed (in light of the evidence) that any claim under s.423 would fall away if the claim under s.172 succeeded.[110]Shahid and Shams say that even if they are in breach of duty, they are entitled to relief under s.1157 CA 2006 which provides a power for the court to grant relief to directors in certain cases:
“(1) If in proceedings for negligence, default, breach of duty or breach of trust against– (a) an officer of a company, … it appears to the court hearing the case that the officer or person is or may be liable but that he acted honestly and reasonably, and that having regard to all the circumstances of the case … he ought fairly to be excused, the court may relieve him, either wholly or in part, from his liability on such terms as it thinks fit.”
[111]In seeking such relief Shahid and Shams have the burden of proving that they acted honestly and reasonably. Whilst honesty is viewed subjectively their actions have to be objectively reasonable. It is possible to obtain relief where the breach of duty was reckless (but not gross), but complete inactivity is by definition unreasonable (see Lexi Holdings plc v Luqman [2007] EWHC 2652 (Ch) at [224]). Further, where a director has benefitted personally from any misfeasance, relief is almost certain to be refused where the company is insolvent (Re Marini Ltd [2003] EWHC 334 (Ch)).

Factual Background:

[112]The Company traded as an umbrella company from 1 April 2017. Shahid says that he introduced the Company to ADL and Mr Khan in about early 2017. He accepted that the connection with Asad may not have been a coincidence. Shams confirms that he was introduced to ADL by Shahid.[113]ADL provided the day-to-day administration for the Company’s accounting and payroll services and dealt with its day-to-day administration. This included using electronic signatures for Shahid and Shams but also a support email address and a self-billing email address to be used by the agencies, clients and workers: support@sjpay.co.uk and selfbills@sjpay.co.uk. The self-billing templates and other documents which Shahid had helped to create were automatically populated by the agencies or clients’ payroll systems. ADL were able to send emails on behalf of the Company but also prepare and finalise contracts, deal with due diligence and compliance requirements, make RTI submissions and administer the payslips for the workers. Shams explained that ADL would even prepare the relevant tax reports to HMRC. ADL were also able to log into and operate the Company bank account and later Vision’s bank account making the majority of payments without reference back to Shahid or Shams or later Teresa.[114]The emails were operated and monitored by ADL although it was possible for Shahid and Shams to access them (and later Teresa when Vision was set up). Shahid had access to the emails used/sent by ADL on behalf of the Company but explained he would not check them unless he was specifically asked to do so. He did not expand on what type of emails he might be asked to check or did check. Shams said that any emails apparently from him were not his as he had never used the emails set up by ADL.[115]The electronic signatures including signatures for Shahid as managing director or director of the Company were used on documents including emails and contracts with third parties by both the Company, Umbrella and Vision. Shahid was unable to explain why he had not corrected what he described as the errors or mistakes in the use of his electronic signature or why he did not ask for the email footers to be changed. But he also explained that he considered ADL’s practice of pretending to be him or Shams to be standard practice. I infer therefore that he saw no reason to correct the signatures or footers at the time and knew and/or allowed documents and emails to be sent out in his name.[116]Shahid explained that any documents received from ADL were reviewed through documents a drop box or google drive link and not downloaded or retained by the Company. Shahid did not consider it was necessary as they were retained by ADL. Shams explained that Shahid would show him documents or spreadsheets and explain them but that they were not sent to him.[117]None of Shahid, Shams and Teresa was able to explain the basis of ADL’s retainer (including the payment terms) with either the Company or Vision. There were no documents, emails, invoices or other communications which recorded the terms of their retainer or fee structure. The only evidence of any payment to ADL throughout the period 2017 to 2022 were payments amounting to £193,000 made by the Company. The final recorded payment was made in August 2022 several months after Mr Khan disappeared and shortly before it is said that ADL disappeared entirely. There is no record of any payments to ADL in Vision’s bank statements. It appears therefore that ADL was being paid by the Company whether it was notionally providing its services to the Company, or Vision (or indeed Umbrella where the position appears to be the same).[118]Shahid believed that Liquid and Sanctuary became clients of the Company in 2017/2018. By 2019 they were the Company’s two largest agencies responsible for around 50% of the work of the Company.[119]Shahid explained that when Shams stopped coming into the office in 2019, he became more involved in the “business”. In February 2019, the relevant business was transferred to Umbrella. His increased involvement with “the Company” would appear to be entirely consistent with the purported transfer of the relevant business to Umbrella.[120]Teresa moved from Skytax to work for the Company from March 2019. She was paid by the Company from March 2019 to July 2021. Her role involved managing the relationships with the workers and the agencies’ consultants, including the relevant business and the relevant workers, which had by then been transferred to Umbrella.[121]The transfer of the relevant business to Umbrella was inconsistent with Teresa and Sham’s explanation of the work they undertook and/or the rationale for the Agreement and/or the proposed winding up of the Company. It made no sense.[122]It puts the apparently deliberate similarity of the names of the Company, Umbrella and Vision in context. Teresa explained that she had preferred to give Vision as similar a name as possible to the Company because at the time she thought it would be easier and mean less change and would avoid confusion for the workers and ensure the smooth transition. This seemed to fundamentally misunderstand that it was misleading and inappropriate. However, it reinforces and supports that neither the relevant workers nor Liquid and Sanctuary were told about the Agreement or the transfer of the relevant business in January 2021, or it appears in February 2019.[123]Liquid was sent an email on 26 February 2019 from one of the email addresses used by ADL: From: SJ Pay support@sjpay.co.uk Sent: 26 February 2019 19:54 To: Payroll@Liquid.SafeAssist.co.uk Cc: Nicky Lyons; Hannah Carruthers Subject: change of bank account details Attachments: SJ PAY NEW BANK DETAILS.pdf Dear Payroll team, I hope you are well. This is to inform you that our bank account details have changed. Therefore, could you please remit the funds to our new bank account. The details are as below. I am also attaching a bank letter for your reference. SJ PAY LIMITED Bank Name: LLOYDS BANK Sort code: 30-96-26 Account number: 33222668 Can you also please make sure that all remittance slips and self-bills are sent to selfbills@sjpay.co.uk Please note that this is very important as this will help us manage our payroll in a more efficient way. Please let me know, should you need more information in this regard. Best Wishes, Best Regards, Shahid Urrehman Managing Director Phone: 0333 5777322 Mobile: 07783400165 Fax: 02071831550 Address: Level 39 One Canada Square Canary Wharf London E14 5AB UK Web: www.sjpay.co.uk Email: support@sjpay.co.uk From: SJ Pay support@sjpay.co.uk Sent: 26 February 2019 19:54 To: Payroll@Liquid.SafeAssist.co.uk Cc: Nicky Lyons; Hannah Carruthers Subject: change of bank account details Attachments: SJ PAY NEW BANK DETAILS.pdf SJ PAY LIMITED Bank Name: LLOYDS BANK Sort code: 30-96-26 Account number: 33222668 Shahid Urrehman Managing Director Phone: 0333 5777322 Mobile: 07783400165 Fax: 02071831550 Address: Level 39 One Canada Square Canary Wharf London E14 5AB UK Web: www.sjpay.co.uk

Email: support@sjpay.co.uk

[124]The email refers only to a change of bank details and makes no mention of a transfer of the business or of Umbrella. The bank account details recorded in the email are those of Umbrella. Mr Chapman noted that the Lloyds bank account statement provided in support dated 15 February 2019 appeared to have been altered to show the Company name. Lloyd’s bank confirmed by letter dated 21 January 2025 that the account number (Umbrella’s account number) was not an account in the name of the Company.[125]The email referred to(i) the Company,(ii) Shahid as “Managing Director”,(iii) used the Company’s support and selfbills emails,(iv) included the Company’s website details and(v) had the Company’s logo on it.[126]Although there is no email to Sanctuary, consistent with Shahid’s oral evidence the last payments from Liquid and Sanctuary to the Company were in February and April 2019. Payments into Umbrella’s bank account from Liquid and Sanctuary commenced in February and March 2019 and continued until December 2020. Liquid and Sanctuary’s self-billing invoices and remittances continued to use the Company name as a reference and do not appear to ever have been corrected.[127]Between February 2019 and December 2020 Umbrella, rather than the Company, received £9,019,564.99 from Liquid and £7,180,812.99 from Sanctuary.[128]In 2020 as Shams’ health deteriorated further, he explained that he had wanted to end his involvement with the Company. He considered a number of options including:(i) Shahid’s suggested expansion into recruitment which resulted in the appointment of Mr Mark Pim Wusu as a director of the Company on 1 January 2021 (he remained a de jure director at the time of the liquidation in November 2022);(ii) the sale of the business/the Company if the right buyer could be found (Shams felt he had a moral responsibility to the workers to ensure that he found someone who would manage the workers’ pay as the Company had) and(iii) simply winding up the Company. His intention was that he would fade out whichever option was chosen.[129]Shams said that Teresa knew how the Company worked and was interested in setting up her own business and this led to discussions about the transfer of the relevant business. He thought the discussions may have been in the office and may have involved him, Teresa and Shahid but he could not recall who started them or where or when they took place.[130]Shahid said that running the Company was becoming too much to manage even with ADL – he said there were too many phone calls. Given the Umbrella position this was not an entirely satisfactory or logical explanation. Nor was it consistent with his alternative proposal to expand the Company into recruitment.[131]Teresa’s written evidence was that she approached Shahid (rather than Shams) in about December 2020 to discuss acquiring the relevant business after she had left and already set up Vision. Vision was incorporated on 21 December 2020 so there is an inconsistency in her timeline. She was only interested in taking on the relevant business.[132]The discussions were said to have eventually led to the Agreement which purported to transfer the relevant business to Vision. Shahid’s explanation for how this was possible in light of the Umbrella position was that in some unexplained way in December 2020 the relevant business had been returned to the Company so that it could be transferred away again in January 2021.[133]Sometime before 5 January 2021 Vision is said to have retained ADL to provide the same payroll and administration services they provided for the Company. It is unclear who retained them, when or on what basis. ADL had day to day operational control of Vision. Teresa was unable to explain the retainer with ADL or how they were paid. Vision just like the Company did not retain any documents. She described her role as the English-speaking point of contact for the workers and agency consultants.[134]The Company continued to manage a substantial umbrella business with the smaller agencies (using ADL) which seemed counter-intuitive if the intention was to relieve the work pressure for the brothers. Sham’s evidence that he intended to wind down the Company and fade away did not appear to match reality. The Company continued to trade into 2022 as a substantial £multi-million undertaking with turnover of about £13m per annum. This should have produced £100,000’s of gross profit. The extent of its continued trading is clear from the over £2.4m Shahid had set aside to meet what he considered to be the Company’s liabilities when it went into liquidation. Far from winding down, in November 2022 it still had agency clients who had not yet been transferred away. It was notable that several of the agencies recalled that it was Teresa who had contacted them (they believed from the Company) in November 2022 about the death of a director (which was untrue) and the Company ceasing to trade.[135]One of Shahid’s commercial justifications for the Agreement and the diversion of the relevant business being in the best interests of the Company was that the Vision debt would provide some income whilst the Company was wound down. Even if the gross figure for the entire period were as high as £70,000 rather than around £7,000 per quarter, it was not clear how it would have contributed to the Company’s costs of winding down. The transfer of the relevant business which produced £100,000s in gross profit per annum for the Company was given up for the Vision debt. That could never have been in the Company’s or its members’ (or creditors’) best interests in January 2021, particularly when it appeared to be unnecessary in any event both given the continuing trading of the Company until November 2022 and the earlier transfer to Umbrella.[136]On 5 January 2021, an email was sent to Sanctuary from one of the emails used by ADL (“the Email”): “From: Billingsupport <selfbills@sjpay.co.uk> Sent: 05 January 2021 12:06 To: payrollqueries@sanctuarypersonnel.com Subject: bank account details have changed Dear All, I hope you are well and managed to enjoy the festive period. Our bank account details have changed. We have opened a bank account with TransferWise. The details are as below. Account holder Sj Pay Ltd Sort code 23-14-70 Account number 59630896 IBAN GB30 TRWI 2314 7059 6308 96 If you have any query, please do let us know. Best Regards, Shahid Urrehman Managing Director Phone: 0333 5777322 Mobile: 07783400165 Fax: 02071831550 Address: Level 39 One Canada Square Canary Wharf London E14 5AB UK Web: www.sjpay.co.uk Email: support@sjpay.co.uk “ Sent: 05 January 2021 12:06 To: payrollqueries@sanctuarypersonnel.com Subject: bank account details have changed Account holder Sj Pay Ltd Sort code Account number GB30 TRWI 2314 7059 6308 96 Shahid Urrehman Managing Director Phone: 0333 5777322 Mobile: 07783400165 Fax: 02071831550 Address: Level 39 One Canada Square Canary Wharf London E14 5AB UK Web: www.sjpay.co.uk

Email: support@sjpay.co.uk “

[137]It is common ground that the bank account details in the Email are those of Vision (“the Wise account”). It is to be inferred that similar information was sent to Liquid since thereafter Liquid and Sanctuary directed their payments to Vision not the Company or Umbrella.[138]It is accepted by the JLs that after the Agreement Vision entered into some agreements with new additional workers for Liquid who were not relevant workers under the Liquid agency agreements. There is no evidence that there were any new Sanctuary workers.[139]The Email is said to have been sent by ADL. It used Shahid’s electronic signature for the Company. Shams had not told ADL about the transfer as he was not the Company’s point of contact with ADL. Teresa was very unclear and vague about how ADL knew about the change. She could not recall when or if she told ADL about the transfer. She explained in her witness statement that there was a language barrier, so it was not easy to communicate with ADL. Shahid and Teresa say that the Email was not checked by either of them. There would have been no reason for ADL to send the Email unless someone had told them, at least, that the bank account details had changed and provided the new ones. I am satisfied for the reasons set out in this judgment that Shahid will have been the source of that information.[140]Like the 26 February 2019 email, the Email refers only to a change of bank details and makes no mention of a transfer of the business or of Vision. The Email referred to(i) the Company,(ii) Shahid as “Managing Director”,(iii) used the Company’s support and selfbills emails,(iv) included the Company’s website details and(v) had the Company’s logo on it.[141]There is nothing in the Email to tell Sanctuary that their business has been purportedly transferred to Vision. There is no mention of the Agreement. No consent was sought for the transfer of the relevant business to Vision. It appears at least from ADL’s perspective this was just another change of bank account details. None of the templates ADL had been using since 2017 or the electronic signatures changed. Emails and documents continued to refer to the Company and to Shahid as director or managing director. Teresa could not explain it.[142]Liquid and Sanctuary’s self-billing invoices and remittances continued to be addressed to the Company and the majority of the payments received into the Vision bank account used the Company as their reference. For example, see below the remittance from Sanctuary addressed to the Company dated 5 June 2022, long after the Agreement. The remittance includes the Vision bank account details but with the Company name as the reference. It shows a gross supply including VAT and the profit margin.[143]This continued use of the Company name was consistent with Teresa’s evidence that she had not told the management of either Liquid or Sanctuary of the transfer to Vision and thought the similarity of names between Vision and the Company would avoid confusion for the workers.[144]Teresa accepted that if the Liquid or Sanctuary management had been told they would have had to undertake a new due diligence exercise for Vision. She accepted that there would have had to have been a new contract and/or agreement with Liquid and Sanctuary. None of this had taken place.[145]Although Teresa said that she talked to the workers all the time this was both the relevant workers and the workers since she was still assisting with the Company. There was no evidence that she had explained the transfer to any relevant workers or that there had been an assignment or novation of any of the relevant workers agreements from the Company to Vision. There is no evidence that Vision entered into any new agreements with any of the relevant workers.[146]Shahid’s involvement in Vision was significant. Skytax’s address and previous name, Accounts Direct, was used as the contact address on contracts and other documents. The Accounts Direct address, Skytax support email and phone number were provided as the contact details on the VAT registration for Vision. Shahid was the agent for HMRC purposes, and his own phone number was provided to HMRC. Shahid made Vision’s applications to register for VAT and for its Professional Passport. He said he undertook this work as a private consultant which explained the consultancy fees he was paid by Vision. The use of the Skytax/Accounts Direct details on the documentation and registrations was explained as uncorrected errors or mistakes. I note the similarity between the name Accounts Direct and ADL. It seems to me the similarity in names may not be coincidental or another error or mistake.[147]Although Teresa applied for the Wise bank account, Shahid had an admin user login and was a signatory. One of the email addresses associated with the Wise account used his name. Wise would not accept an email address or contact details associated with the account from a person in Pakistan. The use of Shahid’s name was said to have enabled ADL to have access to and operate the Wise account using the Shahid login in the same way as they were able to access and manage the Company bank account. I am satisfied on the basis of the evidence that this will have been Shahid and/or ADL’s suggestion and not Teresa’s idea. This was of course yet more evidence of a willingness on the part of Shahid and Teresa to mislead or be untruthful. Teresa accepted that this was misleading.[148]The Wise account records a number of payments or loans to Shahid or his companies from as early as April 2021. In addition to the consultancy fees paid directly to Shahid, there were payments towards a BMW for Shahid. Teresa either could not recall or did not know about the payments. They were not payments made by her.[149]There were payments recorded as loans to a care home operated by Shahid (£55,000). Teresa did admit to knowing about the loan although the payments were not made by her. She could not remember any details about the loans or their terms. They were not in writing and there were no documents. Perhaps more unlikely, Shahid also claimed to have no recollection of the details about the terms of those loans nor if they had been repaid. Shahid denied that the loan was a mechanism for extracting monies from Vision for his personal benefit. What was puzzling was that if the care home needed a loan why that loan had not been made by the Company which continued to operate as a substantial umbrella business. I note that between May 2020 and January 2021 whilst the relevant business was diverted to Umbrella, Umbrella paid the care home £116,000.[150]In addition to the payments and loans to Shahid, it is notable that Vision paid Teresa a dividend of £30,000 in January 2021 which was inexplicable given Vision had only been incorporated on 21 December 2020. She did not make the payment herself and could not explain it. She received other dividends and payments in the relevant period. She continued to be paid by the Company weekly until July 2021.[151]I have had the benefit of seeing Teresa give evidence as well as Shahid. She willingly accepted that Vision was all too much for her, she was out of her depth. She was clearly not managing or running Vision on a day-to-day basis. She was continuing to undertake her day-to-day role of liaising with agency consultants and workers for both the Company and Vision. She was not able to communicate easily with ADL due to the language barrier. On balance given her evidence I am not satisfied that she can possibly have authorised the non-standard payments such as the loans made by Vision to Shahid’s care home without considerable assistance, support and guidance. And there is no credible evidence that she did so. All of which appears to me to strongly support an inference that Shahid had a much greater involvement in Vision than he was prepared to admit.[152]Between 2021 and 2023 only seven payments were made from the Wise account by/in Teresa’s name and five of those related to payments to or for Teresa personally (four of those with her payor reference were made in 2023 and resulted in payments to her of £130,000). Every other payment including Shahid’s consultancy fees, the BMW payment and the loans, used Shahid’s name as the reference. Shahid said he did not personally access the Wise account and had not agreed to be a signatory. However, Teresa explained that she rarely made any payments herself – which was consistent with the bank statements. Teresa’s evidence was that she could not remember or did not know whether she had authorised ADL to make non-standard payments such as payments to Shahid or the loans. Teresa simply cannot recall why payments were made or whether she authorised them. She did not know.[153]Even if the payments from the Wise account (at least up to April/September 2022) were processed by ADL – any non-standard payment would have to have been authorised or directed by someone. The only person other than Teresa who could have done so for Vision was Shahid. Shahid and Sham’s explanation about how the Company was operated is helpful in this regard. For example, when a new agency client was taken on by the Company, ADL would be told. ADL would then do the rest including finalising the contract, due diligence and compliance. Shahid not Shams who was the point of contact with ADL so he must have communicated with them/Mr Khan. I infer from the evidence available about the operation of Vision and Teresa’s evidence that exactly the same approach was adopted for Vision.[154]A further significant reason to infer that Shahid had a central or controlling role in the day-to-day management of Vision similar to his role in the Company concerns the period after September 2022. Vision continued to be an active company after September 2022 and continued to make payments using Shahid’s payor reference (apart from the four made by Teresa). Between November 2022 and May 2023 Vision received in excess of £870,000 in payments from Sanctuary alone. If as Shahid says ADL had closed in September 2022 and Mr Khan had disappeared in April 2022 there was no explanation about how any of the payments were made after that or by whom. The JLs do not accept that all of the references to Shahid are ADL using his name particularly given the extensive continued use of his name as the reference on all payments after April/September 2022. I agree with them. It seems to me that the natural inference in the absence of any credible or evidenced alternative explanation at all is that the payments after September 2022 were made by Shahid or someone authorised by him to use his admin user login for the Wise account. That was not ADL on the basis of the evidence advanced at trial.[155]Shahid had admitted he was essentially operating the Company and he was the point of contact for the Company with ADL. I have no reason to find on the basis of the evidence available that the position with Vision was any different. Teresa was not controlling, running or managing Vision. On the basis of the evidence available I am satisfied that Shahid had a central role in Vision.[156]I am satisfied and find that Shahid was central to the process by which ADL were given instructions. Those instructions will have included instructions to provide Liquid and Sanctuary with the Wise account details and so to send the Email and also to make payments just as he was for the Company. I am satisfied that on the evidence available that Shahid either made the payments himself or authorised them and/or but much less likely, told Teresa to authorise ADL to make them. On the evidence available I am not satisfied that Teresa authorised ADL to make the payments herself.[157]Mr Chapman submits that Shahid was an important central link at least co-ordinating with ADL. Indeed, the JLs go as far as to suggest that there is no credible evidence that ADL were involved at all. And they are right that there is virtually no evidence at all about the existence of ADL. But someone was operating the Company and subsequently Vision (and it appears Umbrella) day to day and that was not any of Shahid, Shams or Teresa. I am satisfied that Shahid had a central controlling role in Vision throughout this period.[158]The JLs accept that not all of the monies received into the Vision Wise account would have been derived from the diverted payments. However, their focus on Shahid’s involvement and what he may have received from Vision was focussed on his level of control and involvement and the benefit he received from the transfer of the relevant business as a consequence which linked to the breach of duty claims.[159]The payments to or for the benefit of Shahid and Teresa substantially exceeded the Vision debt (<£7,000 per quarter). There was no good reason for Vision not to have made some payment to the Company if the Agreement were genuine. Teresa’s explanation that she needed an accountant to assist before she could calculate the sums due was simply not credible. In any event all of Shams, Shahid and Teresa are accountants, ADL are accountants. It just is not credible.[160]In October 2022 Shahid and Shams prepared the Company’s statement of affairs. They did not disclose the Agreement or the Vision debt. Shahid considered that the monies held by the Company would be sufficient to meet its tax liabilities and other creditors and that it was solvent. Shahid’s assessment assumed that the Company had no liability arising from the diverted payments or the relevant business. The statement of affairs had not therefore made provision for PAYE or NIC or VAT in relation to the relevant business. Unless the relevant workers had in fact been transferred to Vision and were then employed by Vision the liability to pay any PAYE, NIC or VAT would have remained with the Company as an umbrella company. Given the approach taken to the employment status of workers more generally it appears that the Company had not made sufficient provision for unpaid PAYE and NIC in relation to workers in any event (see below). The Company was therefore very likely already (or likely to become) insolvent at the time of the diversion of the payments commenced in 2021 and was insolvent at the time they sought to place it in creditors voluntary liquidation.[161]The statement of affairs was completed on 7 November 2022 and on the same day Vision changed its name from Services to Vision. On 8 November 2022, the Company determined to cease trading and commenced voluntary winding up. On 9 November 2022, its bank accounts were frozen. The JLs were appointed on 15 November 2022. The remaining agencies were notified over the next few days including by Teresa (see above) with the intention, it appears, of redirecting the agencies to Vision.[162]The £12,259,923.54 received by Vision between 5 January 2021 and May 2023 in respect of the relevant business included payments made to Vision by Sanctuary after the Company’s liquidation which I consider further below. Vision paid the relevant workers during that period, but it is not clear whether it accounted for any tax of any type in respect of the relevant workers and it does not appear to have accounted for VAT.[163]By May 2023 HMRC had instituted an investigation into the Company and Vision and subsequently obtained its freezing order. The JLs were not told about the Agreement or the Vision debt until July 2023. HMRC’s final proof of debt submitted to the JLs in respect of the Company is in the sum of £20,585,760.20, of which £11,189,552.56 is a preferential claim and £9,396,207.68 is a non-preferential claim. The Company never had any ability to pay the claims as assessed by HMRC. The Issues: Where the workers employees of the Company

The Issues:

[164]The Company was an umbrella company and promoted its services to workers and agencies (including on its website) on the basis that the workers would have all the benefits of permanent employees including the Company dealing with their PAYE and NIC.[165]It would defeat the purpose of the umbrella company if it were to treat workers as self-employed independent contractors. It would risk the agency having to pay a worker’s PAYE and NIC twice rather than having relieved it of the obligation at all.[166]Consistent with that intention the agencies contracted with the Company on the basis that the workers would be employees of the Company. For example, the contract for the supply of workers between the Company and Prentis describes the status of the worker (defined as a Consultant in the agreement) as follows:
“Status 5.1 The Consultant shall at all times up to the End Date be the employee of the [Company]. Neither the [Company] nor the Consultant is the employee, worker, agent, partner or servant of the [Agency] or the Client and the [Company] shall not hold itself out as such and shall procure that the Consultant shall not hold himself out as such.”
[167]Other agency agreements with the Company, defined workers as “employees of the [Company]” or simply defined the Company as “Umbrella Company – A company that acts as an employer to Agency Workers”.[168]All the examples of the Company’s agency contracts were in similar terms. Some of the agencies included additional warranties or guarantees and/or pro forma declarations to be signed by the Company in relation to each individual worker confirming they were employed for tax purposes. The documents include guarantees and declarations with Shahid’s electronic signature on behalf of the Company. The pro forma employment contract between the Company and a worker was entirely consistent with the other contractual documents.[169]The self-billing invoices and remittances from the agencies including Liquid and Sanctuary treated the provision of workers as a supply by the Company on which VAT was to be paid consistent with the contractual documents (see the Sanctuary invoice above). The available payslips for the workers include calculations for PAYE and NIC confirming their employee status. The documents included examples of agreements between the Company and workers which explained to the workers that they were employed.[170]The only counter-veiling documentary evidence was a single draft unsigned self-employment agreement.[171]Despite the wealth of evidence to the contrary Shahid, Shams and Teresa maintained that it was for the Company and later Vision to determine whether the workers were employees or self-employed. They considered that the agreement between the Company and the worker took precedence. Teresa explained that she would work through a questionnaire with the worker to determine their status but was unable to recall any of the questions asked or how the assessment was undertaken. Shams believed that any warranty only applied if the Company determined that the worker was an employee. He did not consider that the decision made by the Company to treat the workers as self-employed misled the agencies.[172]Whilst Shams and Shahid maintained that the vast majority of the workers were self-employed, Shams had only been able to list 22 workers whom he said were self-employed in the context of a £ multi-million business providing payroll services in relation to 100’s of workers.[173]Shams and Shahid’s evidence demonstrated a fundamental misconception about the legal obligations which the Company had entered into with the agencies and a willingness to mislead. The evidence was overwhelmingly consistent with the Company having contracted to employ the workers and having employed them. The Company was therefore liable for any PAYE, NIC or unpaid VAT in relation to the workers. If the relevant workers contracts were not novated or assigned or new employment contracts entered into with Vision, the Company remained liable for any PAYE, NIC and VAT on the supply in relation to them even after the purported transfer of the relevant business.

What was the justification for the transfer of the relevant business?

[174]The alleged justification for the transfer of the relevant business to Vision being in the best interests of the Company did not stand up to scrutiny: i) Shams’ ill health coupled with Shahid having too much work did not make any sense on the facts. The reality was that the relevant business had been transferred to Umbrella in 2019. Shams had been substantially absent from the business since at least 2019 (or at a minimum not in the office). Shahid had been managing the relevant business through Umbrella using ADL who continued to be paid by the Company, and Teresa who continued to be paid by the Company. Throughout that period the benefit of payments from the relevant business were diverted to Umbrella. Even if Shams did not know any of this, Shahid did. Only a transfer of the relevant business to a true third party would have made a difference, a transfer to Teresa changed nothing. ii) The Agreement only purported to transfer the relevant business. The Company continued to run a £multi-million business from January 2021 to November 2022. That appeared to fatally undermine the main justifications for the transfer of the relevant business– Shams’ ill health – and too much work. Splitting off the relevant business seemed, objectively, to increase Shahid and Teresa’s workload not reduce it. iii) ADL were undertaking the day-to-day operational management and administration of the Company and Vision until April/September 2022 over a year after the Agreement (and being paid by the Company). Nothing about their role changed. Consequently, whilst the benefit of the diverted payments moved to Vision the liability of ADL stayed with the Company. iv) Teresa was dealing day to day with workers and agency consultants from March 2019 as the English-speaking point of contact and continued to do so long after purported transfer of the relevant business to Vision. There is no evidence she took on any management function. v) For the reasons set out above I am satisfied that Shahid had a central and controlling role in Vision which included authorising payments even if not actually making them and that included payments which benefited him. But that role fundamentally undermined the “too much work” reason for any transfer. vi) Given the ongoing nature of Shahid, Shams and Teresa’s involvement in Vision, Umbrella and the Company there is no apparent reason to think that they could not have simply continued to support and service the relevant business through the Company (or Umbrella). There is no obvious commercial reason for the Agreement on the facts. And indeed, there was no discernible change in the way the relevant business was managed after the Agreement. vii) Teresa own evidence was that she had continued to help with the Company given Shams’ health issues. She was paid by the Company until July 2021. There is no evidence at all from either Teresa, Shams or Shahid that there was any risk that either she would have stopped helping, or that even if she did, they would not have been able to continue to service the relevant business.[175]Finally, of course it is said that part of the commercial justification for the transfer away of the relevant business was the 10% of the net profit that was to be paid by Vision as the price for the transfer. By the Agreement, the Company gave up £100,000’s of profit for a gross annual sum of about £28,000 (even if it had been paid).[176]Whether considered objectively or subjectively or viewed through the prism of s.172 or s.174 none of this could have led the directors to consider that the Agreement was likely to promote the success of the company for the benefit of its members or be a course of action that a director acting reasonably diligently could have pursued.

The Agreement

[177]The Agreement is at the heart of the brothers’ defence, and they must prove it is authentic. But even if it was authentic, if it did not in fact transfer either the relevant business or the relevant workers then the liabilities in respect of the relevant business would have remained with the Company.

Authenticity:

[178]The copy of the Agreement was said to have come from Teresa’s files. It is a copy of a hard copy document. Neither Shams nor Shahid seem to have retained a copy. Shahid’s evidence was that after it had been signed it had been scanned in and a copy sent to ADL. That does not explain why neither Shams nor Shahid had a copy whether a hard copy, the original or even the one scanned to ADL. There is a significant difference between not downloading a document sent by ADL and failing to retain a copy of the Agreement in any format.[179]It appears to be a word document and each of Shams, Shahid and Teresa say it was created on a computer, but none of them were able to say whose computer it was drafted on or even when. There was no digital or electronic version, no drafts, no versions, no amendments. There is no version in native format and no meta data. It is not therefore possible to interrogate the Agreement to understand when or how it was drafted or by whom and how and if and when it was amended to assist with determining if it was signed on 4 January 2021.[180]The date of 4 January 2021 was included in the document prior to it being printed for signing, it is typed at the top, in the opening recital and within the signature blocks. In the absence of any meta data, it is not evidence that the document was printed or signed on any particular date only that a particular date was included in the printed version of the document.[181]No one identified a single email, message or communication whether between Shams, Shahid and Teresa or with ADL, Liquid, Sanctuary or anyone else that provides any supporting evidence for the existence of the Agreement or that it was entered into by the Company and Vision on 4 January 2021 or at all. There is not a single document that provides any evidence to explain when or how the terms were negotiated. There is no evidence that any third party was told of its existence. There is not even any evidence that ADL were told about the existence of the Agreement.[182]The high point of any evidence of even the transfer of the relevant business other than Shams, Shahid and Teresa, is Mr Latif’s evidence, prepared in 2025 in which he says that he became vaguely aware that the relevant business had been transferred to Vision because Mr Khan had told him. But that is no evidence that the Agreement existed and was signed on 4 January 2021.[183]There is not a single communication about the Vision debt nor any record of it despite it being part of the commercial justification for the Agreement. It was not recorded in the Company’s books or the statement of affairs.[184]The Agreement is one of the few documents which Shams and Shahid have been able to produce and even then, it was obtained from Teresa’s file. Shahid, Shams and Teresa cannot even recall how many hard copies there were when they signed it.[185]It is beyond incredible and I do not believe that the directors of a £multi-million business did not retain a single document in any format which recorded the terms on which they transferred away up to 50% of the Company’s business. The absence of any digital or paper trail or corroborative evidence that the Agreement was entered into on 4 January 2021 weighs heavily against the authenticity of the Agreement.

The terms of the Agreement:

[186]The Agreement is a short 2-page document consisting of 7 clauses. Two of the clauses have gaps where information is missing so it had not been fully completed before it was printed, and no handwritten amendments are included in the signed version filling in those gaps. Clauses 4 (confidentiality), 6 (law and jurisdiction (not complete)) and 7 (entire agreement) are short and in what appears to be fairly straightforward terms. The operative clauses: i) Clause 1 addressed the transfer of Liquid and Sanctuary. At clause 1.1, the Company represented and warranted that it had the legal right and authority to transfer Liquid and Sanctuary and there were no restrictions. The brothers had not sought consent from Liquid or Sanctuary before or after the Agreement was entered into. The Agreement is not an assignment or novation of any agency contract. At clause 1.4 Vision was to use its best efforts to ensure a smooth transition, and this included informing Liquid and Sanctuary about the transfer and obtaining their consent. Teresa admitted that she had not told the management of Liquid and Sanctuary and had not obtained their consent. ii) Clause 2 set out Vision’s obligations in relation to VAT, and tax. The Agreement purported to transfer the obligations to Vision as well as any liability for penalties, fines or interest. Shahid considered this provided an indemnity to the Company. However, if the transfer were not effective and/or the workers were employed by the Company (and not then employed by Vision) then the liability for any tax would remain with the Company as an umbrella company. iii) Clause 3 set out the provisions which created the Vision debt. No one could quite recall who or how they had come up with the 10%. It might have been Shahid and Shams but, in any event, Teresa thought it seemed fair. Notably this was one of the incomplete clauses where the date for payment of the Vision debt after it had accrued had not been completed. Any quick review of the Agreement would have identified this gap which would have been particularly important from the Company’s perspective as it was the only payment they were to receive in return for transferring the relevant business. iv) Clause 5 provided termination provisions such that either party could terminate the Agreement on 14 days written notice. This provision was not caveated at all, there was no breach required and no period to remedy any breach. From the day the Agreement was entered into it could be terminated by Vision. This clause put the Company at considerable risk since any accrued rights or obligations prior to termination were not affected. Vision could have terminated the Agreement on the 5 January 2021 retaining all the benefit of the Agreement. Neither Teresa nor Shams were able to explain this clause – both appeared to be reading it for the first time. Shams and Teresa, both said the relationship was about trust (not the terms of the Agreement at all). Shahid said that no one acted in accordance with the Agreement. If that was the case the Agreement made even less sense, and its genuineness was even more doubtful.

When was Agreement agreed and signed:

[187]Whilst Shahid and Shams’ written evidence said that the Agreement was drafted by Vision neither Teresa’s nor Shams’s oral evidence supported this version of events.[188]Teresa could not remember if she had drafted the Agreement. She was prepared to accept that it might have been her, but she was unable to help with where the draft for the Agreement had come from. She thought she might have been able to draft it with help but could not recall if she had. She agreed that she did not often draft formal contracts and that it was quite a technical document. She was unable to explain any of the terms, or where they had come from. She could not say whether it was the sort of language she would use. She could not recall on whose computer it had been drafted. She was at a loss – she simply did not know or could not recall. She did not know if there was a digital copy. She only had a hard copy. Teresa’s evidence was based on speculation about what she thought she might have done. There was nothing firm to anchor it.[189]Teresa believed she signed the Agreement in hard copy only on the day it is dated. She thought she would have noticed otherwise. She did not have a clear recollection of signing it. She believed that she was in the office with Shahid and Shams at the time. She does not recall who signed it first. Teresa’s lack of recollection about when or how the Agreement had been drafted or signed was simply not credible given her insistence that she recalled how happy she was when it all happened.[190]Shams’s written evidence was that Teresa had drafted the Agreement, and it had been signed on 4 January 2021. However, his oral evidence was that he did not know who had drafted the Agreement. He knew he had not. If Teresa had drafted it, he did not know how she had drafted it.[191]His recollection was that he was presented with an agreement by Teresa at around the time it was signed. He could not recall if he had asked for any amendments. He could not recall any discussion about the terms. He could not recall the termination clause. He thought he had probably run it past Shahid.[192]Shams thought it was signed around the time it was dated but had no recollection about when in fact it was signed or if it had already been signed when he was given it. He could not recall whether it was signed on the same day he was given it or not. Although he thought Teresa was in the room when he signed it, he could not recall if Shahid was there.[193]Shams evidence was that by January 2021 he was hardly ever in the office so his lack of recollection about attending the office on a day when he signed an Agreement to transfer a substantial proportion of the Company away was also not credible.[194]Shahid’s evidence about the Agreement was an unappealing combination of “I don’t recall”, I don’t know, “I don’t remember”, “I am not a director” and “oversight” or deflection coupled with some apparently detailed recall of events around the 4 January 2021.[195]Shahid’s oral evidence was that the Agreement was drafted by Teresa but that the terms had been discussed possibly in December. He said that she went away to type it out and print it or alternatively she brought it to Shahid to be printed. His evidence was that it was printed so they could amend it. Shahid said there had been a discussion about each of the terms but on different occasions.[196]Shahid’s evidence was entirely contrary to Shams and Teresa’s neither of whom could recall any discussions of the individual terms of the Agreement, nor the rather more drawn-out discussion and negotiation process described by Shahid. I do not believe that the detailed discussions described by Shahid took place.[197]Shahid said the Agreement was signed on 4 January 2021, but he did not sign it, and he was not in the room when Shams signed it. His evidence also appeared to be based on an assumption because of the date on the Agreement rather than a clear recollection.[198]Shahid’s rather clearer recollection of the Agreement and when and how it was agreed was in stark contrast to the majority of his evidence. However, even he could not recall if Shams was there when it was signed by Teresa or when Shams signed it or if it was printed on 4 January. The credibility of Shahid’s evidence should be considered in the context of the 2019 purported transfer to Umbrella and the overall unsatisfactory nature of his evidence.[199]The Agreement was not discussed with Mr Pim-Wusu, and he was not asked to sign it despite by then being a director.[200]Mr Chapman suggested to the witnesses that the Agreement had not been signed until after the liquidation, but they all denied this and maintained it was signed around the time it was dated.[201]Mr Couser argued that it did not matter if the Agreement was signed on 4 January 2021 or a few days later. He argued that Teresa’s evidence of the importance of the Agreement and Vision provided some basis for not disbelieving her about the Agreement. He submitted that the fact that no one can remember who drafted the Agreement was a mark of its authenticity. He argued that whilst the criticisms of the Agreement were valid the parties trusted each other.[202]However, the brothers’ case is that the Agreement was a genuine agreement signed on the 4 January 2021 and that is what they have to prove. The question of whether they trusted each other or whether it would make any difference if it were signed a few days later is not the point. They had not sought to rely on some informal arrangement based on trust but on the Agreement which included the Vision debt which was said to provide part of the commercial justification for the diverted payments being in the best interests of the Company and what Shahid described as the indemnity.[203]Shams and Teresa’s evidence was hopelessly vague and inconsistent with their written evidence. Despite the Agreement’s apparent significance neither could recall any detail at all including when it was signed. Shahid seems to have been the driving force behind the Agreement but even he was not able to recall when or if the Agreement was in fact signed on 4 January 2021 or at all.[204]I am not satisfied that there is any clear evidence about when or how the Agreement was agreed or when it was signed. There is not a single document to support the brothers’ and Teresa’s belief that it was entered into on 4 January 2021. For the reasons set out in this judgment I treat each of Shams, Shahid and Teresa’s evidence with caution in any event.[205]All three witnesses seemed to move away from the Agreement when challenged about what it meant. Teresa and Shams both said that their arrangements were a matter of trust and Shahid’s evidence was no one acted in accordance with the Agreement which only served to undermine it further.[206]As Mr Chapman submitted there are simply too many uncertainties and inconsistencies about how and when the Agreement was drafted and signed for me to be satisfied that the Agreement was a contemporaneous document signed on 4 January 2021. I agree. I am not satisfied that Teresa drafted the Agreement or that it was signed on 4 January 2021. Shams and Shahid have not proved the authenticity of the Agreement.

Was the relevant business transferred?

[207]Although the Liquid and Sanctuary agency contracts have not been disclosed the other agency contracts provide a range of clauses all of which make it clear that any variation or alteration to the agency contract is to be agreed in writing by the parties to it. Some go further providing that the agency contracts are personal to the Company and/or non-assignable. I infer that Liquid and Sanctuary’s contracts would have been no different. It was not explained how it was said that the Company could unilaterally transfer the relevant business in those circumstances or at all without the consent or knowledge of Liquid and Sanctuary.[208]Liquid or Sanctuary were not told and did not consent to the transfer of the relevant business whether pursuant to the Agreement or at all before or after 4 January 2021. Vision did not enter into any new contracts or undertake any compliance, or due diligence checks with Liquid or Sanctuary. There was no assignment or novation of the Company’s agency contracts to Vision. There was nothing in writing.[209]The available documentation (the self-billing invoices, remittances, spreadsheets) provides clear evidence that Liquid and Sanctuary continued to believe that they were dealing with the Company but simply directing payments to a new bank account – the Wise account. They even continued to use the Company’s VAT number, not Vision’s. None of this was ever corrected by Vision or the Company. This was inconsistent with any transfer having taken place.[210]The fact that it appears that Liquid also dealt with Vision itself for some workers does not undermine but rather reinforces that in relation to the relevant business nothing changed other than the diversion of the payments to a new bank account. They did not know about the transfer of the relevant business.[211]Mr Chapman relies on the failure of Vision to pay and the Company to chase for the 10%. This was the only financial consideration for the purported transfer. The explanation for this was unsatisfactory and the amounts so minimal that the explanation made even less sense in the overall context of the relevant business.[212]Mr Chapman points to the continuing weekly payments to Teresa from the Company until July 2021 and submits that on the balance of probabilities she was continuing to work for the Company. I agree and indeed Teresa’s own evidence was that she continued to “help out” with the Company and she continued to deal with the consultants and workers as she had been doing since March 2019. The documentary evidence suggests that the agencies still believed she was working for the Company as late as November 2022. Yet she was also receiving dividends and other payments from Vision at the same time.[213]He also relies on Shahid’s involvement in Vision and its finances as being wholly inconsistent with the transfer of the relevant business away from the Company.[214]The Company continued to pay ADL until August 2022. ADL continued to use the same templates and documentation throughout which included the Company’s name and even its VAT number whether it was notionally said to be undertaking work for Vision or the Company.[215]All of this appeared to be inconsistent with the relevant business in fact having been transferred away from the Company at all. Instead, the relevant business continued to be administered as it always had been with neither Liquid nor Sanctuary being aware of or having agreed to the transfer of the relevant business to Vision.[216]None of this addressed the question of what it was that the Agreement purported to transfer given the purported transfer of the relevant business to Umbrella in 2019.[217]I am not satisfied that even if the Agreement were genuine that the relevant business was in fact transferred to Vision by the Agreement or capable of being transferred by it or at all.

Were the relevant workers transferred?

[218]The relevant workers were not told that they had been/would be transferred to Vision in advance of the Agreement.[219]Teresa said she had told the relevant workers about Vision after the transfer as part of her role as the “English-speaking” point of contact for the consultants and workers. It was unclear who she told, when she told them or what she told them given her evidence about avoiding or minimising confusion and the use of similar names. From her evidence it appears at best that if she told a relevant worker anything at all it would be if she happened to speak to them. There was no evidence of any effort to regularise the position with the relevant workers. Vision did not enter into any new contracts with the relevant workers.[220]The overwhelming weight of evidence is that the relevant workers were employees of the Company. That being the case the need for new employment contracts with Vision was essential to avoid the Company being liable for any PAYE, NIC or VAT in relation to relevant workers. Even if Shams is right that 22 of the workers were self-employed (and there is no evidence they were relevant workers) that would not alter the position in relation to the vast majority of the workers.[221]I am not satisfied that there is any evidence that the relevant workers were in fact transferred to Vision even if they were paid by Vision from the diverted payments in the Wise account from January 2021. The workers remained employed by the Company. The liability for their PAYE, NIC and the VAT on the supply remained with the Company under its agency contracts.[222]Even if the relevant workers had been transferred by some means unless Vision entered into new employment contracts with them the Company would still remain liable for their PAYE and NIC as the umbrella company who employed them. That would undermine any possible argument that the Agreement was in the best interests of the Company.[223]Finally, it is not at all clear that the Agreement was capable of transferring anything if the relevant business had vested in Umbrella.

Breach of Duty:

[224]As set out above directors have a core duty to act in good faith. The duty to promote the success of the Company in the best interests of the Company is for the benefit of the members as a whole. However, it is sufficient if the interests of the Company were subordinated by the purported transfer of the relevant business to Vision.

Shahid:

[225]The JLs submit that Shahid was responsible for Sanctuary and Liquid being misled into paying the diverted payments to Vision instead of the Company. For the reasons set out in this judgment I agree.[226]Shahid’s evidence was wholly unreliable and the absence of any documentary evidence to support it on critical evidential issues further weighed against him. The repeated explanation for documents contrary to the position he advanced as errors, mistakes and oversights was not at all persuasive.[227]That every document that contained his name, signature or contact details that implied a significant role in either company was an uncorrected error, or mistake was not sustainable. Rather the documents appeared to confirm Shahid’s central role in both the Company and Vision and how he had been held out and represented to the agencies including Liquid and Sanctuary and other third parties.[228]I do not believe Shahid’s evidence for the reasons set out above and where the documents support a contrary version of events more consistent with the case advanced by the JLs I prefer that evidence.[229]Shahid not only had a central and controlling role in the Company but also in Vision for the reasons set out above. I am satisfied that Shahid was the main point of contact who provided day to day instructions to ADL in relation to both the Company and Vision including the provision of bank details to enable the diversion of the payments of the relevant business to Vision in January 2021. I consider it unlikely that he typed up the Email himself but on balance I am satisfied that he was the cause of it being sent for the reasons set out above.[230]That conclusion is reinforced by the diversion of the payments for the relevant business to Umbrella in February 2019. The JLs submit that the striking similarity between the two emails suggests a modus operandi. I agree and it certainly undermines Shahid’s position further.[231]Nothing about the management of the relevant business or relevant workers changed other than the bank details to which payments were made. All the documents continued to refer to the Company. Liquid and Sanctuary continued to use the Company payment reference until November 2022.[232]Even though Mr Latif says he was vaguely aware that Vision had taken over Liquid and Sanctuary there is no evidence of any change to the way in which the relevant business or relevant workers were managed thereafter. And Mr Latif was not available to be cross examined on his vague recollection of being told something by Mr Khan in 2022.[233]Against that it is necessary to consider if there can be any possible basis for saying that the diverted payments were not a breach of Shahid’s duties as a director of the Company.[234]Shahid’s subjective reasons for believing the Agreement and the diversion of the relevant business and payments to Vision was in the best interests of the Company are considered earlier in this judgment and do not stand up to scrutiny. From a commercial perspective the financial benefit to the Company was limited to 10% of the net profit which Shahid thought might be about £28,000 (£7,000 per quarter) as against the gross profit for the relevant business over the relevant period of about £700,000. In any event the terms of the Agreement which Shahid says were each discussed included the termination provisions which were clearly contrary to the Company’s best interests.[235]At the same time as divesting the Company of the prospect of a significant financial benefit, Shahid then benefited from Vision. He was paid personal consultancy fees (which would have been unnecessary if the relevant business had remained with the Company (or Umbrella)), monies towards the acquisition of a BMW and provided his care home with a loan which in combination exceeded by some margin the amount of the net profit that the Company might have received under the Agreement, if paid over the same period. At the same time the Company continued to pay ADL for its services until August 2022, and it continued to pay Teresa until July 2021. The Company was therefore paying for Vision to administer the relevant business and receiving nothing in return.[236]The failure to effectively transfer the relevant business and workers exposed the Company to significant liabilities for PAYE, NIC and VAT without the benefit of the profit from the diverted payments nor even the Vision debt.[237]The rationale for the Agreement or the transfer of the relevant business does not make any commercial sense in the circumstances and clearly was not in the best interests of the Company.[238]I am not satisfied that Shahid did in fact consider his duty to promote the success of the Company when the diverted payments were diverted to Vision. Rather it appeared he was considering his own interests.[239]Objectively it was not in the interests of the Company or its members for the diverted payments to be diverted and in doing so exposing itself to liability for VAT, and the potential liability for PAYE and NICs but having diverted away the means of meeting those obligations. The modest 10% of the net profit paled into insignificance against the diversion of the profits and the retention of the liabilities.[240]There was no objective justification or benefit to the Company in transferring away or purporting to transfer away the relevant business.[241]Mr Chapman considered the stakeholder factors arguing that the purpose of the transactions appeared to be to enable the evasion of VAT, PAYE and NICs which would not have been in the interests of the Company having regard to the need to foster its business relationships with suppliers, customers and others (section 172(1)(c)), or the desirability of the Company maintaining a reputation for high standards of business conduct (section 172(1)(e)).[242]The monies held by the Company when it was placed into liquidation did not take into account the liabilities that had remained with the Company in respect of relevant business. Any unpaid VAT on the supply side in respect of the self-billed remittances was a liability of the Company and so was any PAYE or NIC payable in respect of the relevant workers all of whom were for the reasons set out above to be treated as employed by the Company.[243]The Company’s bank balance did not ever reach a level between January 2021 and November 2022 where it had sufficient in it to enable it not only to meet the liabilities that Shahid admitted that it had but in addition the liabilities arising as a consequence of the diverted payments. HMRC’s final proof of debt is in the sum of £20,585,760.20. Although the entire sum would not immediately have accrued, the Company did not have any ability to pay the liabilities for any taxes as they arose because the receipts that would have enabled it to do so had been diverted.[244]Shahid should have appreciated that in either failing to transfer the relevant workers at all or in failing to ensure that Vision entered into employment contracts with them that the Company retained liability to meet any tax liabilities as an umbrella company. He did not ensure that the Company retained sufficient funds to enable it to meet those liabilities but instead the diverted payments were paid to Vision leaving the liabilities behind in the Company. The Company was therefore insolvent at the time of (or as a result of) the diverted payments and so the Sequana Duty towards the creditors should have been considered at the time the Agreement was entered into and the diversion of the payments commenced. It appears very likely on the evidence available that the Company already had other unpaid tax liabilities in relation to other workers.[245]For these purposes if Shahid had considered the consequences of the Agreement including that it failed in fact to transfer either the relevant business or the relevant workers and left all the liabilities relating to them with the Company he could not possibly have objectively considered that it was in the best interests of the Company. Any director acting consistently with his duties would have recognised that his Sequana duty was engaged since the effect of allowing the diversion of the payments was to prevent the Company from meeting its liabilities as and when they fell due (including to HMRC) and to put it in a position of at least imminent insolvency from the date of the earliest diverted payment.[246]No intelligent, honest person in the position of a director of the Company could in the circumstances reasonably have believed that the Agreement purporting to transfer the relevant business was for the benefit of the Company.[247]I am satisfied that Shahid acted in breach of his duty to act pursuant to s. 172 in the best interests of the Company and to promote its success.[248]I agree with Mr Chapman that for the same reasons, diverting the payments was at least negligent and so constituted a breach of section 174 of the Companies Act 2006.

Shams

[249]Shams may be unwell but that does not change the nature or scope of his fiduciary duties. Neither delegation whether to Shahid or through him ADL or omission, absence, or inactivity are defences to a claim to breach of duty.[250]But in any event in his written evidence, he explained:
“I became more reliant on Shahid to help me with SJ Pay ... We would speak every day, and all key decisions would be run past me. I trusted him with running the business properly.”
And in his oral evidence he did not demur from that saying that he was ultimately responsible and/or that everything that Shahid did was authorised by him.[251]I am satisfied that Shams also acted in breach of duty or was at the very least negligent and is liable in the same way as Shahid. Those facts and matters identified in relation to Shahid consequently apply equally to Shams whether he took the relevant steps himself or not.[252]There is no evidence at all that Shams did consider what was in the best interests of the Company. The same issues identified in relation to Shahid come back into account when considering the question of the diverted payments, the Agreement, the relevant business and the relevant workers in respect of Shams.[253]Shams was the de jure director and responsible for a Company with a £ multi-million turnover. His lack of understanding or apparent lack of involvement or absence and his apparently limited understanding of how the Company operated, including its contractual obligations to the agencies and the workers, and its relationship with ADL do not provide any defence.[254]He was directly involved in the Agreement having signed it despite his lack of recollection about the details of when or how that occurred or even what the terms meant. He cannot avoid a breach of duty claim for lack of understanding. It is plain that objectively for the reasons set out above that the diverted payments were not in the interests of or for the benefit of the Company or its members, or creditors and the Agreement whether genuine or not, does not provide any protection from that conclusion for the reasons set out above.[255]I would add to that that his lack of apparent knowledge about the Umbrella transfer in 2019 only adds to the evidence of his shortcomings as a director.[256]I am satisfied that Shams was in breach of duty in relation to the diverted payments and the Agreement and was in any event negligent for the same reasons.

Relief from Liability

[257]For the reasons set out above whether one considers the question of whether the diverted payments and the Agreement were in the best interests of the Company objectively or subjectively both Shahid and Shams were in breach of duty and there is no reason for them to be relieved from liability under s.1157 CA 2006.[258]Neither of them were acting honestly or (objectively) reasonably in respect of either the Agreement or the diversion to Vision of the diverted payments and this includes consideration of Shams’ inactivity in relation to the Company, the diverted payments and the Agreement which by definition were unreasonable.

Relief

[259]The Company’s primary claim is for equitable compensation under s.172 CA 2006. In light of my findings the claimants are in principle entitled to recover equitable compensation for breach of trust.[260]In order to recover damages or equitable compensation the Company must have suffered loss as at the date of trial (see Auden McKenzie (Pharma Division) Ltd v Patel [2019] EWCA Civ 2291 at [40], [41], and [50]).[261]Equitable compensation is by its nature a discretionary remedy. There are therefore additional considerations when considering whether it is equitable to grant relief and in what amount.[262]It is for the Company to prove that the losses claimed flowed from the alleged breaches of duty albeit determined with hindsight at the date of trial.[263]The measure of equitable compensation is the sum required to put the Company into the position it would have been if Shahid and Shams’ breaches of duty had not occurred (see AIB Group (UK) plc v Mark Redler Associates & Co [2014] UKSC 58, [2015] AC 1503, Lord Toulson at [62] to [77]).[264]There is therefore an element of causation required to recover equitable compensation. Causation must be established but it is not applied axiomatically in accordance with common law principles and can be achieved in an appropriate case by applying the “but for” test (see LIV Bridging Finance Ltd v EAD Solicitors LLP (in administration) [2020] EWHC 1590 (Ch) at [23]).[265]Umbrella companies may be said to present particular difficulties in assessing equitable compensation. In Umbrella Care Limited (In Liquidation) v Nisa [2022] EWHC 3139 (Ch) (“Umbrella Care”), the measure of loss was the umbrella company’s liability to HMRC. Edwin Johnson J stated as follows at [76] and [77]:
“[76] I accept that what was said by Lord Browne-Wilkinson in Target applies to the assessment of the equitable compensation payable by Mr Raja for breaches of the fiduciary duties which he owed to the Company as its director during the Relevant Period. So far as the claim is one for damages at common law it seems to me that ordinary principles of compensation apply. In both cases the essential factual question is what sum is required to put the Company into the position in which it would have been if Mr Raja’s breaches of duty had not occurred. [77] The answer to this question, on the evidence before me, seems to me to be straightforward. The business of the Company, as explained by Ms Brittain in her evidence, was to trade as an umbrella company, as such companies are known, providing staff to staffing agencies in the medical field. The Company acted as the employer of these staff. As the employer the Company administered the payroll function of the staff provided to the agencies. These staff were the employees of the Company. The Company received from its clients the gross wages payable to these staff, and also charged VAT on these payments. If therefore the Company had been properly run by its directors, including Mr Raja, it would have had the funds available both to account to the Revenue for the PAYE and NIC elements of the gross wages of its employees, and to account to the Revenue for the VAT charged to its customers. Instead virtually all of these funds, which should have been used to account to the Revenue for the Company’s tax liabilities, were unlawfully diverted out of the Company in the form of the UCL Funds, by the Known Transfers and the Unknown Transfers. The result is that the Company has been left with a substantial liability to the Revenue which, save for what can be realised in respect of the Company’s assets, the Company has no means of discharging. I accept that this situation would not have occurred but for Mr Raja’s breaches of his duties, as a de jure and de facto director of the Company, during the Relevant Period.”
[266]Here, as in Umbrella Care the measure of equitable compensation is not by reference to the sum that HMRC may seek by way of PAYE, NIC or even VAT but instead by reference to the diverted payments which were diverted away as a consequence of the directors’ breaches of duty.[267]In a case such as this the relevant causation test is relatively easily understood but for the breach of trust/breach of fiduciary duty by Shams and Shahid the diverted payments would not have been paid away.[268]The sum awarded for equitable compensation should be calculated by reference to the amount required to replace the loss that the Company has suffered as a result of the breach of fiduciary duty which will usually include equitable interest over the relevant period. It is however, for the Company to advance evidence in support of its claim for equitable compensation.[269]The claim is therefore for the entire amount of the diverted payments less any credits. The claim is made by the JLs, and any recovery is for the benefit of the creditors as a whole. Whilst those creditors include HMRC that does not change the duties of the JLs in relation to the creditors as a whole. Mr Couser’s submissions criticising the JLs for jumping on the HMRC bandwagon and not themselves carrying out a critical audit prior to issue were not entirely fair.[270]The amount of the diverted payments was relatively simple to calculate as it was the amount that Liquid and Sanctuary had paid to Vision since 4 January 2021 in respect of the relevant business. Because of the breaches of duty and the manner in which the diversion of the payments was achieved, Liquid and Sanctuary, helpfully, continued to use the Company name as their reference on payments until November 2022 so it was a simple matter of maths to calculate the total amount of the diverted payments.[271]The JLs can be reasonably confident that this is an accurate figure since there are separate payments by Liquid to Vision where they relate to Vision’s own business with Liquid and new workers not relevant workers which do not use the same reference.[272]The question to be determined in relation to equitable compensation is therefore what the deductions or credits should be against the total receipts from Liquid and Sanctuary.[273]The JLs had obtained information in respect of the relevant Liquid workers but had very little information in respect of the relevant Sanctuary workers.[274]Mr Morgan seeks equitable compensation based on an estimate of the net diverted payments calculated as being 30% of the total diverted payments. This is based on an analysis carried out by the JLs’ solicitors based on the limited information they have available. He explains that the limited information is caused by three particular factors(i) the lack of documents, information and disclosure provided by the defendants(ii) a lack of cooperation from Liquid and Sanctuary and(iii) what was described as a lack of meaningful engagement by the defendants in the court proceedings.[275]Morgan 4 explains that having reviewed the payment information provided by Liquid and Sanctuary and having compared it with the information about receipts into Vision’s Wise account Mr Morgan’s solicitors had prepared the following table included in Morgan 4.[276]When calculating the credits to allow against the diverted payments Mr Morgan explains that the JLs and their solicitors had some information for some of the period enabling them to identify Liquid workers which were paid by Vision and the amounts. It is that information that allowed them to populate column 3 and thus calculate the surplus received by Vision in column 4 in the table above in respect of Liquid. He says the court can have some confidence in the JLs’ figures on the basis of the Liquid self-billing spreadsheets from which the Liquid figures have been derived and from both Mr Morgan and Teresa’s evidence.[277]However, there is a significant quantity of data missing in relation to Sanctuary. The JLs had not yet been provided with a full set of names of the relevant workers so had not yet been able to accurately assess the credits to be given. In relation to Sanctuary the only information which the JLs appear to have are three invoices for June 2022. The JLs’ solicitors have sought to map that information against payments out from Vision. This is set out in Morgan 4 at [15] and [16]:[278]Mr Chapman explained that there is a degree of scepticism on the part of the JLs about the payments in respect of the Sanctuary workers as they did not exactly match up. Although the JLs had requested information from Sanctuary it had not been received. Mr Couser was critical of the JLs for not having taken further steps to obtain that information earlier. I have some sympathy with that criticism.[279]I consider that the Sanctuary sample of three workers in 1 month in June 2022 cannot be considered to be statistically significant as there is far too little data for it to be meaningful. There is no way of knowing at this stage what the position was with Sanctuary. Even Mr Morgan does not have a high degree of confidence in the Sanctuary figures.[280]Morgan 4 explains at [19] that the JLs have taken the information available and then calculated the percentage retention by Vision in each case. This has produced the following figures: Liquid Retention 01/04/21 – 31/03/2022 = 34.46% Liquid Retention 01/04/22 – 31/10/2022 = 35.71% Samantha Lawrence 16/06/2022 = 34.25% Fayobi Fadojutimi 19/06/22 – 23/06/2022 = 22.49% Diane Adjei-Gyamfi 05/06/2022 – 06/06/2022 = 22.49%[281]Mr Chapman explains that this provides a range of retention figures of between 22.49% and 35.71% and it is on this basis that the JLs have adopted what they consider to be a very cautious approach of adopted a flat rate of 30% retention.[282]This produces the following figures:[283]Mr Chapman submits that the JLs’ figures are the best estimate on the evidence available in circumstances in which Shahid and Shams have not presented alternative figures or any documentation. He submits that given that the Liquid retention percentage is substantially higher for a much larger data set that the £3,972,893.80 (being 30% of the total diverted payments of £12,259,923.54) is a very cautious calculation which favours Shahid and Shams.[284]Mr Morgan considered that 30% was a conservative estimate. He put this in context by noting that 20% would be taken off automatically for VAT leaving 10%. Shahid and Shams evidence is that a further 7% would be retained for profit margin. Mr Chapman submits that when you take into account that a further sum should have been held back from PAYE and NIC the 30% figure can be seen in context.[285]Mr Chapman relies on Teresa’s evidence to support the JLs’ 30%. Her evidence was that for a self-employed worker, 20% would be held back for VAT and the worker would receive 90% of the remainder. This would equate to 72% of the gross sum being paid and so a retention of 28%. However, she was unable to say how many workers she treated as self-employed and how many were employed. If the workers were or should have been employees an additional sum should have been held back for PAYE and NIC. The JLs submit that Teresa’s figures are therefore in a similar range to Mr Morgan’s figures.[286]HMRC have calculated VAT on the diverted payments in the sum of £2,634,147 which is less than the sum which is being sought by the JLs. However, neither the JLs nor HMRC have been able to assess the PAYE and NIC not because there is no liability but because they are unable to do so on the information presently available. Based on the HMRC assessment the VAT remains to be paid on the diverted payments. It forms part of the Company’s liabilities for the reasons set out above. But since the calculation of the sum payable for equitable compensation is the total amount of the diverted payments less any credits the precise amount of the liability for VAT does not affect the calculation for these purposes.[287]Mr Morgan explains that having discussed the position with HMRC, they have not assessed PAYE or NIC on the diverted payments as they are unable to determine with certainty which of the workers paid by Vision was a relevant worker. As set out above there is no evidence that a single relevant worker was in fact transferred to Vision pursuant to the Agreement.[288]Whilst the Company and Vision both held sums against potential tax liabilities when liquidated, the measure of loss is not affected by the amount of any sums held by or in the Company or Vision. In any event they two separate legal entities with their own liabilities. Mr Couser’s submissions that this was not a very good fraud if across the Company and Vision there was enough to pay the tax liabilities was not an answer to this. This issue here is that the Company has been left in a position where it is insolvent and does not have the resources to meet its liabilities (or at least those that arise because of the diverted payments) as a consequence of the diverted payments.[289]This claim relates to how much was diverted. Where there is a breach of trust such as this the calculation of equitable compensation is based on the diverted payments less any appropriate credits.[290]The money retained by the Company at the time of the liquidation by definition did not relate to or arise as a consequence of the diverted payments since it was the money set aside by Shahid to meet what he considered to be the liabilities of the Company excluding the diverted payments. However, and in any event at the time of the respective liquidations the amount of the deficit in the Company vastly outweighed the net diverted payments.[291]The JLs therefore seek equitable compensation calculated as follows: i) When taking the actual figures paid to workers in respect of Liquid 1 April 2021 to 31 October 2022 and calculating 30% of the remainder: £3,972,893.80. ii) In the alternative, when taking a 30% estimate of all Diverted Payments: £3,677,977.06 (being 30% of the entirety of the Diverted Payments of £12,259,923.54).[292]Equitable compensation is discretionary and there is no absolute entitlement to it and in some cases the court may refuse to grant it. But equitable compensation is about fairness. In this case it seems to me that there are three distinct parts to the claim for equitable compensation.[293]Mr Couser has been critical about the data and evidence which the JLs rely on to support the claim for equitable compensation. He highlights that the JLs may have been able to obtain better information by using their powers under the IA 1986 in relation to, for example, Sanctuary and is critical of the lack of evidence from Sanctuary or Liquid. However, it is also necessary to be proportionate.

Liquid

[294]The figures paid to workers in respect of Liquid have some proper evidential basis. I have the evidence of Mr Morgan supported by spreadsheets derived from the bank statements and other material to analyse the position in relation to the relevant Liquid workers. The actual credit has been calculated against the actual sum diverted. No counter evidence has been provided by the brothers. I prefer the actual figure to a flat rate % as it more properly reflects their entitlement to equitable compensation.[295]The JLs are entitled to equitable compensation of the actual difference between the diverted payments and the credits in respect of Liquid as set out above.

Sanctuary pre liquidation

[296]On the evidence presently available I am not satisfied that the credits in relation to Sanctuary are sufficiently robust to be relied on and be read across for the period up to November 2022. The retention % swing across three workers in June 2022 is 10%. As set out above even the JLs have doubts about the robustness of the figures. I do not consider reading across from the Liquid data is realistic or a proper basis to assess the % for the Sanctuary diverted payments given the apparent differences.[297]I keep well in mind that the JLs are pursuing this action for the benefit of the creditors. I am satisfied that they are entitled to equitable compensation and that the only issue is the robustness of the credits to be set against the Sanctuary diverted payments.[298]Although I could take a rough and ready approach it seems to me it is neither in the interests of the JLs, the creditors nor indeed Shahid or Shams to do so on such a small sample.[299]It seems to me that the appropriate course is to revisit the question of the Sanctuary pre liquidation equitable compensation at the consequentials hearing and give such further directions as may be necessary. If the Sanctuary information is now available, the parties may be able to agree the calculation in any event, and I invite them to do so rather than incur further unnecessary costs.

Sanctuary post liquidation

[300]The JLs have included in their Sanctuary calculations the sum of £878,779.42 paid to Vision’s Wise account by Sanctuary between 1 November 2022 and 31 May 2023.[301]After the Company’s liquidation the payments made by Sanctuary no longer included the Company reference. They continued to be paid into the Vision Wise account which was of course the account the monies had been paid into since the Email.[302]The JLs seek to infer that Sanctuary continued to treat this as a payment to the Company and submit that it is still recoverable because Sanctuary intended the Company to receive it. They argue that it was a Company asset resulting from Sanctuary’s use of the relevant workers and that on the balance of probabilities the Company would not have gone into liquidation and would still have been trading as at 31 May 2023 if the diverted payments had not been diverted. They rely on the evidence that the relevant business simply continued before and after the Agreement and the liquidation but through Vision.[303]Mr Morgan accepted in cross-examination that the JLs could not claim the sums post liquidation.[304]Mr Couser submitted that after liquidation in any event the work undertaken by Vision post liquidation in relation to the relevant workers was not work that could have been done by the Company and that the Company had gone into liquidation so the speculation about what it might have been able to do if it had not did not help the JLs. He did not accept that post liquidation the payments by Sanctuary were an asset of the Company.[305]It seems to me that very fact that the payments no longer had the Company reference attached to them seems to me to be evidence that Sanctuary knew that something had changed. The fact that the monies were paid to the same bank account is not sufficient to my mind to demonstrate that Sanctuary continued to intend the Company to receive the payments. There was no evidence from the JLs, Sanctuary, Teresa or anyone else about the continuing payments to Vision after November 2022 apart from the inclusion of the figures in the tables above.[306]I am not satisfied that the JLs have proved any entitlement to the post liquidation net diverted payments nor that they are entitled to recover the net diverted payments after the date of liquidation as equitable compensation on the basis of the limited information available in any event.[307]The Company’s secondary claim in damages under s.174 CA 2006 arising from the negligence of the brothers. The claim in damages is a right to recover the loss suffered as at the date of trial subject to proving that the loss claimed was caused by the alleged breaches and quantification. Given the position in relation to s.172 I do not consider this further.

Fraudulent Transactions:

[308]Both Mr Chapman and Mr Couser considered that the claim for relief under section 423 IA 1986 would be academic if the claim for breach of duty succeeded. They agreed that it would not add anything given that the claim against Vision has been stayed. I have not therefore considered it further at this stage.

Conclusions:

[309]For the reasons set out in this judgment I am satisfied that both Shams as de jure director and Shahid as de facto director, acted in breach of their fiduciary duties to the Company pursuant to section 172 Companies Act 2006 (CA 2006).[310]I am satisfied that but for the breach of duty the diverted payments would not have been diverted and would have been available to the Company. In principle the claimants are entitled to equitable compensation.[311]The equitable compensation which the claimants seek to recover is for the benefit of the creditors of the Company.[312]That equitable compensation should be calculated by reference to the total of the diverted payments less appropriate credits.[313]The claimants are entitled to equitable compensation in relation to the diverted payments in respect of the Liquid relevant business less the Liquid credits in respect of the payments by Vision to the workers in the sums set out above.[314]The claimants are entitled to equitable compensation in relation to the diverted payments in respect of the Sanctuary relevant business up to the date of the Company’s liquidation less the Sanctuary credits in respect of payments by Vision to the workers.[315]I am not satisfied that the evidence available is sufficient to calculate the Sanctuary credits now.[316]The claimants are not entitled to recover by way of equitable compensation the net diverted payments arising from the payments made by Sanctuary to Vision after November 2022.