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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Gillman & Soame Ltd v Young [2007] EWHC 1245 (Ch) (25 May 2007) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2007/1245.html Cite as: [2007] EWHC 1245 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		25/05/07

Introduction

1. Gillman & Soame Limited ("GSL" or "the company") had a short trading life, lasting from early April 2002 to 24 April 2003, when it entered administration. GSL, still in administration, claims that Mr. Henry Young, a former director, is liable for breach of fiduciary duty for misappropriating company assets adding up to £102,479.54. Mr. Young accepts liability for some, but not all, of that sum.
2. Mr. Young has made a Part 20 claim against GSL, its joint administrators, Mr. Vivian Bairstow and Mr. Nicholas Hood, ("the administrators") and another former director, Mr. Gary White, alleging that the company was put into administration pursuant to a conspiracy to dispossess Mr. Young of his interests, divert the business into the hands of Mr. White at an undervalue, and allow the administrators to profit by running up fees.

The witnesses

3. I heard evidence from four witnesses. The first, Mr. Bairstow, is a licensed insolvency practitioner and a partner in Begbies Traynor. His first involvement with GSL was on 9 April 2003, a couple of weeks before the administration. Mr. Bairstow was an honest and credible witness who did his best to assist the court. At times it emerged he was not on top of all the detail about the conduct of the administration, but it is not unusual for an insolvency practitioner to leave much of the day to day work to others in his firm, and it did not affect my view that where he could give evidence he did do so honestly and reliably.
4. GSL also called Mrs. Karen Wharton, who was a shareholder in GSL from 28 March 2002 and became a director of the company in July 2002. She generally gave her evidence straightforwardly and clearly. At times she was a little reluctant to answer questions which she thought (with some justification) to be of marginal relevance, but I consider that on the important issues her evidence was credible and honest.
5. Mr. Young's evidence was less satisfactory. At times he was unwilling to answer questions to which, in my judgment, he knew the answer. I also take account of Mr. Young's questionable commercial morality which emerges even from those parts of the claim he admits. He accepts that some of the sums he received were accounted for falsely in the books and records of the company, and that this was deliberate. What makes this more striking is that Mr. Young is a Chartered Accountant and an experienced company director. Mr. Young does not appear to regard receiving company monies and falsely accounting for it as abnormal or remarkable, and this reflects on his approach to truth telling. I also think that in developing his conspiracy case Mr. Young has clutched at straws and that his sense of grievance in being excluded from the company has caused him to lose perspective. Mr. Young has been inclined to reconstruct history in a way favourable to his case. For instance, he insists that the company was fundamentally solvent and could have traded out of its difficulties even at the time it went into administration. This is an impossible contention in the face of the evidence, which shows that it was increasingly insolvent during its short trading history and that by about 10 April 2003 it was bound to enter administration or liquidation. He is (at its lowest) prone to wishful thinking. I also found that when challenged on some of the specific payments received by him or his family Mr. Young's memory became selective and his answers became vague.
6. On the other hand, simply because a witness is unreliable on one point it does not follow that all his evidence is unreliable. And, on the positive side, Mr. Young was, at least on some points, candid and credible in giving his evidence. For these various reasons I conclude that I should treat the evidence of Mr. Young with some caution, but do not disregard all he says.
7. Mr. White gave evidence. Again, it is appropriate to approach what he said with a degree of caution because he was involved in at least one transaction under which he, like Mr. Young, was paid almost £30,000, and which was falsely accounted for in the books and records of the company. I also think that Mr. White, like Mr. Young, at times took a casual view of the difference between the company's interests and his own. On the other hand, he has since repaid the sum of £30,000 to the company (a point addressed in more detail below) and, having observed him in giving evidence, I consider that he was generally a credible and honest witness.
8. I have also tested the evidence of all the witnesses by reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities.

Outline of the facts

9. Mr. Young and Mr. White met in June 2001 through a mutual business acquaintance. At that time Mr. White was interested in buying an interest in a food business. He employed Mr. Young to assist him in preparing business forecasts. Later they started looking for a business opportunity together. As already stated, Mr. Young is an Associate of the Institute of Chartered Accountants of England and Wales, having qualified in 1982. He has been a director of a number of companies. Mr. White had a background in marketing and distribution, but had not previously been a company director.
10. Also in 2001, Mr. Young was introduced to Mrs. Karen Wharton. She had worked until 1995 in a bank, where she was a branch manager and, later, a business banking manager. She took voluntary redundancy in 1999 and, having qualified as an accountant, became a business consultant, assisting small businesses to raise money. She agreed to help Mr. Young raise finance if he found a suitable venture.
11. Towards the end of 2001 Mr. Young learnt from an advertisement in the Financial Times that the receivers of a company called G&S Realisations Limited were offering for sale a well-known and long-established business, under the Gillman & Soame name, which took group photographs at schools, universities and businesses.
12. Mr. Young and Mr. White became interested in the business and entered negotiations with the receivers, Deloitte and Touche ("D&T"). Mrs. Wharton assisted in raising funds for the purchase of the business. A price of £850,000 was agreed and the sale of the business to GSL was completed at the end of March 2002. GSL had been incorporated on 8 November 2001 under the name Plexis Ventures Limited; it changed its name to Gillman & Soame Limited on 25 April 2002. The trading address and offices were in Oxford.
13. Mr. Young became managing director of GSL on 28 March 2002, and remained in that position until he was summarily dismissed on 11 April 2003 (a couple of weeks before the administration order). Mr. White became sales and marketing director on the same day.
14. GSL issued 100 shares, of which 45 were allocated to Mr. Young's wife, 45 to Mr. White (including 1 original subscriber's share) and 10 to Mrs. Wharton. These allotments or transfers took place on 28 March 2002. Mr. Young said at in his closing speech that the allotments were not made until late July. However, I reject this suggestion and find that the dates on the documents, showing that the allotments occurred on 28 March 2002, accurately record what happened at that time.
15. Mr. Young and Mr. White were joint signatories for cheques on GSL's bank mandate with Barclay's Bank ("the Bank"). Each held a company credit card, which they used for expenses. The company did not have a formal overdraft facility with the Bank.
16. Mr. Young admits that while he was a director he used his company credit card for personal expenses. For instance, he used the card to pay for clothes, weekend car parking, meals, travel expenses, hotel bills and other things having nothing to do with the company or its business. He also admits that he or his family received money or other assets paid for by the company and that he discharged his own personal debts using the company's money. Some of these were substantial, including, for instance, payment of personal debts amounting more than £20,000, a payment of a sum to himself or his wife of almost £30,000, and the gift of a car to his daughter. I shall return to the details of these when addressing the specific claims made by GSL.
17. Mr. Young seeks to justify these payments by saying that, at about the same time as the company acquired the business, he and Mr. White agreed that they should each receive annually a gross salary of £120,000 and would be entitled to £20,000 of personal expenditures paid for by the company. In his defence Mr. Young described the agreement about the £20,000 as a "bonus" arrangement. In evidence he said they would each receive a gross salary of £120,000 but would also each be entitled to an allowance of £20,000 from the company for personal expenditures (i.e. those not relating to the business of the company). He could not recall, when giving evidence, any reference to the £20,000 being a "bonus". When he was reminded of the reference to a bonus in his defence, however, he said that that was indeed his case.
18. Mr. White's evidence was that he and Mr. Young agreed a salary of £120,000 per annum and other benefits (the financing and running costs of a car and some insurance), but that they did not agree anything about the company paying their personal expenses.
19. I reject Mr. Young's version of events. First, having heard them both give evidence, I prefer the oral evidence of Mr. White on this issue. Second, as explained above, Mr. Young's version of the conversation he gave in court differed materially from his defence. Third, I find the alleged agreement improbable: it is likely that if the directors were to be allowed another £20,000 drawn from the company they would have agreed to this as salary. Fourth, as explained below, Mr. Young later took steps to disguise a number of personal payments in the company's books and records and there would have been no need for this had there been an agreement as he now alleges. Fifth, the amounts in fact taken by Mr. Young for his personal expenditures were a great deal more than £20,000 per annum. I therefore find there was no agreement that Mr. Young and Mr. White would be entitled to draw or defray personal expenses using the company's assets.
20. In late July 2002 Mrs. Wharton and Mr. Peter Gowar became directors of GSL. Mr. Gowar, who had been a Justice of the Peace for many years, became chairman.
21. Mrs. Wharton worked as a director, on average, one day a week. Her title was finance director. However, she never performed that role. The great bulk of her time was spent working on a legal case against the receivers who had sold the business to GSL in March 2002. The receivers were claiming deferred consideration for the sale of the business to the company. The company had counter-claims for misrepresentation, on the grounds that the receivers had given an unduly rosy picture of the business. The claim and counterclaim ("the D&T case") was apparently reasonably substantial litigation and it took almost all of Mrs. Wharton's one day a week.
22. Mrs Wharton said in evidence that in practice Mr. Young was in charge of the financial functions of the company (as part of his functions as managing director). She also explained that the accounts controller, Mr. Hinckley, reported to Mr. Young, and that Mr. Young was aware of the details of the financial position of the company. I accept this evidence and so find.
23. Mr. Hinckley produced computerised management accounts for GSL monthly. These were provided to each of the directors.
24. Summary spreadsheets containing the results shown in the management accounts on a monthly basis show that, from the time it commenced trading in April 2002, GSL made cumulative losses. By the end of the first half year of trading, September 2002, the cumulative losses were £825,894 on a turnover of £1,643,158. By the end of the third quarter, December 2002, the cumulative losses were £823,633 on a turnover of £3,498,088. During January and February 2003 there were further losses of £332,617. It is doubtful that proper provisions were made for PAYE or NIC, so these losses were probably understated. The management accounts also showed the balance sheet position. There were net assets of £522,574 at the end of April 2002, falling to a net deficit of £136,894 by the end of September 2002, and a net deficit of £134,633 at the end of December 2002. It appears that the position improved in January 2003 with the net assets increasing to £76,798, but by the end of February 2003 there was a net deficit of £119,249. Again, however, the liability of GSL for PAYE and NIC was probably not included at full value.
25. Something more should be said about the company's liabilities for PAYE and NIC. GSL had 80 to 100 employees and was liable to pay PAYE and NIC periodically. During its year or so of trading it never paid any PAYE or NIC. By October 2002 it already owed about £260,000 for these. There was an episode in October 2002 when, according to Mr. Young, the company sent a number of post-dated cheques to HM Inland Revenue for these liabilities, but that the cheques were never presented by the Inland Revenue for payment. Mr. Young said that Mr. Hinckley was in charge of sending the cheques and that Mr. Hinckley told Mr. Young that he had done so. Mr. Young said he did not realise until much later that the cheques had not been presented for payment. I find this improbable. He was in overall charge of the company's finances, and had signed the cheques. I find that he would have thought about the cheques when considering the company's position, if only when reading the next set of management accounts. I should also mention that, in my judgment it is, in fact, unlikely that the cheques were sent, or if they were, were received by the Inland Revenue. In either case, I find that Mr. Young knew that the cheques had not been presented and did nothing to put things right, believing that it was better to ignore the problem.
26. It appears that even by the beginning April 2003 the Inland Revenue was not aware that the company had paid no PAYE or NIC. By then the amount owing was more than £435,000. It seems that the Inland Revenue may have learnt of these liabilities shortly before the company was put into administration on 24 April 2003, but even that is not clear.
27. At any rate, what this episode, and in particular, the post-dating of the cheques in favour of the Inland Revenue, does show is that by October 2002, to Mr. Young's knowledge, the company was unable to pay its debts (of £260,000) as and when they fell due. Mr. Young accepted this conclusion when giving evidence.
28. By early April 2003 Mr. White, Mr. Gowar and Mrs. Wharton were becoming increasingly anxious about their position as directors of the company. Mr. White and Mrs. Wharton gave evidence that this concern led to an agreement, at a board meeting on 1 April 2003, that the directors' salaries for April 2003 would not be paid. Mr. Young disputed that there had been such an agreement, and relied on some handwritten minutes he made of the meeting which did not record any such agreement. Having heard the conflicting oral evidence, I accept that of Mr. White and Mrs. Wharton on this point.
29. In early April 2003 several events combined to heighten the concerns of Mr. White, Mrs. Wharton and Mr. Gowar, and led in the end to a complete breakdown of trust.
30. In early April, Mr. Nygate, an insolvency partner at BDO Stoy Harward ("BDO"), GSL's accountants, gave some advice to the directors about its financial position. His advice, if it can be called that, was very general. He had not even considered the management accounts. It appears that he said little more than that there were a number of possible outcomes. One thing Mr. Nygate undoubtedly told the directors was that they must be open with the Bank, which had complete power over the company's ability to continue trading.
31. I think that Mr. Young has exaggerated the importance of BDO's involvement at that time. Mr. Young suggests that Mr. Nygate gave the directors positive advice that they could properly continue to trade. There is no evidence to support that, and both Mr. White and Mrs. Wharton were clear that Mr. Nygate had not given any such positive advice, or indeed any real advice at all. I accept their evidence. I also accept their evidence that when they asked Mr. Nygate to put any advice in writing, he declined to do so, on basis that he had not undertaken a review. In my judgment, nothing Mr. Nygate had told the directors could reasonably have been interpreted by them as positive advice that it was proper for the company to continue to trade.
32. However, as already noted, BDO told the directors to be frank with the Bank. This leads to another episode, which accelerated the breakdown of trust between the directors. The Bank required GSL to provide a cashflow projection. Mr. Young, Mrs. Wharton and Mr. White spent most of a day together, in late March or early April 2003, producing a cashflow projection. This gave a fairly gloomy prognosis, particularly in the early weeks. Without consulting the others, Mr. Young then produced a revised forecast and sent it to the Bank on 4 April 2003, presenting it as the directors' forecast and calling it "quite cautious". His version gave a significantly more favourable picture than that agreed between the three directors, particularly for the critical first few weeks. When she found out that Mr. Young had sent a revised version to the Bank without telling the other directors, Mrs. Wharton sent an email to Mr. Young, copied to Mr. White, on the evening of Sunday 6 April, saying that she did not understand where Mr. Young had got the figures from as they were nothing like those agreed between them. She asked whether there had been some major changes due to circumstances she was unaware of. She also attached a schedule showing the differences, which were significant. Mrs. Wharton also recorded the advice of BDO that the directors should provide the Bank with an accurate picture of the cashflow and current circumstances and that the directors therefore needed to discuss this and prepare an accurate cashflow when she was in the office the following Tuesday, 8 April 2003.
33. Mr. Young seeks to downplay the importance of this event by suggesting that forecasting is based on assumptions and is not a scientific exercise. But that misses the point. He had agreed a forecast with his fellow directors and then revised it behind their backs before sending it to the Bank. The other directors were deeply unhappy when they discovered what he had done.
34. A board meeting took place on Tuesday 8 April 2003. The minutes record (in a slightly different order than set out here), first, that Mr. Young said he was unhappy with the advice given by BDO and that their interest lay more with advising the Bank than advising GSL; and that Mr. Young felt that if the Bank were advised of the true situation it would walk away. Second, the minutes refer to the two different cashflow forecasts and record that Mrs. Wharton complained that the one sent to the bank misrepresented her views. Mrs. Wharton said that the relationship depended on trust. Third, the minutes record that Mrs. Wharton said the company could not take on any further liabilities. She told Mr. Young she had taken advice and believed the company to be insolvent. Mr. Young said the company had already taken advice and that it could continue. Mrs. Wharton referred to outstanding County Court judgments which showed it could not pay its debts as they fell due. Fourth, Mr. Young advised that the Bank had made a mistake in allowing the payroll to go through for March and this had taken the overdraft to £180,000. He said he was arranging £235,000 from the sale and leaseback of plant and equipment and could raise £100,000 by re-financing the cars. Fifth, Mr. Young is recorded as saying that the Inland Revenue would have to wait until the end of May (i.e. almost 2 months). Mrs. Wharton stated that no new finance arrangements should be entered into and she also questioned whether the Inland Revenue knew of the company's existence. Mr. Young said that if they talked to the Inland Revenue at that stage they would have to call it a day, but had arranged to refinance the assets. Mrs. Wharton said that they needed to contact the Inland Revenue immediately. Mr. Young said that the company was lucky that the Inland Revenue had not presented the cheques. Mr. Young said that there would be a major problem if the Inland Revenue were told in April. Sixth, Mrs. Wharton is recorded as having been told by Mr. McKinlay of the Bank that he had concerns about the ability of the company to meet the April payroll and was nervous about what was going on. She said the directors had a moral and legal duty to act, and that the company was insolvent. Seventh, the minutes record that Mr. White said that the directors should take independent advice. Mr. Young said that he wanted to protect the business going forward. Mr. Young said that the other directors should resign immediately and that the company was not a plc so there were no shareholders to consider. Mrs. Wharton repeated that she had already taken advice and that in her view the company was insolvent and should not take on any further liabilities. Eighth, the minutes record that at the meeting on 1 April all the directors had agreed that the all payments should require two signatures and that the directors' salaries for March should not be paid, and that all directors agreed this again. Ninth, it was agreed that the independent advice would be taken.
35. Mrs. Wharton and Mr. White confirmed that the minutes were accurate. Mr. Young says they are not, and points out they were not approved by Mr. Gowar until 23 April 2003. He alleges they were created later specifically to damage him and protect the interests of the other directors. Having had the benefit of the oral evidence, I prefer the evidence of Mrs. Wharton and Mr. White on this point. I also see no reason for doubting the accuracy of the minutes. They set out in some detail what appear to have been anxious and, at times, tense exchanges, and record the ebb and flow of the conversation. Much of the content seems to me to reflect what Mr. Young now alleges was the position. For instance, they record Mr. Young saying he wanted to protect the business, that he had already arranged refinancing of more than £300,000 and that he believed the business could survive. This accords with what he now maintains he was saying to the other directors at the time. The minutes also record in some detail the discussions about the cashflows presented to the Bank. As her email of the previous Sunday evening showed, Mrs. Wharton was exercised about this question and believed that Mr. Young had not been honest. I also have no doubt that Mr. Young was capable of telling her that if the Bank was told the true situation it would walk away. The minutes also record the discussions about the position of the Inland Revenue and what is stated appears to me to reflect what the directors were likely to have said on this issue at the time.
36. Mr. Young's main reason for saying the minutes were not accurate was the first point listed above, namely, that they record him saying that he was unhappy with the advice of BDO. However, I do not regard this as being a surprising thing for him to have said. BDO had not provided any positive advice other than to say that the company had to be open with the Bank. Mr. Young had not, in my judgment, agreed with this advice and had been less than open with the Bank. It also seems that by this date the Bank was considering getting BDO to report to it on the company's position, and this tallies with the comment recorded in the minutes that BDO's interest lay more with the Bank. I also find it improbable that if Mr. Young did not say this, the other directors would have thought of making it up.
37. I therefore accept the minutes as a true record of the meeting. Specifically, I find that there was an agreement between the directors at this meeting, repeating what had been agreed between them on 1 April 2003, that the directors' salaries would not be paid for the time being. Mr. Young denied this but, in addition to my finding that the minutes of the meeting of 8 April 2003 are an accurate record, I prefer the oral evidence of Mrs. Wharton and Mr. White on this point.
38. After the 8 April meeting the directors other than Mr. Young met and decided that they had lost trust in Mr. Young. In addition to the points already mentioned above, Mr. Hinckley told them that there was some missing cash. They agreed that they needed independent advice from solicitors about their own potential personal liabilities. It is significant that they had decided that they should seek legal advice as this shows how concerned they were by this stage about the possible insolvency of the company. Mr. Gowar's brother was a partner in Lawrence Graham and they decided to have a meeting with him. It is part of Mr. Young's charge of conspiracy that the fact that the directors went to the firm of Mr. Gowar's brother shows that a cabal was already being formed. I reject his suggestion; in my view the choice was both reasonable and obvious.
39. A meeting with Lawrence Graham was arranged for the following morning, 9 April 2003, and it was attended by Mr. White, Mrs. Wharton and Mr. Gowar. The directors spent most of the morning with the solicitors and they went through the available information. The solicitors advised them at the meeting that they should seek the views of an insolvency practitioner and they were then introduced to Mr. Bairstow. This was Mr. Bairstow's first contact with GSL or any of its directors.
40. The directors told Mr. Bairstow about their concerns and gave him details of the financial position of the company, including the existence of outstanding County Court judgments, the Inland Revenue claims, and the precarious position with the Bank. Mr. Bairstow outlined the possible options including administration. Mr. Bairstow says that he does not think that he advised that administration was necessarily the way forward. But the impression I gained from the evidence of Mr. White and Mrs. Wharton was that, while no final decision had yet been reached, administration was on the cards from the evening of 9 April 2003 onwards.
41. Other events happened on 9 April 2003 which served to erode any remaining confidence the other directors had in Mr. Young. I have already found that at the meetings of 1 April and 8 April 2003 the directors agreed that the executive salaries for April would not be paid. As a matter of mechanics, those salaries were paid by BACS authorities to be given through BDO. Mr. Young had been able to sign on his own to give authority to BDO to pay, and had done so.
42. Mrs. Wharton sent a fax to BDO on the on the morning of 9 April 2003 confirming that, for the future, two signatures would be required for such payments. Later that day, at about 5.00 p.m., Mr. Young sent an authorisation to BDO for the payment to be made. The other directors learnt of this later on 9 April. Mr. White and Mrs. Wharton said in evidence, and I accept, that this confirmed and deepened their distrust of Mr. Young.
43. Mr. Young accepted in evidence that when he ordered the payment to be made he knew that GSL was in very serious financial trouble. He nonetheless thought it proper to make the payment because, as he put it, "I am not a charity." This answer demonstrates his casual approach to the interests of creditors. On any view the position of creditors was precarious by this date and Mr. Young knew it. Moreover, as I have found, the directors had agreed not to pay themselves because of the dangerous financial state of the company and the other directors were upset and concerned when they discovered he had ignored their agreement. This was one of the reasons they dismissed him two days later. I return to this below.
44. Also on 9 April 2003 a bailiff attended at GSL's offices and attempted to enforce an outstanding County Court judgment for £9,000.
45. Mr. Young's case was that, even at this juncture, the Bank was fully supportive of the company and would have continued to allow it to run an overdraft had Mr. Bairstow not intervened. He relied on an email from Mr. McKinlay of the Bank to him of 9 April 2003 which said that the Bank wanted to remain supportive of the company but need to verify the financial position of the company to have a sound foundation on which to base its decisions going forward, and that for this purpose BDO were to attend at the company's offices to start work on a report, to be completed quickly, and enable further discussions before the next wages run on 25 April. Mr. Young said this showed that the Bank was committed to supporting the continued trading of the company.
46. I do not think the evidence goes nearly that far. There was no formal overdraft facility, so the Bank could withdraw its support immediately at any time. By this stage the Bank had received Mr. Young's revised cashflow forecast. As the minutes of the 8 April meeting show, Mr. McKinlay had already told Mrs. Wharton that the Bank was nervous about the company's position. It wanted sound financial information and was indicating by the email of 9 April 2003 that it wanted to support the company if possible. That was a tactful way of saying that the accountants were being sent into the company to report, and is, to my mind, far from being an expression of commitment to support the company.
47. The following day, 10 April 2003, Mr. Bairstow visited the company. He met the BDO representatives who were visiting the company in accordance with the email from the Bank of 9 April 2003. Mr. Bairstow introduced himself and the BDO representatives left at once.
48. Mr. Bairstow also undertook some further fact-finding about the company's financial position. He spoke to Mr. Young. Mr. Young says that Mr. Bairstow introduced himself as "administrator elect". Mr. Bairstow thought this unlikely, and I think it more probable that he explained that he was an insolvency practitioner and that he had been approached by the other directors to advise, but did not use the term "administrator elect". At any rate, Mr. Bairstow says that at an early stage in the day Mr. Young told him that he was in the course of refinancing the company, but later told him that his efforts had failed and that the company was insolvent. I accept this evidence.
49. Mr. Bairstow had already reached the view that, if there were to be an administration, he would have to sell the business rapidly (before the next wages run on 25 April 2003), and on 10 April 2003 he provided Mr. White and Mr. Young separately with the standard terms on which he required bids for businesses to be made, and explained what these terms were to each of them. Mr. Young accepted in evidence that the standard terms were provided to him on that day, and that he had indicated that he might be interested in bidding. Hence, by 10 April 2003, as far as Mr. Bairstow was concerned, Mr. Young had accepted that the company was insolvent, and knew of the terms on which Mr. Bairstow would be seeking bids for the business if he became administrator.
50. Mr. Young produced, during his closing speech, some manuscript notes said to have been made on 10 April 2003, which appear to confirm that Mr. Bairstow provided him and Mr. White with the standard terms for bidding. The notes also record Mr. Bairstow saying that the other directors were interested in bidding. Mr. Young built on this evidence to argue that Mr. White was lying when he said in evidence that he only decided a few days later that he would bid. I do not accept Mr. Young's argument. Mr. White said that he could not remember whether he got the standard terms on 10 April, although I think it is clear that he did. But it is quite possible that Mr. Bairstow got the impression that Mr. White would be interested in bidding even if Mr. White had not made up his mind whether to do so. I should also record that the notes were only produced in closing submissions and they are dated 10 April 2004 and there may be questions about their authenticity.
51. Also on 10 April 2003, after he had met the directors, Mr. Bairstow spoke by telephone to Mr. McKinlay of the Bank and explained that he had been approached by the directors. Mr. McKinlay informed him in the course of the conversation that the Bank had decided not to make further payments from the company's accounts and that it would be calling in the overdraft.
52. Mr. Young alleges that during this conversation, or perhaps an earlier one, Mr. Bairstow deliberately persuaded the Bank to withdraw its support. He relied on the email from the Bank of 9 April 2003 and argues that Mr. Bairstow must have done something so radically to change the Bank's mind. Mr. Bairstow disagreed. He said that the Bank had already made the decision and reported it to him during the conversation on 10 April 2003. I accept Mr. Bairstow's evidence on this point. First, I considered his oral evidence was honest and credible on this point. Second, as I have already said, I am not persuaded that the Bank had committed itself to supporting the company, and there is no reason to think that it did not decide overnight to call in the debt. Indeed the minutes of the 8 April meeting show that the Bank was already nervous by that date. There is no evidence of the decision-making of the Bank, but it seems to me likely that BDO (who had agreed with the Bank to report on the company) would have informed the Bank immediately on the morning of 10 April 2003 that an insolvency practitioner was at the offices of the company, and the Bank then decided to withdraw its support. At any rate there is nothing to support Mr. Young's contention that Mr. Bairstow deliberately induced the Bank to cease supporting the company.
53. I should deal here with a further argument advanced by Mr. Young about Mr. Bairstow's conversation with the Bank. He argues that Mr. Bairstow said in his witness statement that he spoke to the Bank on 9 April and that he changed his evidence in cross-examination. The suggestion is that he had something to hide, and that he must in fact have had another conversation with the Bank on 9 April in which he persuaded the Bank to withdraw facilities. But this involves a misreading of the witness statement. Mr. Bairstow said there that after the meeting of 9 April he spoke to the Bank. He did not say that he spoke on 9 April itself, and I find as a fact that his first conversation with the Bank was on 10 April 2003, when he called Mr. McKinlay after meeting the directors in Oxford.
54. Absent refinancing, the decision of the Bank on 10 April 2003 to stop payments on the account was the death-knell for the company; without making payments, the company could not continue to trade. In my judgment, there was no realistic prospect on 10 April 2003 of the company refinancing its liabilities. Any lender would have learnt that the company owed the Bank more than £150,000, that the Inland Revenue was owed well over £400,000, and that there were significant other creditors. Indeed Mr. Young told Mr. Bairstow on 10 April that he could not obtain refinancing and there is no evidence that that position changed later. From 10 April 2003, in my judgment, the company was bound to go either into administration or liquidation.
55. Later on 10 April 2003, some time after Mr. Bairstow had left, the other directors told Mr. Young that they required him to attend a meeting the following day to face disciplinary charges and invited him to bring a legal representative. On 11 April 2003 there was a meeting of the directors at the company's offices. Mr. Young brought his wife along to support him. The other directors accused Mr. Young of gross misconduct, informed him he was dismissed as managing director and asked him to remove his belongings at once. Mr. Young denied the accusations, but packed up and left.
56. Mr. Young says that Mr. Bairstow must have been involved in the decision to dismiss him as managing director. This was denied by Mr. Bairstow, Mr. White and Mrs. Wharton. There is no evidence to support the allegation. By this date the other directors had decided that Mr. Young had been dishonest both with the Bank and with them. They had set out some of their concerns at the meeting of 8 April 2003 and after that Mr. Young had broken their agreement that the executive salaries for April would not be paid. I find that the decision to dismiss Mr. Young was their own, and Mr. Bairstow was not involved in the decision.
57. As part of his case that there was a conspiracy between Mr. Bairstow and the other directors, Mr. Young relies on an email from Mr. White to Mr. Bairstow of 14 April 2003. It started "Dear Vivian" and thanked him for the advice he had given the directors to date. The email, which purported to come from Mr. White, Mrs. Wharton and Mr. Gowar, then set out an offer. Mr. Young relies on the fact that email refers familiarly to Mr. Bairstow by his first name, suggesting this shows a suspiciously close relationship, and says that Mr. Bairstow must have been advising the other directors about making an offer. I disagree. Mr. White had met and spoken to Mr. Bairstow over the previous few days, so to call him by his first name is unremarkable. The advice referred to was, I find, the advice Mr. Bairstow had given on the options for the company, not about the bidding process. As Mr. Bairstow pointed out the offer effectively followed the format of the standard terms he had supplied to Mr. White on 10 April 2003, which he had also supplied to Mr. Young.
58. On 16 April 2003 GSL presented its own petition for an administration order.
59. By a letter of 17 April 2003 the Bank formally demanded repayment of £154,000 odd.
60. The process for bids for the business and assets of the company continued during the period up to the hearing of the administration petition on 24 April 2003. As explained above, Mr. Bairstow gave his standard terms for the submission of bids to both Mr. Young and Mr. White on 10 April 2003. In the event, there were two bidders for the business, Gillman & Soame Graduation Photography Limited ("Photography"), backed by Mr. White, and GS&Y Limited, backed by Mr. Young.
61. After the petition had been presented Mr. Bairstow and Mr. Hood, as the prospective administrators, employed the firm of Atis Real Weatheralls ("Atis Real"), who are well known asset valuers, to act as their agents to assist with the bidding process. The reason for advancing the bidding process during this period was the imminence of the wages run on 25 April 2003.
62. On 21 April 2003 Mr. Young sent an offer to Mr. Bairstow for the assets and business of the company. His offer was for all the assets including the debtors, and an interest in the D&T case. The consideration was to be payable in a number of instalments ending on 31 July 2003, with further possible consideration depending on the turnover of the business and the outcome of the D&T case.
63. On 23 April 2003 Ms. Deborah Bailey of Atis Real spoke to Mr. Young regarding his offer, and explained that her firm had been appointed by Mr. Bairstow to assist with the sale process. Mr. Young confirmed to her that the offer of 21 April 2003 was his best and final offer and Ms. Bailey told him that the deadline for receipt of all final offers was 8:00 a.m. the following morning, 24 April 2003. I shall return to the outcome of the bidding process after recording the further progress of the petition.
64. Mr. Bairstow provided a rule 2.2. report on 24 April 2003. He referred to the withdrawal of the Bank's support, the liability to the Inland Revenue, the visit of the bailiff on 9 April, and concluded that the company was insolvent. He also said that indicative offers had been received from certain shareholders and directors for the business and assets of the company and that, if appointed, he would continue to pursue a sale. He explained that he had already appointed independent professional valuers to advise on the value of the assets. He said that there were competing offers and that the appointment of an administrator would allow a resolution of this competition. He explained that there were no assets available to fund the administration, that there were a number of reasons for urgency, that the prime purpose of an administration would be to achieve a sale of the business and assets, and that he anticipated a sale within two days of appointment. The main reason given for urgency was that payments of wages to employees were due on 25 April 2003, the following day.
65. Mr. Bairstow also assisted in the preparation of an estimated statement of affairs as at 23 April 2003 which was attached to his rule 2.2. report. This showed, at book values, a total excess of liabilities over assets on a balance sheet basis of £119,300. The book values may have overstated the actual value of the company's assets because much of its assets consisted of camera and office equipment which may well not have had a resale value equal to book value. The notes to the statement of affairs also show that the management accounts had understated the PAYE/NIC liabilities but that adjustments had been made in the statement of affairs. The statement of affairs estimated that in an administration there would be a total deficiency for creditors of £1,388,300, and in a liquidation the deficiency would be £1,876,000.
66. On 24 April 2003 Patten J. made an administration order for the sole purpose of achieving of a more advantageous realisation of the company's assets than would be effected on a winding up.
67. Returning to the bidding process, as explained above, the deadline for final bids was 8:00 a.m. on 24 April 2003. Mr. Young had confirmed in the conversation with Ms Bailey on 23 April that he had made his final bid. Mr. White also submitted a bid (in the name of Photography) before the deadline. The administrators assessed the competing bids and came to the conclusion that Mr. White's bid was the better. Mr. Bairstow explained why this was in evidence. In short, Mr. Young's bid included the debtors, which Mr. Bairstow thought were worth between £200,000 and £300,000, so that amount could effectively be deducted from his offer. In addition, Mr. Young's bid included a large element of deferred consideration, payable according to performance. Mr. White's bid involved a lower headline price but excluded the debtors and there was less deferral of consideration.
68. During the afternoon of 24 April 2003 Mr. Bairstow's solicitors explained to Mr. Young's solicitors that the administrators had decided to accept Mr. White's company's bid. Later that evening Mr. Young submitted a further, improved, bid. The administrators refused to reconsider their decision as that bid was submitted well after the deadline.
69. Mr. Young accused Mr. Bairstow of misconduct by failing to tell him directly in writing that Atis Real had been appointed. No doubt that might have been done, but Atis Real, a well known firm, informed Mr. Young of its appointment as agents and he had no reason to doubt their word. I fail to see what a letter from Mr. Bairstow to confirm the appointment of Atis Real would have added. In any event, Mr. Young was told of the deadline, knew of the urgency, and confirmed to Atis Real that he had made his final bid.
70. Mr. Young also criticised Mr. Bairstow for accepting Mr. White's bid in preference to his own, saying that his bid was better as a matter of substance. Mr. Young also complains that the playing field was not level because he had no access to information. In my judgment, these criticisms of the administrators are unjustified. The bidding process had to be completed very quickly if the business was to continue at all. The deadlines were communicated by Atis Real. I find that the administrators made their decision bona fide and reasonably on commercial grounds, and that there is no basis for the allegation that they unfairly favoured Mr. White's bid because he had originally approached Mr. Bairstow. I consider that the administrators did what they could to generate a competitive bidding process and, having done so, made their choice in what they considered to be the interests of creditors. As for the complaint that Mr. Young's lacked access to information, I agree with Mr. Bairstow's observation that Mr. Young had been managing director of the company until a couple of days before and was well able to formulate a bid for the business. In any case, this was not a problem over which Mr. Bairstow had any control.
71. On 25 April 2003 the employees' wages fell due for payment. These were apparently paid by or on behalf of Mr. White or his company, Photograph, though the contract for the sale of the business had not yet signed been signed. Mr. Young argues that was suspicious because it shows that Mr. White knew by then that he was going to be the successful buyer. But there is nothing remarkable about the payment being made before the contract had been signed. The administrators' solicitors had informed both parties on 24 April that Mr. White's bid was successful and Mr. White had to arrange payment of the wages if there was going to be any business left for him to buy.
72. In July 2003, Mr. Young's solicitors wrote a letter to the administrators raising various queries about the bidding process and the decision to accept Mr. White's bid. The administrators replied to the questions in full in July 2003. Mr. Young did not pursue any of the queries or suggest the sales process was flawed or unfair until he was sued in these proceedings.
73. As well as selling the business and assets of the company to Mr. White's company the administrators transferred the D&T case to Mr. White, for £5,000 plus 45% of the net proceeds after certain further permitted deductions. Mrs. Wharton continued to assist Mr. White in relation to this case as a consultant for £1,000 a day. Eventually there was a settlement under which Mr. White received a net sum of about £100,000. He also paid about £100,000 to Mrs. Wharton and a sum of about £50,000 was paid to the administrators as their share of the proceeds.
74. Mr. Young explored the settlement and the various payments in some detail in cross examination and submissions. He pointed out that a subsequent report from the administrators to creditors stated that Mr. White had paid £80,000 to the administrators. Mr. Bairstow said that this was made up of about £50,000 from the D&T case and about £30,000 as the repayment of a sum wrongly paid by the company to Mr. White in July 2002 (at the same time as a like sum was paid to Mr. Young). Mr. White gave evidence to the same effect. Mr. Young argued that both Mr. Bairstow and Mr. White were lying. He argued that the whole of the £80,000 paid by Mr. White was properly attributable to the D&T litigation and that Mr. White had never repaid the £30,000 received in July 2002. He accused Mr. Bairstow of lying to help shield Mr. White from disqualification proceedings.
75. I reject Mr. Young's argument. It was explained to me that the share of the proceeds of the D&T case payable to the administrators fell to be calculated after various further deductions and set-offs were made from and against the net proceeds in the hands of Mr. White. I accept this evidence and do not see any basis for doubting the clear evidence of Mr. Bairstow that the £80,000 comprised the sums of £50,000 and £30,000 referred to above. I find it far-fetched to suggest that Mr. Bairstow has been prepared to lie to assist Mr. White to avoid disqualification.
76. Mr. Young also accused the administrators' firm of having charged separate fees in respect of the D&T case. He said that this again supported his claim as it showed the extent to which the administrations stood to benefit from the alleged conspiracy. However, there were no grounds for the allegation that they received any fees in respect of the D&T case. All they received was the contractual share of the net proceeds.
77. Mrs. Wharton was guarded in evidence about how much money she had received, but I do not think this reflects on her evidence generally. I did, though, allow Mr. Young to explore the matter as he said it was important to his conspiracy claim. I will return to that question further below. It is sufficient at this stage to say that the payment by Mr. White to Mrs. Wharton was a matter between them and, even if Mr. White paid Mrs. Wharton too much (which I do not accept), there would be nothing suspicious about it.

The claims against Mr. Young: general points

78. The claim against Mr. Young is that he or his family received payments or assets from GSL which were for his or his family's personal use and not for the purposes of the company.
79. There is no dispute that Mr. Young owed fiduciary duties to GSL. These included a duty to apply the company's property for a proper purpose, and a duty to act in its best interests.
80. Mr. Allison submits that as GSL was insolvent or of doubtful solvency at the time the various payments now claimed were made, in considering the best interests of the company, the directors owed duties to the creditors. He relies on West Mercia Safetyware v Dodd [1988] 1 WLR 627, Re MDA Investment Management Ltd [2004] 1 BCLC 217, and Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd [2003] 2 BCLC 153 at para 74. I consider that these authorities establish that where a company is insolvent or of doubtful solvency the directors must take account of the interests of creditors under their duty to act bona fide in the interests of the company.
81. I find that GSL was insolvent by the end of October 2002 at the latest. That is when post-dated cheques were prepared in respect of PAYE and NIC liabilities of at least £260,000. Whether the cheques were even sent is doubtful, but the fact that they were post-dated is in my view clear evidence that Mr. Young (who was one of those who signed the cheques) knew by then that the company could not pay its debts as and when they fell due. I also find that even before that date the solvency of the company was doubtful. GSL was never substantially capitalised and its cashflow was not as favourable as the directors had hoped at the time of the acquisition from the receivers. Quite when the stage of doubtful solvency was reached is less clear but, in my judgment, the creditors were seriously at risk (at the latest) by the end of September 2002 when there was a deficit of £136,894. However, little, if anything, ultimately turns on the precise date when this stage was reached.
82. I should also say something about the burden of proof. Where a person in a fiduciary position receives property of his principal the burden is on him to account: United Pan-Europe Communications v Deutsche Bank (CA, 19 May 2000) at para 34. This principle applies to company directors as it does to trustees: Ultraframe (UK) Ltd v Northstar Systems Ltd & Ors [2005] EWHC 1638 (Ch) at para 1513. It is, therefore, for GSL to prove that Mr. Young received a particular payment from the company; but where it does so, it is for him to show that the payment was proper.

Possible general defences

83. Putting to one side the Part 20 claim, Mr. Young's general defence to the claims is put in a number of related ways. He relies, first, on the agreement he says he reached with Mr. White at the outset about the company defraying their personal expenses up to £20,000 per annum. Second, he says that Mr. White knew of and approved all the payments to Mr. Young from the company's assets. Third, he says that, as a directors, there was nothing wrong in having his personal expenses paid by his company.
84. I have dealt with the first of these points already, and have rejected Mr. Young's case that there was any such agreement.
85. Mr. Young's second general point is that, at any rate, Mr. White knew of and approved the payments. I think the evidence shows that Mr. White knew of some but not all the payments. But even if Mr. White had known of all the payments, this point goes nowhere in any case. First, after July 2003 there were two other directors, and they were not aware of the payments. Second, the directors cannot authorise or ratify a breach of fiduciary duty by one of their number. Only the shareholders can do that.
86. There is no basis for alleging authorisation or ratification by the shareholders in the present case. First, there was no meeting of shareholders at which authorisation or ratification was sought. Second, Mrs. Wharton, one of the shareholders, was unaware of the payments made to Mr. Young. Third, from at least September 2002 onwards, when the solvency of the company was doubtful, and the interests of creditors were endangered, it would not have been open to the shareholders to ratify breaches of duty by the directors (see West Mercia Safetyware v Dodd [1988] 1 WLR 627). Fourth, for effective approval or ratification there must be full disclosure to shareholders. Far from being full disclosure, in a number of instances at least, Mr. Young deliberately concealed what had happened from his fellow directors and shareholders.
87. Mr. Young's third general contention, that many directors of companies use their company's assets to pay personal expenses, may be accurate empirically, but it offends basic legal principles. Companies are separate legal persons, and the creditors who deal with a company, and its shareholders, are entitled to require the directors to apply corporate assets for proper purposes and in its interests.

Particular amounts claimed

88. I now turn to the particular sums claimed, adopting the headings used by the parties.

(a) Defendant's loan account

89. The claim is that Mr. Young received £9,435.94 comprised of (i) £2,300 cash received by Mr. Young between 19 April 2002 and 20 November 2002, (ii) a company cheque, for £5,000 dated 13 November 2002 in favour of Mr. Young, and (iii) a company cheque for £2,135.94 dated 29 January 2003 in favour of the Inland Revenue but for Mr. Young's personal tax liabilities.
90. Taking these in reverse order, Mr. Young admits that the cheque for £2,135.94 was for his personal tax liabilities. This was an improper payment.
91. As to the cheque for £5,000 dated 13 November 2002, Mr. Young contends in his defence that this was a bonus payment. In my judgment, the defence fails. First, there is no evidence that such a bonus was ever resolved on or agreed to by the directors of the company. And it is difficult to see, given the cumulative losses by then why the directors would have contemplated giving Mr. Young a bonus. Second, Mr. Young said that Mr. White knew about the payment and that it was a bonus. I reject that evidence. But, in any case, by the date of the payment there were two other directors and Mr. Young did not even suggest that they knew about it. Third, even if the other directors had resolved on the bonus, I would have found, given the insolvency of the company by then, that a payment of such a bonus in favour of a director who was already receiving a salary of £10,000 a month was contrary to the interests of creditors and was therefore a breach of the directors' duties. This was an improper payment.
92. As to the cash sums, some these were listed in a computer ledger under the heading "directors loan accounts". Other payments were listed in a typed schedule also headed "directors loan accounts". A number of the entries appear in both, but there is no double counting in the claim.
93. Mrs. Wharton explained that the ledger was maintained by the company's accounts staff and that the entries in the ledger were made at about the time the payments were made. There is some corroborative material for certain of the entries in the ledger in the form of company credit card statements showing withdrawals of cash. I find that the entries were indeed made in the computer ledger at the time the expenses were notified to the accounts staff.
94. The second document relied on is the typed list. This appears from manuscript notes on the document to have been created between the end of October 2002 and 18 December 2002. Some of the entries on it tally with the entries on the ledger (which itself is corroborated, as explained above, by the credit cards). In my judgment this document, too, is an accurate, contemporaneous, record.
95. Mr. Young argued that these were large cash amounts (pointing to one of £625) and that he did not receive amounts of this size from the company. However, most of the sums were smaller, being between £125 and £250. Moreover, there is ample evidence that he received large amounts from the company in the form of payments for clothes, food, hotels and so forth, and I have no difficulty in supposing that he also made cash withdrawals of these amounts.
96. I also think it unlikely that Mr. Hinckley or the accounts staff reporting to him would have produced computerised records showing these as payments to Mr. Young if that had not been accurate. Mr. Hinckley and his staff knew that Mr. Young was ultimately in charge of the financial aspects of the business and that he had access to the management accounts. I find it is unlikely that they would have recorded amounts as due to the company from Mr. Young if these had not been his liabilities. I find that Mr. Young received the cash recorded in the ledger. I also find that the typed list is a contemporaneous document which is consistent with and supported by some of the entries on the ledger. I see no reason to think that the other entries on it are not accurate records of cash withdrawals by Mr. Young. I therefore find that the company has established that Mr. Young received the cash claimed.
97. Mr. Young has been unable to provide any explanation of why he received these cash sums, and it follows he has been unable to explain why payments of cash to him was for the proper purposes of or in the best interests of GSL. I find that he is liable for these sums.
98. I therefore find that Mr. Young is liable to pay £9,435.94 under this head.

(b) Cash payments/withdrawals

99. The claim is for (i) £9,320 alleged to have been received as cash from the company, (ii) £2,003.55 of cash withdrawals using a company credit card, (iii) £1,200 cash said to have been given by Mr. Hinckley to Mr. Young on 7 June 2002, (iv) a sum of £100 petty cash on 8 April 2002, (v) a sum of £1,990 said to have been received by Mr. Young in cash for work at Birmingham University in December 2002, (vi) a sum of £301.87 allegedly used by Mr. Young to buy €450 for his own use on 17 June 2002, (vii) a sum of £979.24 used by him to buy US$ on 25 July 2002. The total of these claims is £15,894.66.
100. As to the cash sums totalling £9,320, Mr. Young denies receipt. It is shown in a typed list headed "expense floats as at 31/03/03". The document appears to have been produced after March 2003. It appears to be based on a number of bank paying in slips which record cash being withheld by Mr. Hinckley. There were 17 such amounts. The list describes these as being "cash – HY".
101. The first issue is whether the list and the paying in slips are sufficient to prove that Mr. Young received the amounts recorded in them. The first point to note is that the list does not appear to be a computerised ledger. It was produced after Mr. Young had left and at a time when Mrs. Wharton was investigating him. It is possible that the entries on the list were inserted at that time on the basis of the contents of the bank paying slips. But those slips simply say that Mr. Hinckley retained the cash. Second, there was some hearsay evidence from Mrs. Wharton that Mr. Hinckley has told her that this cash was paid to Mr. Young. However, Mr. Hinckley has not been called as a witness and no reason has been offered why he has not been called. The court is entitled to draw inferences adverse to the company's case and Mr. Young invited me to do so. And Mr. Young has not been given the opportunity to test or challenge Mr. Hinckley's evidence. I do not consider that the evidence is sufficient to establish that Mr. Young received the cash sums of £9,320.
102. As to item (ii), Mr. Young admits receiving the cash amounts of £2,003.55. He could not realistically do otherwise as they were withdrawn using the company credit card. Other than a general assertion that these were legitimate expenses, Mr. Young was unable to explain what the cash was used for. Mr. Young has the burden of accounting for these sums and has not done so. Moreover, given that he habitually used the company's money as if it was his own, and used the company credit card to defray his personal living expenses, I am not prepared to accept Mr. Young's general assertion that these particular cash withdrawals were for proper purposes. On the contrary, in my judgment, absent any other explanation, it is probable that he used the cash for his own purposes. He is liable for this amount.
103. As to item (iii), the company alleges that £1,200 cash was given by Mr. Hinckley to Mr. Young on 7 June 2002 to discharge invoices of photographer creditors but not so applied. The company relies on a slip of paper in Mr. Hinckley's writing which states that the money was given to Mr. Young. Mr. Young was unable to remember this event. I am satisfied that this was a contemporaneous record and find, on the balance of probabilities, that Mr. Young received this sum, and he has failed to account for it. He is therefore liable for this sum.
104. Mr. Young admits liability for item (iv), the sum of £100.
105. As to item (v), the sum of £1,990, Mr. Young denies receiving it and I am not satisfied that there is any evidence that he received it. This claim is not established.
106. As to item (vi), the evidence shows the payment of £301.87 from company assets to buy €450 on 17 June 2002, while there is evidence of the purchase of that sum there is nothing to connect it with Mr. Young. This claim is not established.
107. As to item (vii), the sum of £979.24 used to buy US dollars on 25 July 2002, this is shown on a company ledger. Mr. Young's name is next to the entry. I am satisfied that the entry in the computer ledger is a contemporaneous entry. I also consider, for the same reasons as I have given in relation to the directors loan account ledger that it is inherently improbable that Mr. Hinckley or his staff would produce accounting records which recorded Mr. Young as the recipient of monies where this was not the case. This was also about the date when Mr. Young was leaving for a holiday in Florida. I find that Mr. Young has failed to account for this sum.
108. I therefore find that Mr. Young is liable to pay £4,282.79 under this head.

(c) Holiday to Florida

109. The claim is for £1,215.30 for sums incurred by Mr. Young on the company credit card between 25 July and 9 August 2002.
110. Mr. and Mrs. Young went on holiday to Florida during this period. Mr. Young admits payments of £377.56 for personal expenses incurred during this trip, spent on clothes and petrol. When asked how he thought he could do that, he resorted to the answer that it is not unusual for business people to defray personal expenses from company monies. I daresay that is true, but it is not a defence for the reasons set out above.
111. Mr. Young disputes the other sums, which were for flights from Florida to Charlotte for Mr. and Mrs. Young and two hotel bills. He says that he made a one day trip to Charlotte to see a Mr. Sago, the owner of a photographic business. Mr. Gowar also apparently attended but without his wife. I accept Mr. Young's evidence that he went to a meeting with Mr. Sago that day. In my judgment the air ticket for Mr. Young was a legitimate business expense. I also accept his evidence that the cost of booking a conference room and a hotel bill was legitimate, as it was part of the same trip.
112. I do not however accept that the air ticket for Mrs. Young was a legitimate expense of the company. She was not employed by the company and did not need to go to the meeting. I therefore find that Mr. Young is liable for the price of her ticket, £295.10.
113. Mr. Young is therefore liable to pay £672.66 under this head.

(d) Toyota Yaris

114. The claim is for the cost of a Toyota Yaris paid for by GSL in August 2002, and which Mr. Young gave to his daughter as a present. The amount claimed is £9,195.00.
115. The facts are as follows. Mr. Young negotiated to buy 6 cars, including the Yaris, from a local garage, Inchcape Oxford, for a total price of £60,750. Mr. Young then asked the garage to invoice the full amount but only for five of the cars, excluding the Yaris. The garage did so and in the books and records of the company the payment of £60,750 was recorded as being for the five cars. He then gave the Yaris to his daughter. Mr. Young accepted in evidence that this involved false accounting.
116. His explanation was that he had guaranteed some of the remaining five cars in his sole name with the finance company which had funded the purchase. But that does not justify using the company's funds to pay for a car for his daughter. Mr. Young also said that Mr. White knew of this transaction. Mr. White denied it. I prefer the evidence of Mr. White. In my judgment Mr. Young deliberately disguised the purchase of the car from his fellow directors. But even if Mr. White had known, that would not have been an answer in law. There is no defence to this claim.
117. The only issue under this head is the amount of Mr. Young's liability. GSL alleges that the on the road price of the car was £9,195.00. However, it has adduced no evidence to support that. Mr. Young admitted that the price agreed with the garage as part of the total of £60,750 was £7,000, and in my judgment that is the amount of his liability under this head.

(e) BDO Stoy Hayward

118. The claim is for two sums, of £587.50 and £1,546.30, said to have been paid to BDO for advice given to Mr. Young personally. GSL previously claimed a further £3,708.01 under this head but has now abandoned it.
119. There is evidence that BDO did provide services to, and invoice, the company. The company alleges, however, that BDO also invoiced the company for services provided separately to Mr. Young personally. As to the £587.50, the evidence in support is a letter from BDO to Mr. Young dated 6 September 2002 which refers to a fee of £3,000 payable for work on a project for the company and states "Martin Israel [of BDO] also informed me that he and you had agreed a fee of £500.00 on an unrelated matter and he asked me to include that sum with my fee". The sum claimed includes VAT on that £500. As to the sum of £1,546.30, the evidence in support of this is an invoice from BDO to the company dated 19 November 2002 part of which was for "taxation advice". The company paid both sums.
120. Mr. Young denies that these sums were paid to discharge a personal liability. The company points out that he has admitted elsewhere that he used the company's money to pay his own tax bills, but it does not follow that the payments to BDO were in respect of his own liabilities.
121. Mr. Young was unable to explain what these sums were paid for. However he was insistent that he did not receive personal advice from BDO at this time and no evidence was produced to undermine that insistence. Moreover, the claimant's administrators have not contacted BDO to investigate these payments. While I accept that Mr. Young could also have contacted them the burden of showing that the amounts invoiced by BDO related to services provided to Mr. Young personally is on the claimant.
122. Furthermore, the bills were rendered by BDO to the company and it would have been (at least) questionable conduct on the part of BDO to do that if they knew that the services had been provided to Mr. Young himself.
123. I am not satisfied on the evidence adduced by the claimant that Mr. Young is liable under this head.

(f) Motor Vehicle Expenses

124. The claim is for a total of £5,815.87 paid with Mr. Young's company credit card to pay expenses said to have been incurred for the costs of servicing or repairs for the cars of Mr. and Mrs. Young.
125. The background to this claim is as follows. There is no dispute that Mr. Young and Mr. White agreed, when GSL acquired its business, that the company would provide a car for each of them. Mr. White did not have a car and it was agreed that the company would pay the finance and running costs of a car for him. He bought a BMW 3 series. Mr. Young did have a car, a BMW 5 series, with which he was happy. He therefore agreed with Mr. White that the company would pay for a car for Mrs. Young. She bought a BMW 3 series and the company paid the costs.
126. The sums now claimed all appear, save for a payment of £804 (see below), to be for repairs and servicing for Mr. Young's 5 series BMW. The question is whether this was a proper expense to be borne by the company.
127. Mr. Young's defence is that the company was to pay the financing costs of a car for his wife (a BMW 3 series) and the running costs of his own car (a BMW 5 series).
128. There is a conflict of evidence on this point. Mr. Young says that he and Mr. White agreed that while the company would pay the finance costs of the 3 series it would pay the running costs of the 5 series. Mr. White says that all that was agreed was that the company would pay the financing costs and running costs of one car i.e. the 3 series. He also pointed out that the monthly payment for the financing costs also covered a large part of the running costs.
129. I prefer the evidence of Mr. White on this point. It seems to me highly questionable that it was proper for the directors to provide a car at all for Mrs. Young's use. But, leaving that to one side, in my judgment it is more probable that the agreement was that the company would bear the finance costs and running costs of a single car (i.e. the 3 series), rather than bearing the finance costs of one car but the running costs of another. I should add there is nothing in the documentary evidence to support Mr. Young's version of events and I reject it.
130. As for the payment of £804, it is alleged that this was a financing payment in respect of Mrs Young's car which has been claimed twice. However, the evidence in does not, in my judgment, establish that it has been claimed twice. The relevant document refers to the same sum of £804 being claimed for July and for August. Since these were monthly charges, the document appears to me to show that the expense was properly claimed.
131. I therefore find that Mr. Young is liable to pay £5,011.87 under this head.

(g) Hotels

132. The claim is for £802.20 for three hotel bills paid with the company credit card.
133. These were incurred on Sundays, or Bank Holidays or while Mr. Young was on holiday. Mr. Young did not seriously seek to justify two of these payments and admitted they were for breaks with his wife. For the third he argued that the payment of the hotel bill was legitimate because the reason for the stay was that he and his wife had attended a wedding of a company employee. I do not think that this makes the payment a legitimate expense of the company.
134. These payments show, again, Mr. Young's view that he could treat the money of the company as his personal bank account.
135. I find that Mr. Young is liable to pay £802.20 under this head.

(h) Restaurants

136. The claim is for £2,963.19 spent on restaurant bills using the company credit card.
137. Almost all these payments were on weekends or bank holidays. Mr. Young was unable to identify any of those which were for legitimate purposes of the business.
138. Mr. Young said that the weekday ones were for business purposes and I think it is unreasonable to expect him now to be able to say precisely what the meal was for. Excluding those, the total unexplained and unjustified amount, for which Mr. Young is liable, is £2,497.21.

(i) Parking and fines

139. The claim is for £394.00 for parking charges and fines using the company credit card. Most relate to the weekend.
140. Mr. Young was unable to give an explanation for these payments and I find that Mr. Young is liable to pay £394.00 under this head.

(j) Computer and electrical goods purchases

141. The claim is for £2,995.12 in respect of computer equipment and electrical goods paid for using the company credit card.
142. Mr. Young denied that he had received this equipment. He explained that he sometimes went to the local computer shop in Oxford to buy equipment for the company. In the absence of any evidence to the contrary, I am prepared to accept that evidence.
143. However, he did not say anything when giving that answer about going to other computer or electrical shops. Of the various bills, sums totalling £2,027.80 are from computer and electrical goods shops in Watford, near to his home. Mr. Young did not explain why he would have used those shops to buy equipment for the company. The company has no record of any of the equipment listed in those bills. I also take into account the habitual way Mr. Young used his company credit card for his own expenses. I am satisfied that the Watford purchases were made by Mr. Young for his own purposes.
144. I therefore find that Mr. Young is liable to pay £2,027.80 under this head.

(k) Other unauthorised expenditure

145. The claim is that Mr. Young used his credit card for other unauthorised expenditure for the total sum of £1,452.41.
146. The sums include clothes, shoes, theatre tickets, travel tickets, train tickets and DIY goods. Mr. Young only took issue with a few. He said a watch of £150 was a personal gift by the company. However he has provided no details of this and I am not prepared to accept his evidence given the absence of any supporting evidence. He also took issue with some petrol payments, totalling £77.29, and I agree with him on these sums. Otherwise he is liable. Again he wrongfully treated the company credit card as available for his own use. I therefore find that Mr. Young is liable to pay £1,375.12 under this head.

(l) School fees

147. The claim is for £4,794.25 for a payment by the company of his daughter's school fees.
148. This claim is admitted. This is a further example of Mr. Young using the company's bank account as his own. It is also another example of false accounting as the cheque for these fees was treated in the books and records of the company as being in respect of commissions due to the school from the company (schools were paid a commission by the company for arranging photographs to be taken). Mr. Young knew the true purpose of the payment, and wrongfully caused it to be disguised as a proper payment.
149. Mr. Young is liable to pay £4,794.25 under this head.

(m) Camera equipment

150. The claim is that Mr. Young has taken camera equipment worth £750 from the company.
151. Mr. Young denies that he took the equipment. GSL has produced no evidence to show that he has taken this equipment. This claim is not established.

(n) Insurance

152. The claim is for £302.80 for a payment made on 19 September 2002 to Milcars and £102.80 for a payment to Direct Line insurance on 22 November 2002.
153. Although the claim is described as insurance, the first payment appears to have been in respect of the hire of a BMW 3 series car. Mr. Young was unable to remember whether this was for him or his wife. He thought it was while his own car was being repaired. In my judgment there is no reason why the company should have paid this sum. It was already providing Mr. Young with a BMW 3 series car (albeit he chose to let his wife use this car as her own) and there is no reason why he could not have used that car. If his wife had also needed a car at the same time she could have hired one using her own money.
154. As to the payment to Direct Line, Mr. Young admitted that they were his insurers and could not explain why it appeared on the company's credit card. I think the explanation is fairly obvious: he was using the credit card as his own and did so again on this occasion.
155. I therefore find that Mr. Young is liable to pay £302.80 under this head.

(o) Henry Butcher

156. The claim is for £29,375 in respect of a payment made to Mr. Young by a cheque dated 19 July 2002 but purportedly against an invoice from Henry Butcher.
157. The facts are as follows. An invoice was presented by Henry Butcher for £58,750. Mr. Young and Mr. White signed two cheques for £29,375 each in favour of themselves respectively. Mr. Young then endorsed his cheque in to his wife. The cheques were then paid by the company. The upshot is that the company paid £58,750 to the two directors, but recorded this in its books and records as the discharge of a genuine debt. This is false accounting.
158. Mr. Young said in evidence that the reason for this was to disguise the payments from the accounts staff. What that means is that the accounts themselves were deliberately falsified. It also means that anyone looking at the management accounts, including the other directors or shareholders would be misled.
159. Mr. Young then sought to justify the false accounting by saying it was only temporary, and said that the company subsequently, in December 2002, declared these sums as dividends. He said he had tax credits to prove this. I do not accept his evidence. There is no evidence that the directors later declared these amounts as dividends. Indeed there is no record of the company ever declaring a dividend. As from July 2002 there were four directors and Mrs. Wharton confirmed that she knew nothing of these payments. It was not suggested to her that the board had resolved that any dividends be paid. If there had been a dividend, Mrs. Wharton as a shareholder would have received her 10% share. But there is no evidence to suggest that she ever received a dividend.
160. Moreover, there is no evidence that the company would have had distributable profits or reserves from which to make any such dividend. On the contrary, in my view, it is plain that the company did not have distributable profits or reserves from which to make a dividend.
161. I have already observed that Mr. White was implicated in this transaction and the false accounting for it. He has, however, since repaid the sum to the company. As explained above, I have taken this transaction into account in assessing the credibility of his evidence.
162. I therefore find that Mr. Young is liable to pay £29,375 under this head.

(p) Butcher Burns

163. The claim is for £15,000 paid on 9 January 2003 to discharge another personal liability of Mr. Young, this time under a Tomlin order in proceedings brought by First National Bank plc against him in the Central London County Court. The payment was made to Butcher Burns, the solicitors acting for Mr. Young.
164. Mr. Young's evidence about the liability was unimpressive. He was unwilling to say what the underlying liability was for. I had no doubt he knew and was holding this information back. Mr. Young admits liability for this sum. Again, however, I should say a word more about the payment. The cheque in favour of Butcher Burns was signed by Mr. Young and Mr. White. Mr. White said that Mr. Young told him the cheque was to pay the costs of Butcher Burns for acting for the company in the D&T claim. I accept his evidence on this point. This was another example of Mr. Young misleading his fellow directors for his personal benefit. I consider that the payment and the way it was disguised was wrongful.
165. I therefore find that Mr. Young is liable to pay £15,000 under this head.

Conclusions on the sums claimed by GSL

166. Mr. Young is therefore liable to pay £82,971.64 to GSL. He is also liable to pay interest. I will hear further submissions about interest after judgment is handed down.

The Part 20 claim

167. Mr. Young alleges that GSL, the administrators, and Mr. White conspired to damage his interests. His pleading is not clear, but doing the best I can, it seems to me his case is as follows. Mr. White and the other directors decided in early April 2003 to find a way of getting rid of Mr. Young, so that Mr. White himself could get control of the business. When they met Mr. Bairstow on 9 April they developed a plan under which Mr. Bairstow would be installed as administrator and would then sell the business to Mr. White at an undervalue, and that in order to achieve this they would have to exclude Mr. Young from the process. Mr. White would get the business; Mr. Bairstow and his firm would make fees as administrators. Putting more flesh on these bones, Mr. Young alleges that the other directors and Mr. Bairstow deliberately did what they could to bring down the business, including persuading the Bank to withdraw support; that Mr. Bairstow was instrumental in the decision to remove Mr. Young as managing director; and that they knew that the company could be saved but deliberately did nothing to achieve that. He alleges that he was then excluded from the sales process, which was a preordained scheme to deliver the business at an undervalue to Mr. White. He says that the conspiracy is demonstrated by the benefits the parties to it have derived since: Mr. White has been able to run the business, the administrators have made significant fees; and Mrs. Wharton (who is not named as a party to the Part 20 claim, but is alleged to have been party to the scheme) received £100,000 as consultant in the D&T case. None of this has been clearly formulated in the pleadings, but it represents what I understand to be the heart of the conspiracy allegation.
168. In my view, the claim is flawed in several respects. To begin, the claim is not properly pleaded or particularised and, indeed, is barely coherent. I take account of the fact that Mr. Young represents himself. But when the Part 20 claim was pleaded he was represented. And one of the alleged conspirators, Mr. White, is himself unrepresented. As a matter of fairness the defendants to this claim are entitled to have the case against them properly formulated.
169. At any event, considered in point of substance, the claims do not stand scrutiny against the facts. I have already set out my findings, but a short summary of the principal points suffices to show why the Part 20 claim fails.
170. By early April 2003 the company was in very serious financial difficulties. It did not have a formal bank facility and was overdrawn by about £150,000. It owed more than £400,000 to the Inland Revenue and had no resources with which to meet the liability. There were unpaid County Court judgments. By the end of the board meeting of 8 April 2003 the other directors were profoundly anxious about the solvency of the company. They had also reached the view that Mr. Young had been dishonest with them. Their view was based on the fact that he had sent the adjusted cashflow forecast to the Bank behind their backs, what he said on 8 April about deliberately not telling the Bank the whole picture, and his refusal to inform the Inland Revenue about the liabilities of the company. The anxiety of the other directors was reinforced the next day when they learnt that Mr. Young had ignored and overridden their agreement that the directors' April salaries would not be paid.
171. The directors decided to seek independent advice from solicitors, which they did on 9 April 2003. The fact they sought legal advice shows their level of concern about their own potential personal liabilities. The solicitors advised them to consult an insolvency practitioner. They duly met Mr. Bairstow and told him about the company's position. His advice, that administration was an option, was quite reasonable given what he had learnt.
172. It would have been at about this stage when, according to Mr. Young's case, the parties entered an agreement to damage Mr. Young by using the administration process to deliver the business and assets to Mr. White at an undervalue. I find this suggestion rather far-fetched. The other directors, by this stage, thought the company was insolvent and were concerned about personal liability. This was why they sought advice. They did not take these steps in order to harm Mr. Young. The reason they did not include him in the process is that they considered, with some justification, that he had not been honest, that he was not prepared to face up to reality, and that he was set on a different course of trying to keep the ship afloat even if this meant endangering the interests of creditors.
173. Nor, in my judgment, was Mr. Bairstow influenced in his thinking by any wish to damage Mr. Young. He considered the financial position of the company, and the options open to it, as any insolvency practitioner would have done. Administration was an obvious candidate.
174. That view was confirmed by events the following day. Mr. Bairstow learnt more about the company, and the Bank told him it was not going to support the company. Mr. Young himself told Mr. Bairstow that the company would not be able to refinance its liabilities. At that point some form of insolvency process was, in my judgment, inevitable. Mr. Bairstow gave both Mr. Young and Mr. White a set of standard terms for bidding and explained their purpose.
175. I have also rejected the allegation that Mr. Bairstow, or indeed the other directors, deliberately took steps to persuade the Bank to withdraw support on 10 April 2003. I have already explained that, in my judgment, the Bank, which was already nervous about the company's position, took its own decision without any prompting or persuasion.
176. On 11 April 2003 the other directors removed Mr. Young as managing director. I have no doubt they did so because they sincerely considered he was guilty of gross misconduct. There is no evidence that Mr. Bairstow was involved in the decision and I see no basis for Mr. Young's unsupported assertion that he must have been involved. I have found that he was not.
177. Over the following week or the bidding process went forward. I reject Mr. Young's suggestion that he was excluded or that the result was a foregone conclusion. I find that both Mr. Young and Mr. White knew of the deadline for bids. I have also found that there is no ground for impugning Mr. Bairstow's decision to prefer Mr. White's bid. If Mr. Young had managed to propose a preferable bid before the deadline I have no doubt the administrators would have accepted it. I find that there is no evidence that the business and assets were sold for an undervalue, and I reject as groundless the suggestion that there was some prior agreement or understanding rendering the acceptance of Mr. White's bid a foregone conclusion.
178. The company was placed into administration on 24 April by order of Patten J. In my view it is clear that the company was insolvent. The purpose of the order was expressly set out in the evidence as being intended to allow an immediate sale to one or other of the camps of directors and that is what happened. The later events do not, to my mind, justify any of Mr. Young's suspicions. The administrators carried out their functions and received fees; Mrs. Wharton worked on the D&T case and received fees; and Mr. White's company bought and carried on the business. Mr. White is still owed substantial sums by his company and has, since the acquisition of the business from the administrators, drawn a comparatively modest salary.
179. I also reject Mr. Young's allegation that the actions of the other directors and the administrators were aimed at damaging his interests in the company. By 9 April 2003, when the alleged conspirators first met, their minds were, justifiably, fully occupied with the position of the company's creditors and the directors' own potential personal liability. The directors were extremely anxious about the solvency of the company and their own personal exposure arising from its continued trading, and Mr. Bairstow rightly advised them of the options open to them. The directors also concluded that Mr. Young had been dishonest. The steps they then took, in petitioning for administration, were directed towards safeguarding the interests of creditors, and protecting themselves from personal liability. Once it was clear the Bank had withdrawn support, Mr. Bairstow's advice was that administration was the better course and I think he was right. None of these steps were directed or targeted at Mr. Young or were intended to damage his interests.
180. For these various reasons, I find that there was no conspiracy.
181. A further problem for Mr. Young is proving that he has suffered any recoverable loss. In the first place, Mr. Young was not the owner of any shares in the company, so he has suffered no loss of the value of any shares. He was clear that the shares were his wife's own property and not his. But, second, the company was seriously insolvent, and the shares were, for the reasons given earlier, quite worthless by April 2003 at the latest.
182. Mr. Young has also claimed as damages for conspiracy the losses he says he has suffered by reason of being dismissed from employment. I have already held that the decision to terminate his employment was made by the other directors and was not pursuant to any conspiracy. But, for completeness, it is clear in my judgment that the company was entitled to dismiss him as an employee on 11 April 2003. I need only refer to the many and serious breaches of duty he had committed before then, as set out in some detail earlier in this judgment. Mr. Young could therefore have no basis for claiming these sums whether for breach of contract or for conspiracy. And Mr. Young has pleaded no other financial losses.
183. I also find it difficult to see how the company itself could be said to have been a conspirator so as to afford a defence to the claims against Mr. Young. Nor has any case even been advanced against Mr. Hood. However, for the reasons already given, I do not think the claim even crosses the threshold, and it is unnecessary to go more deeply into these further obstacles to the claim.

Overall conclusions

184. Mr. Young is liable to pay £82,971.64 and interest to GSL. The Part 20 claim is dismissed.
185. The Institute of Chartered Accountants is apparently in the process of deciding whether disciplinary action should be taken against Mr. Young arising from the affairs of the company. Mr. Young told me that he has no objection to this judgment being provided to the Institute, and, in the light of my findings, I consider it appropriate to direct the parties to do so.