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Director Liable After Funds Earmarked to Pay Tax Extracted from Company

Directors who cause or permit extraction of funds from their companies which should be used to meet tax liabilities can never rest easy. As a High Court ruling showed, they can ultimately look forward to being pursued relentlessly through the courts.

The case concerned a company that owed over £35 million in unpaid VAT, Income Tax and National Insurance Contributions (NICs) when it entered liquidation. It was alleged that tax and NICs deducted from employees’ wages, together with VAT paid by customers, were not passed on to HM Revenue and Customs (HMRC).

The company’s liquidators launched proceedings to recover sums which they claimed had been wrongfully abstracted from the company. Its case focused on a man who was found to be a director of the company, either on a de jure or de facto basis, from its incorporation to the date of liquidation.

Ruling on the matter, the Court found that there was no good or legitimate reason for the removal of the missing funds from the company. They were not extracted as part of a legitimate investment strategy, either on behalf of the company or for its benefit. The director breached the duty he owed to the company in causing or permitting the removal of funds which should have been used to satisfy the company’s liabilities to HMRC.

The liquidators had to date succeeded in recovering over £13 million by realising the company’s assets. After receiving credit for that sum, the director was ruled liable to pay £21,811,531 in equitable compensation and/or damages. Compound interest would be added to that amount. Further liability rulings were made against another of the company’s former directors and three companies that had knowingly received parts of the missing funds.

Published in
23 December 2022
Last Updated
15 January 2023