The High Court clarified the position regarding advances made by a director on behalf of a company and whether they are recoverable.
Background:
Mr. Wagner alleged that he advanced some funds to Bright Station Ventures Management Ltd (BSVM) to pay third parties on the understanding that it would give rise to a debt in his favour. Mr. Wegner is BSVM’s sole director and the largest minority shareholder of the company. The parent company was BSVL. There was no formal documentation concerning any of the loans or advances.
BSVM’s counterclaim argued that the sums the claimant had allegedly improperly made available caused BSVM to advance funds, either to him or third parties. BSVM also sought 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.
Decision:
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 the ultimate beneficiary. There was no express agreement with BSVL that it would reimburse his legal expenses or take any costs liability.
BSVM had no legal liability to pay any of the bills which made up the legal expenses claim. In fact, BSVM could not have been sued for payment by those who had provided legal services and, even if they had, it was for BSVL to enforce them rather than Mr. Wagner. Mr. Justice Sweeting held that the vast majority of the sums were broadly for the benefit of Mr. Wagner personally. It was, therefore, not a group liability which BSVM should assume. Even if BSVM acted as a services company for BSVL, the Judge was not convinced that “its expanded remit included the conduct or funding of contentious litigation on behalf of BSVL without clear authority to do so; there was no "practice" which justified such an approach.”
The claimant's claim for reimbursement of his own and adverse costs in relation to the administration proceedings was rejected. Similarly, the claim for reimbursement of the costs met by him in relation to the 'IOM and the Bothy proceedings' was rejected. None of the work carried out concerning those proceedings could be characterised as being for the benefit of BSVL and the legal costs arising could not properly have been met by BSVM.
Personal cash advances were recoverable, despite the lack of formality in the books and records of BSVM. Mr. Justice Sweeting acceded to the parties’ request for them to agree on the monetary terms based on the Judge’s findings.
Implications:
This case is a good reminder that having an express agreement in place makes it easier to prove a debt was incurred. It also shows the fine line in assessing the beneficiaries of the transactions involving companies. It also shows the distinction between company assets and business peoples’ assets and how this line can become blurred.