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Company Debt - Director advances

patricia0727

Updated: Jul 1, 2024

 

Recently the King's Bench Division ruled on the claimant director's claim (in debt, alternatively in restitution) for sums that he had allegedly advanced to, or for the benefit of, the defendant company (BSVM), on the understanding that they would give rise to a debt in his favour; and BSVM's counterclaim for: (a) sums that the claimant had allegedly improperly caused BSVM to advance to him or third parties; and (b) damages for breach of duty, concerning losses BSVM had allegedly suffered as a result of the claimant's failure to ensure that it had maintained proper books, records and accounts. Among other things, the court rejected the claimant's primary case that he had met legal expenses and costs on the basis of an agreement that they would be reimbursed by BSVM as the service company of BSVL, or by BSVL as ultimate beneficiary. The court held that BSVM had had no legal liability to pay any of the bills which made up the claimant's legal expenses claim. The alternative claim in restitution was predicated on the assertion that, had the claimant not met legal expenses, they would have been paid by BSVM as a group service company (pursuant to a general practice) and that it was sufficient for the purposes of restitution that BSVM/BSVL had freely accepted a benefit because it had been spared expenditure that, in practice, it would have incurred. The court ruled that BSVM's expanded remit had not included the conduct or funding of contentious litigation on behalf of BSVL without clear authority to do so, and that there had been no 'practice' which had justified such an approach. However, the court held that the personal cash advances to, or on behalf of BSVM, in circumstances where the claimant had been seeking to deal with the winding up of subsidiaries, were recoverable. Concerning the counterclaim, the court ruled that, on the facts, there had been no breach of duty on the claimant's part. However, it held that there was little or nothing to support the bare assertion that a certain payment had been by way of directors and remuneration and that, accordingly, that had not properly been a payment which could have been for the account of BSVM.

 


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