Director owes £190,154 as court limits section 212 to duty breaches

Deputy ICC Judge Curl KC ordered Dr Marek Stobinski, sole director and shareholder of St Mark Lions Limited, to pay £190,153.99Nationalarchives to the company's liquidation estate. The company, principally a service company for Dr Stobinski's work as a medical doctor, entered creditors' voluntary liquidation on 12 October 2022, and its liquidator Lloyd Edward Hinton pursued three monetary heads totalling £214,195.29. The award comprises the full £112,506 overdrawn director's loan account, £39,147.99 of other unexplained paymentsNationalarchives, and £38,500 paid directly to Dr Stobinski and described on the bank statements as management charges between 18 May 2020 and 13 January 2021Nationalarchives.

The £112,506 is the Other Debtors balance in the company's amended accounts for the period ended 29 March 2021. The court found it was wholly a director's loan owed by Dr Stobinski, a figure originating with the company's own accountants and put to HMRC as correct. It rejected defences that he was instead the company's creditor for £98,960 of PAYE salary lent to the company, that £123,089 of salary had been routed through the company in an earlier period, and that further undocumented dividends or unclaimed expenses extinguished the balance. No books beyond filed accounts and bank statements were delivered up, and the court attached no weight to his uncorroborated evidence.

A bare debt claim for repayment of a lawful loan cannot be brought by a liquidator in his own name through section 212 of the Insolvency Act 1986; it must be commenced in the company's name under the Part 7 procedureNationalarchives. Money lent under an ordinary loan becomes the borrower's propertyNationalarchives, so an unpaid loan is not retained money of the company, and mere non-repayment is not misconduct breaching any other duty within section 212(1)Nationalarchives: the catch-all words cover duties owed qua director, such as the common-law duty of care. But where the loan facts also disclose a breach of duty in the director's capacity as such, section 212 is availableNationalarchives, and a wrongly commenced debt claim is rectifiable by joining the company and continuing as a Part 7 claim rather than being a nullityNationalarchives. Rectification was unnecessary here because the breach-of-duty case succeededNationalarchives, though the court said it would otherwise have entered judgment for the company for £112,506 as a debtNationalarchives.

The company was insolvent or bordering on insolvency from 2 December 2019Nationalarchives: corporation tax had accumulated unpaid, cash stood at £1,218.65, and solvency depended entirely on recovering the loan from a director who kept drawing on it. From that point creditors' interests required paramount or near-paramount weight for acts benefiting the director. Because Dr Stobinski never considered the company's interests as distinct from his own, an objective standard applied, and failing to repay the loan while drawing further on it breached sections 172 and 175 of the Companies Act 2006, alternatively section 174 by negligenceNationalarchives. None of the other payments was for the company's benefitNationalarchives, breaching sections 171, 172 and 175, and negligently section 174Nationalarchives, but recovery was cut from £63,189.29 to £39,147.99 to exclude sums that may already sit inside the loan balanceNationalarchives. The £38,500 succeeded in fullNationalarchives: even if comprised within lawfully declared dividends, paying them while the company depended on the director's debt to meet its tax liability was a should-not-pay breach of sections 171, 172, 174 and 175. An alternative transaction-at-undervalue claim under section 238 was left undecided, and interest and costs remain for agreement or further hearing.

Legal basis: Insolvency Act 1986, sections 212 and 238; Companies Act 2006, sections 171, 172, 174 and 175.