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If you're a director who has a relaxed and informal approach to financial record keeping, you might not feel so relaxed after reading this.....

View profile for Jemma Bennett
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A recent judgment in the High Court has confirmed that directors who do not maintain accurate company financial records do so at their own risk.

By way of background, WOW Internet Limited entered liquidation in July 2014 and steps were taken to dissolve the company by Ms Sharma, the appointed liquidator.

In an unrelated case, Ms Sharma was found guilty of misfeasance and breach of duty.  Stephen Hunt of Griffins Insolvency Practitioners took steps to restore the company and seek his appointment as liquidator of WOW.

After investigation it was apparent that there were a number of payments made out of WOW's account which were not accounted for and required further investigation. The payments totalled £52,431.30 including cash withdrawals amounting to £29,626 which were made after the deemed date of insolvency.

Further explanation and documentary evidence was sought from the director, who claimed that all documentation had previously been provided to Ms Sharma although, he had been unable to justify the payments and, had not maintained sufficient company records to explain the payments.

During the course of the proceedings, the director, tried to justify the expenditure by explaining that certain payments were for the benefit of WOW's employees, some payments to suppliers of WOW and other sums to himself personally.  However, he was unable to support his position by reference to any of WOW's records or contemporaneous documentation.

It was held that the director should repay the full amount of £52,413.  The Judgment noted that the evidential burden was on a director to prove that any sums paid out of WOW's account were for legitimate company purposes.

This case is an important reminder that directors take a significant risk if they have a relaxed and informal approach to record keeping; to such an extent that they may have to repay sums out of their own pocket if they cannot demonstrate payments have been made for legitimate business purposes.

At Gepp Solicitors we can advise on all aspects of Employment Law. For more information and guidance, please email deana@gepp.co.uk 

This is not legal advice; it is intended to provide information of general interest about current legal issues.