SHERIFFDOM OF GRAMPIAN HIGHLAND AND ISLANDS AT ABERDEEN

 

A580/08

		INTERLOCUTOR   in causa   ELMCROSS LIMITED (SC211806) (In Liquidation), a company incorporated under the Companies Acts with its registered office at Unit 6, The Altec Centre, Minto Drive, Altens, Aberdeen, AB12 3LW and CHARLES H. SANDS, Chartered Accountant, 11 Allardyce Street, Stonehaven, AB39 2BS as the liquidator thereof.
		Pursuers
		against
		GEORGE HUGH MACKENZIE TAYLOR, residing at 51A Ashvale Place, Aberdeen, AB10 6QJ.
		Defender   ___________________________

 

 

Act: Artis, Advocate

Alt: Campbell

 

 

 

ABERDEEN, 3 March 2010.

 

The Sheriff, having resumed consideration of the cause, Refuses defender's motion to amend plea in law 2; Sustains pursuers' pleas in law 7 and 8 and accordingly pursuers' pleas in law 1, 2, 3; Repels pursuers' pleas in law 4 and 5; Repels defender's pleas-in-law 1, 2 and 3 and accordingly (1) Grants decree against the defender for payment to the pursuers in the sum of FORTY EIGHT THOUSAND THREE HUNDRED AND FORTY TWO POUNDS AND TWENTY TWO PENCE (£48,342.22) STERLING with interest thereon at the rate of eight per centum per annum from 19 June 2008 until payment; (2) Grants decree against the defender for payment to the pursuers in the sum of FORTY FIVE THOUSAND NINE HUNDRED AND NINETEEN POUNDS AND FORTY FOUR PENCE (£45,919.44) STERLING with interest thereon at the rate of eight per centum per annum from 19 June 2008 until payment; Finds the defender liable to the pursuers in the expenses of the cause, Allows the pursuers to lodge an account of their expenses and remits the same, when lodged, to the auditor of court to tax and report.

 

 

 

NOTE:

 

[1] This is an action by the liquidator of a private limited company against the former principal director of that company seeking payment and repayment alleged to be due by that director to the company. The pursuers' claim is split into two parts, firstly, a crave seeking repayment of the sum due by him in respect of his loan account with the company and as shown in the company's accounts. The defender's position on that matter is that the loan account has been repaid. Although it is not in dispute that sums of money have been paid into the company, it is the company's position that these were sums to which they were in any event entitled. The pursuers' second crave seeks repayment by the director of various sums shown as having been withdrawn by him and falling into three categories, namely, cash withdrawn from the company's bank account, payments made on the company's credit card, and sums withdrawn from the company's funds by route of the company's wage payment system. The broad defence to the second crave is that if it was accepted that the sums were withdrawn, they were so withdrawn for good reason and the company received full value therefor.

 

Pursuers' Submissions

 

[2] Mr Artis, for the pursuers, addressed the court at length with a careful and comprehensive analysis of the pleadings and the defender's responsibilities to the company in terms of Common Law and the Companies Acts.

 

[3] The defender admitted that he was due to repay a loan to the company in the sum first craved. It was his explanation that he had made two payments into the company, £12,000 and £40,000 respectively to cover this loan. These payments were, in effect, the proceeds of a project involving a property at 1 Wallace Street, Peterhead. It was admitted that the property had been purchased using company funds although the defender claimed this to be funds loaned to him by the company. It was the pursuers' submission that the funds paid into the company were the profits of a property transaction which had been undertaken with the benefit of a company loan or funds. The benefit of the loan had not been returned to the company, the director had retained any balance and sought to retain the benefits returned by setting them off against his loan account. The defender admitted the payments were made from a private profit which in turn had been achieved using assets which were prima facie company assets. He submitted that a director of a company had an obligation to account to the company for any profit which was made from the use of company assets. The opportunity to make a profit is properly treated as an asset of the company in the broadest sense. The payments made by the defender were therefore no more than part of a proper accounting exercise for these profits and could not be set against his loan account. Accordingly, the loan account remained in arrears. He referred also to the pursuers' averments (line 95) to the effect that the property had appeared in two sets of accounts authenticated by the defender as an asset of the company and the further averment that the defender had instructed the company's accountants to increase the value of that asset at a later stage. He submitted that on proper analysis of the defender's pleadings he had failed to deal with these averments and certain relative calls. These averments were clearly matters within his personal knowledge. He had admitted the terms of the accounts and had not sought to qualify that admission.

 

[4] He referred to the cases of Foxley v Dunn 1978 SLT (N) 35; Gray v Boyd 1996 SLT 60 and EFT Finance Limited v Hawkins 1994 SC 34 as authorities for the approach which the court should adopt towards pleadings which were lacking in candour. He particularly sought to follow the approach in Gray v Boyd. He submitted that in this case their was a clear lack of candour on the part of the defender in failing to answer specific averments within his knowledge, particularly the averment that the property was, on his specific instruction, treated by the company as an asset of the company. There was generally inconsistency between his admission of the accounts and his failure to deal with their specifics or to challenge them. This should properly be treated as a lack of candour which when combined with the other factors raised entitled the court to draw the inference that the defender had no real response to make to the pursuers' detailed averments. He further referred to the calls set out in the pursuers' pleadings which, although perhaps not best framed, gave clear notice to the defender of the information which was required to clarify his pleadings and which had met with no response. On a prima facie basis the opportunity to make a profit was itself an asset of the company, a profit had apparently actually been achieved and accordingly that profit should properly be deemed to be an asset of the company.

 

[5] He submitted that even had the defender made no comment or averment about the accounts themselves he still had to explain how he was entitled to retain the fruits of the loan received from the company. He referred to Company Directors: Duties, Liabilities and Remedies edited by Simon Mortimore QC at paragraph 16. 19 supported by the case of Cook v Deeks [1916] AC 554. These support the proposition that a company director who misappropriates company property is deemed to hold that property in trust for the company which in turn entitles the company to recover the asset or proceeds obtained from the asset. The case of Regal (Hastings) Limited v Gulliver & Others [1967] 2 AC 134 was an example of a case where this approach had been applied and where directors had been required to account to the company for profits made by them in respect of shares which they had obtained from the use of their office as directors. He submitted that liability to account to the company arose from the mere fact that a profit had been made. An honest and well intentioned director still required to account to the company. In the present case there had been no explanation offered by the defender to qualify or explain the position. He is a director and is accordingly responsible as a trustee to the pursuers. He referred to Industrial Development Consultants Limited v Cooley 1972 1 WLR 443 which demonstrated the strength of the proposition where the defendant had taken an opportunity to make a profit arising during the course of his directorship by leaving the plaintive company in order to take personal benefit from that opportunity but was held still to have a fiduciary duty to account to the company he had left. The present case did not go as far as that. There was no attempt to explain the defender's position and in any event given the fiduciary duty on him such an explanation would be irrelevant. He referred further to Guinness Plc v Saunders [1990] 2 AC 663 wherein, and with reference to further authorities, Lord Templeton indicated that a strict approach was required in this area, that the rule was in effect inflexible thus precluding the raising of any elements of fairness and that equity forbids a trustee to make a profit out of his trust.

 

[6] He referred to the Companies Act 1985, in particular Sections 320 to 322. The defender had acquired an opportunity to benefit from the loan, which dealing was a cash asset. There was an implied admission of that contained in the pleadings. There may be circumstances where following upon that situation the duty to account would not apply but there was nothing in the defender's pleadings to that effect. The range of exceptions mentioned in Section 321 were not mentioned and did not appear to apply. Section 322(3) set out the legal liabilities of a director to account to the company. Here there was a prima facie contravention of Section 320 and accordingly the defender was liable to account to the company. Section 330 prohibited the company from making loans to a director and was subject to the exception in Section 332 which related only to quasi loans with a term not exceeding two months and an amount not exceeding £5,000. That did not apply in the present case. Section 337 of the Act did set out a situation where the company could fund expenditure incurred by a company director for the purposes of the company but there was no suggestion in the present case of any claim to that effect nor that the conditions set out in subsection (3) had been met. Section 341 of the Act set out the companies' remedies and effectively reinforced the director's obligations to account. Accordingly, he submitted that the loan arrangement was in breach of Section 330, that whilst there were exceptions none had been pleaded nor indeed appeared applicable and that accordingly under Section 341 the defender was liable to indemnify the company as was being sought.

 

[7] At common law, the defender was liable to account to the company for any profits made as a result of the funds taken from the company. There were no averments by the defender to support any other position. There were no averments which were capable of setting up a position entitling the defender to set off the fruits of the project against his loan account.

 

[8] On the basis therefore of both the common law and statutory position he sought that the defender's plea-in-law No. 1 be repelled, that the pursuers' plea No. 7 be upheld and decree granted in terms of crave 1. As an alternative, the defender's pleadings commencing at line 142 of the Record and concluding at line 158 should be repelled.

 

[9] Turning to crave 2, he confirmed that there were three different elements involved in this crave. The defender's position with regard to the first of these elements amounting to £10,500 could be found at lines 159 to 176 of the record. The defender admitted that he received the cash and provided an explanation. With reference to his earlier submission he repeated that the defender as director had a liability to account for payments he received from the company. Approval of company expenditure required to be given prior to its being incurred. The pursuer pleaded that £10,500 had been withdrawn in cash and produced a schedule incorporated into the pleadings setting out the computation of those payments. The defender admitted the figure and, by implication, the schedule details. Although the pursuers had averred a withdrawal for personal benefit and this was specifically denied that was not necessary as the defender had a duty to account. He admitted receipt of the payments. Even were there an explanation, these payments fell within the period set by Section 242 of the Insolvency Act 1986 and formed a gratuitous alienation which could be recovered. Section 242(3)(a) included payments to an associate, which included a director, and set a five year time-limit. The time-limit for non associates is two years. The payments in this case fell within both of these periods. Subsection 4 required the court to uphold the claim unless certain conditions were established. The defender had no pleadings offering to establish any of the conditions set out in that section. The defence set out by the defender that the items were not for his personal benefit, although perhaps encouraged by the pursuers' pleadings, was not a relevant defence.

 

[10] It was not possible from the defender's pleadings to establish if some or all of these payments would have been such as to fall within the terms of Section 243 relating to unfair preferences and to ascertain whether persons had been paid in preference to others. That section gave a six month time-scale and the payments all fell within that frame. Subsection 2 again set out defences to a claim but the defender's pleadings were inadequate to deal with such exceptions. There were elements of the defender's position which might suggest that if such payments were indeed made they were collusive and to the prejudice of the general body of creditors. The section gave the liquidator a right to challenge unfair preferences and to receive decree where the subsection applied and the exceptions did not. The pursuer could not raise any such proceedings as there was no information given concerning the payments which were made. Reference was made to the case of Baillie Marshall Limited v Avian Communications Limited 2002 SLT 189 which provided some assistance on the operation of Section 243. There the action had been dismissed as there was insufficient evidence to support collusion and justify the claim for redress. That could be distinguished from the present cause, however, as here the defender pleaded that these payments had not been made in ordinary course and appeared to suggest that certain creditors had been preferred at the expense of the general body of creditors. However the test, as set out in this authority, would prevent the liquidator from proceeding against anyone as the recipients of the claimants were not identified. The defender's explanation was too general and irrelevant. The company seeks repayment of the money paid but could not proceed under Section 243 for lack of information. It was a matter for the defender to fully explain circumstances which removed these payments from the ambit of Sections 242 and 243. The defender's passage of pleading provided no such explanation. It completely lacked specification as to whom payments had been made and on what basis. The liquidator could not therefore recover these payments. It is the duty of the director to give a proper explanation and to specify the creditors who were paid and the materials or other items which were obtained as a result. The defender could not properly account for the monies which he had taken.

 

[11] He referred to the case of Lafferty Construction Limited v McCombe 1994 SLT 858 wherein, with reference to a claim under Section 242, gratuitous alienation, the test of adequacy of consideration was applied. The test required to be taken from an objective stand-point and to assume good faith. The defender had no averments relating to receipt of adequate consideration and could not even therefore start to meet the test so set out.

 

[12] There was no relevant defence stated against the crave for recovery of the sum of £10,500. Decree de plano should therefore be granted. Again, as an alternative, if the court was not prepared to grant decree de plano then the defences set out from line 161 to 176 should be excluded from probation as they did not provide any relevant defence.

 

[13] The second leg of the second crave related to credit card payments. He firstly submitted that the first sentence amounted to an admission of the terms of the document detailing the relevant schedule of transactions. It should be deemed to be such. Thereafter, the defender set out a claim that certain of the transactions were business related. The position with regard to these payments, made between 31 May and 15 August 2006 was similar to the payments mentioned in the earlier leg of argument. It was suggested that some of these payments were for research and development including the cost incurred on a trip to America. Even if it were to be accepted that these were genuine business transactions the specification of detail of these transactions was not sufficient to escape the defender's liability to account as a director. Prima facie these were gratuitous alienations. They fell within the relevant period. Such explanation, as was offered, gave no opportunity to the liquidator to investigate these payments. As before, they appeared to be improper payments taken by the director. They appeared to be debts which were not incurred in the ordinary course of the business. There was no averment nor indication of how the company had benefited from the making of these payments as opposed to benefit to the defender. There was no explanation of cash withdrawals or a payment which appeared to relate to the purchase of shoes. There might be an explanation for these matters but it was not offered by the defender. Decree de plano should be granted in respect of this leg and again, if the court was not prepared to do so then the irrelevant information set out in the defences from lines 176 to 199 should be excluded from probation. On an alternative view if these were excluded as irrelevant the pursuer would have nothing to prove as the payments were made and the defender would be unable to account as required in absence of properly pleaded explanations.

 

[14] The third area related to funds in the total of £32,500. The pursuers' position was that this sum had been removed by the defender and his wife by means of withdrawals through the automated wage payment system which would record these withdrawals as wages. These appeared to fall within the ambit of the gratuitous alienation provisions of Section 242, the defender's answers were to be found commencing at line 200 of the defences. He admitted that he and his wife had transferred the money into their accounts. He denied only that these were classified as dividends. It was clear from the schedule and not denied by the defender that the wage payment system was still in operation at that time. Part of the defender's explanation was that this money had been taken to pay cash wages to certain employees but there was no explanation for why this was necessary at a point when wage payments were being made in a regular fashion to others. These averments appeared to be conflicting. There then was a passage, with reference to the company's bank setting out why it had been necessary to take payments in this format. There was no averment to the effect that the bank was refusing to pay company wages and indeed the schedule suggested that it continued to do so. There was no explanation as to why the bank would pay monies out in this format when they would not have paid the wages directly to the employees mentioned. There was a contradictory averment that the bank had agreed an extended overdraft facility but the defender was concerned that the funds would not be paid out. It was not explained how this agreement would be dishonoured by the bank nor was there any explanation on how they would pay £32,500 to him and his wife without honouring the extended overdraft facility. The total of the payments made were still within the overdraft facility. The defender averred that those payments not paid in wages had been used to buy materials from trade suppliers. There was no attempt to specify what suppliers and what materials. The defence suggested that part of the monies was used to pay wages to the defender and his wife but there was no averment that either party was an employee of the company who held a wage entitlement. It appeared clear that the unfair preference argument would apply to these payments.

 

[15] The benefit had been paid to the defender and his wife jointly. There was some form of concession at the end of the condescendence that any balance left not used for staff wages or the benefit of the company was used to the benefit of the defender and his wife. There was no specification given of this element but it did amount to an admission of personal benefit on the part of the directors. The defender accepted that the monies had been paid into a joint account. In the whole circumstances he was liable jointly and severally for repayment of monies whether or not they had been for his or his wife's benefit. He further had a liability to account to the company as the director who had authorised and made the appropriate payments. This applied both on the common law and statutory basis as set out earlier. Based on this situation, there was a clear obligation on the defender to repay the sums involved. He referred to the case of Bairstow v Queens Moat Houses [2000] 1 BCLC 549 where directors who are held to have made payment of an unlawful dividend were liable to make repayment to the company in respect of the absence of any element of fraud or awareness of impropriety. Here unauthorised payments had been made to the defender's wife about which he knew or ought to have known and he was liable for repayment. This situation was also covered by Section 322 of the Companies Act 1985.

 

[16] Accordingly, he sought decree de plano in respect of this third leg of the second crave together with the two previously submitted. Again, alternatively he sought an exclusion of the defender's averments from lines 206 to 236 as these were plainly irrelevant, contradictory and inspecific.

 

[17] Turning to the defender's pleas he submitted that the first was a plea relating to facts, not supported by relevant averment. The second plea was in itself irrelevant as the issue was not withdrawals for personal benefit but liability to account for unsupported withdrawals of funds. The plea was not a sustainable proposition in law which would support any defence to the action. With regard to the third plea he invited that be repelled. All of the sums referred to in the pursuers' pleadings had been admitted as received and there were no averments to support the view that the claim was therefore excessive. He submitted that the pleadings contained no relevant defence in respect of either crave that the pursuers' fourth plea should therefore be upheld, the defender's second and third pleas repelled and decree de plano granted in respect also of crave 2.

 

[18] So far as expenses were concerned he sought decree de plano with expenses. If the matter was to be allowed to proceed any further he sought the expenses of the debate hearing and preparation.

 

Defender's submissions

[19] Mr Campbell for the defender accepted that the defence of this cause was extremely difficult. He noted the criticism on lack of candour but submitted that the defender had provided as much information as he could in the circumstances. The company had been formed to allow him to trade as a joiner. It was not a major operation. He and his wife were the sole directors. It was accepted that he was not good at formal paperwork and that there was a lack of formality in the way that the matter had been conducted.

 

[20] With regard to the £10,000 which he considered to be a loan, if he were to give evidence he would indicate that he had taken the money from the company and had left it to the company accountant to sort out how best to treat the payment. He did not contemplate how it should properly be treated. He intended it to be money loaned to him by the company so that he could proceed with a separate venture. He could not give evidence at a higher point than that and it was accepted that in making the payment the statutory regulations had been broken.

 

[21] So far as the second crave was concerned, there was again nothing further that he could provide by way of specification to justify the payments. He would simply give evidence that it was his position that the payments had been used for the benefit of the company. There was no additional specification he could provide in respect of the monies taken out and totalling £10,500. So far as the credit card was concerned, all the available information had been pleaded. He could only give evidence about his recollection of the transactions and his belief that these were genuine company matters. All the information that could be provided was set out in the pleadings.

 

[22] So far as the £32,500 payment was concerned, this had not been intended to be a dividend payment to him and his wife. Further that payment had been made to his wife and there was some evidence that she had benefited from certain aspects of the money. It was accepted that this really was not a sound defence but if he was allowed to proceed to proof he would submit that at least some of these monies were necessarily incurred for the benefit of the company and that the company had received adequate consideration for these payments by way of materials and wages. He would seek to bring the payments within the terms of the exceptions set out in Section 242(4) of the Insolvency Act 1986. Similarly the defender would argue that in terms of Section 243 there was no issue of unfair preferences. He would seek to show that all of these payments were made within the ordinary course of the trade or business. He stressed that nothing further could be pleaded and that the defender sought a proof so that his credibility could be tested on the issues raised.

 

[23] He accepted that the second plea-in-law for the defender should not be stated in its present format and sought to delete the phrase "not being of a personal nature" and substitute "being for adequate consideration or incurred in the ordinary course of trade". He could not support matters any further than that.

 

[24] Mr Campbell wished to make no submission regarding expenses.

 

The Pursuers' response

[25] Mr Artis, for the pursuers, submitted that credibility was not the issue. The pursuers were entitled to know what the defender might say and if a proof was to take place where the defender made various comments about payments these would be objected to unless they were on record. The defender's approach was indicative of the lack of relevancy and specification in their pleadings.

 

 

My decision

[26] This case arises from the liquidation of the defender's business which he chose to operate as a limited company. It seems that he, like many others in his position, chose to incorporate his business without a proper understanding of what that involved, of the correct approach to such entity and the obligations which result from directorship. He has proceeded with scant regard to the fact that he was operating a company as opposed to being a sole trader. He has also proceeded, or so it seems, without proper record keeping. These factors have resulted in the difficulties in which he now finds himself.

 

[26] Mr Artis set out a detailed and careful analysis of the pleadings and the legal obligations incumbent upon the defender. In his submission, Mr Campbell, for the defender, did not seek in any material way to dispute that analysis. His submission might broadly be regarded as a plea on behalf of the defender to allow him to make such explanation as he could in the hope that some or all of his explanations would be accepted by the court at proof. He saw this case as a test of credibility. This approach totally disregards the requirement for relevant written pleading and fair and proper notice to the pursuers of the factual basis for evidence is to be led. In particular, Mr Campbell did not dispute the broad proposition that the defender's position was one where, having admitted his receipt of the funds from the company he, as a director, was obliged to properly account to the company for their dispersal. His approach also fails to address the basic point that in proceedings such as these the defender is accounting both to the company and to its creditors. Accordingly an explanation that the company received some return for payments is incomplete in failing to take account of the interests of the general body of creditors. Mr Campbell conceded that elements of the stated defence were not sound. He also conceded that the defender had not complied with the appropriate company statutory regulations when dealing with certain of these matters. He accepted that no further specification or additional detail could be given by the defender and made no motion for leave to amend, other than in respect of the wording of plea in law 2.

 

[27] It may well be that the defender in this case has pleaded all factual matters which he can. To that extent he may not be exhibiting a lack of candour. I do, however, consider that pursuers' counsel is correct in categorising the defence as lacking in candour. This is because, having made admissions which either expressly or by implication require him to explain and account he has not done so. Such explanations as are provided are conflicting and inconsistent, as in the case of his explanation regarding the monies taken through the wage system, or hopelessly inconsistent and irrelevant as where he is unable to specify the most basic details with regard to payments claimed to have been made on the company's behalf. Having admitted the terms of the company's accounts he fails to set out his position regarding the alleged loan and the treatment of the Peterhead development as a company asset. His pleadings on that issue are evasive. I am satisfied therefore that I can draw an inference from the defences that there is no real response to the detail of the pursuers' case and no relevant defence is contained therein.

 

[28] Crave 1 relates to the defender's loan account due to the business. He does not deny that he was due this sum but claims it to have been repaid. He accepts that the repayments were proceeds of a development in Peterhead. His position is that this was initiated with a loan from the company which Mr Campbell accepted was other than in accordance with the appropriate regulations. In any event he accepts, at least by implication, that, at a later point in time, the accounts for the company, duly signed and accepted by him, showed this development to be a company asset. There is nothing in the pleading which explains why, in these circumstances, the monies paid back into the company could or should be treated as anything other than the company's own funds. I accept, as did Mr Campbell, the pursuers' analysis of the correct approach in the event that the starting point for this development was indeed some sort of loan from the company to the defender. Any such loan arrangement is in breach of section 330 of the Companies Act 1985 and none of the exceptions allowed by that Act have been pleaded by the defender. In terms of section 341 of that Act he is liable to account to the company for the loan and any profit derived therefrom. On the common law analysis, the defender was under an obligation to account for any profits from that development. Even were that not to be the case once the development had been treated as an asset of the company there was no doubt that any profits from that development were also assets of the company. Clearly, the defender cannot repay the company from the company's own funds. I accept the pursuers' submission that on either the common law analysis or the statutory analysis there is no relevant defence stated and that, on either alternative approach, there are no averments which set out a relevant defence. In the event that this matter were to proceed to proof and the defender were to establish such averments as he has, the court would still require to grant decree against him. His averments are therefore irrelevant. The suggestion that, as an alternative approach the Court exclude from probation the defender's averments from line 142 to line 158 comes to much the same position as such exclusion would leave the defender with no material averments on which to lead proof and no relevant defence. The defender's first plea must be repelled and decree granted as first craved.

 

[29] I did consider whether the averment, at line 152, that "the £10,000 is part of the defender's director's loan" was a matter which should be remitted to proof. If factually correct that would give the defender a partial defence to the extent of that sum to prevent double accounting. I agree, however, with the pursuers that the defences should be read as including an implied admission of the terms of the accounts for the company to year end 31 March 2006. The pursuers aver that those accounts showed the development as an asset thus removing any suggestion that the initial sum would form part of the defender's loan account. This is clearly a matter which is within the defender's knowledge and in respect of which he has chosen not to make specific averment. Following the general approach set out in Gray v Boyd any defence based on this singular averment is also irrelevant and should not be allowed to proceed to proof.

 

[30] The claim under crave 2 falls into three parts. In respect of each of these three parts the defender admits that the monies referred to were paid to him and offers very general, unspecific and inadequate explanations for the use of these sums.

 

[31] The first payment of £10,500 was, he claims, paid for adequate consideration. He does not offer to prove to whom any payments were made, other than in the most unspecific terms, and for what purpose. He has, as previously indicated and indeed accepted by Mr Campbell, a duty to account but does not offer to do so. I accept the point made by the pursuers that adequate consideration, even if proved, is not the only test as the payments may well have been to the detriment of the general body of creditors. No relevant defence to this claim is stated in the pleadings. These payments fall within the definition of gratuitous alienation in terms of sections 242 and 243 of the Insolvency Act 1986. The defender does not plead any exceptions as set out in section 243(2). The pursuer is not therefore in a position to carry out his duties and assess whether a reduction of all or some of these payments should be pursued. The pursuer is entitled to be told the detail of the payments namely, when, to whom and for what they were paid. No such information is provided. The defender does not provide an accounting for these sums.

 

[32] The position concerning payments from the company's credit card are similar. I accept that properly read the defences admit the pursuers' position on payments through the company's credit card and it is the defender's duty to account. There is some measure of detail set out in that regard but it is again wholly insufficient as an exercise in proper accounting. No notice is given of any further specification and Mr Campbell accepted that none was available. The phrases "business related" and "work related" are insufficient in themselves to provide proper accounting. The lack of specification makes it impossible to assess whether these were genuine expenses. On the face of it they do not have the appearance of genuine business expenses but the pursuer cannot properly investigate the issues without the necessary detail. Accordingly, any evidence based on this passage of averment could not reach the required standard of a detailed accounting of the payments received. The pleadings in this regard do not constitute a relevant defence.

 

[33] The third part of the claim under crave 2 relates to funds in the total sum of £32,500. The defender again accepts that these payments were made into a joint account with his wife. He appears at one point to suggest that he is not liable for any benefit derived by his wife but given that the account was a joint one and that it is, as previously stated, his obligation to account for all sums received, any such a line of defence is irrelevant. The defender claims that he drew these monies from the company bank account into his personal account because he thought that the bank might not allow such sums to be withdrawn. As a general proposition that makes little sense. He makes some general suggestions that monies were used to pay company employee's wages although it is clear and not disputed by him that at the same time employees were being paid by the regular system. He does not attempt to specify and account, with any degree of accuracy, the destination of the various amounts involved, to whom and when they were paid and the basis for the payment. Such accurate information would enable the pursuers to test the veracity of the claims. His attempt at accounting is again in the most general of terms. He concedes that all the funds were not used for a genuine company purpose. The defence stated is again wholly irrelevant and even if the individual averments were established at proof they would not amount to a proper accounting which is required in these circumstances. The requirement for accounting is, as before, based both on common law principles and those set out in the Companies Acts. The exclusion of the passages suggested by pursuers' counsel as an alternative would be justified but if excluded would leave the defender with no basis for proof and the defences, on such basis also, irrelevant.

 

[34] Mr Campbell suggested that were the matter to proceed to proof the defender would seek to show that payments or some of the payments were such as to fall within the terms of the exception set out in Section 242(4)(b) of the Insolvency Act 1986. For such a defence to be established it would be necessary for the defender to indicate when, to whom and for what, these payments had been made. He offers to do none of these things, accepts through his agent that the information is not available and would, in any event, be unable to lead evidence on such detail based on the pleadings before the court. Even were he to establish that the payments were not gratuitous alienations he would still have to deal with the issue of unfair preference which, for the same reasons, he would be unable to achieve. I am entirely satisfied that no relevant defence is stated to the third part of crave 2.

 

[35] For these reasons I accept the pursuers' submissions and find that their pleas-in-law 7 and 8 should be upheld and as a consequence pleas 1, 2, and 3. I have repelled pursuers' pleas 4 and 5 as, in the circumstances, the pursuers did not seek to insist upon them. I also find that the defender's pleas 1,2 and 3 should be repelled. I refused the defender's motion to amend the second plea-in-law as in my opinion any such amendment would make no difference to the relevancy of the defender's pleadings and the outcome of this case.

 

[36] There was no argument regarding the issue of expenses. The pursuers have clearly succeeded in this action in its entirety and it is therefore appropriate that the expenses in the cause be awarded to them under exception of expenses previously awarded.

 

 

 

 

 

 

Sheriff of Grampian Highland and Islands at Aberdeen.