A Director Cannot Recreate History ' Re Bronia Buchanan Associates Ltd (In Liquidation)

• Published date: 11 November 2021
• Subject Matter: Corporate/Commercial Law, Employment and HR, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Directors and Officers, Insolvency/Bankruptcy, Employee Benefits & Compensation
• Law Firm: Gatehouse Chambers
• Author: Mr Kort Egan

Kort Egan takes a look at Re Bronia Buchanan Associates Ltd (in liquidation) [2021] EWHC 2740 (Ch)

Introduction

In Re Bronia, ICC Judge Burton had to consider whether a director could retrospectively re-characterise a director's loan as 'drawings' in order to release the director from liability to the company. ICC Judge Burton concluded that such an approach was impermissible.

Facts

The joint liquidators of Bronia Buchanan Associates Limited ("the Company") applied for declarations that the sole director, Ms Bronia Buchanan ("the Director"), was a debtor of the Company in the amount of '286,421.45 (or such other sum as the Court thought fit) and that the reclassification of the sums outstanding on the director's current account on 10 September 2014 as 'drawings' was ineffective to release the Director's liability to the Company.

The Company was incorporated in June 2003. The Director engaged a bookkeeper in 2007. The Director switched to a new firm of accountants, Blinkhorns, on the bookkeeper's recommendation. The bookkeeper reassured the Director from 2007-2010 that "all was well financially" but in late 2012 the Director received demands for unpaid tax from HMRC and it became apparent that there was problems with the accounting carried out by the bookkeeper. The bookkeeper was dismissed and a new bookkeeper employed. The former bookkeeper refused to release the electronic files unless a substantial payment was made. That sum was not paid and so the new bookkeeper was left with incomplete records.

Blinkhorns produced the accounts for the year ending June 2013. The Director stated that she was heavily pregnant and suffering from pre-eclampsia when she was asked to sign off the accounts in March 2014. The Director accepted that she was not able to devote time to considering the accounts in detail and had signed off the accounts without due consideration.

On 18 August 2014, HMRC demanded '127,541.04 be paid within 7 days. The Company could not meet that demand in the prescribed timeframe and the Director instructed her a solicitor, Mr Drew, to advise. Mr Drew was also the Director's husband. The Company ceased trading in September 2014 and entered liquidation.

Mr Drew sought professional advice from a Mr Lewis. Mr Lewis was appointed joint liquidator of the Company on 2 December 2014 and was formerly the senior partner of the firm of insolvency partners in which the other joint liquidator, Mr Bass, was a partner.

Mr Drew's evidence was that Mr Lewis...