Anthony Davidson and Andrew McTear (acting as Joint Liquidators of Kieran Looney & Co Ltd) v Kieran Joseph Looney
[2023] EWHC 197 (Ch)
Gary Paul Shankland & Ors v Iain Urquhart McKeand (Re Lion House Portfolio Ltd (in liquidation))
20 March 2024
[2024] EWHC 610 (Ch)
High Court
A company director used his company's money for his own benefit and for his other failing businesses, even though the company was already broke. The court said he had to pay back the money he misused, but he didn't have to pay back money related to one particular investment which was legally his. The case highlights the importance of directors putting the company's interests first and keeping good financial records.
Key Facts
- •Iain McKeand, an independent financial advisor, used Lion House Portfolio Ltd (Lion House) as a vehicle for investment and company acquisitions.
- •Lion House was wound up in June 2018 due to unpaid lenders.
- •Liquidators brought misfeasance claims against McKeand under s.212 Insolvency Act 1986 for misapplication of Lion House's assets.
- •Claims included misapplication of £1,757,168, advances to McKeand's entities (Mac Capital, Mac1 Sports, Accrued Equities, Country Park), payment for shares in Now Technologies, and Fruehauf shares transactions.
- •McKeand acted as director of Lion House and also controlled the entities that received the funds.
- •Lion House's accounts showed consistent balance sheet insolvency from 2010.
- •McKeand's own accounts for other entities he controlled showed similar financial difficulties.
- •The Fruehauf shares were held by Lion House under a trust deed for McKeand's benefit.
- •McKeand received substantial consultancy fees from Fruehauf.
Legal Principles
Misfeasance claims under s.212 Insolvency Act 1986 allow pursuit of breaches of duty to a company and obligations to account.
Insolvency Act 1986, s.212
A director's duty under s.172 Companies Act 2006 is to act in good faith to promote the success of the company for the benefit of its members, considering creditors' interests when relevant (i.e., insolvency). It is a subjective duty, assessed objectively only when there is no evidence of actual consideration of the company's best interests.
Companies Act 2006, s.172
The creditor duty arises when the company is insolvent to the knowledge of its directors. Insolvency is determined by balance sheet or cash flow tests.
BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL plc [2013] UKSC 28; BTI 2014 LLC v Sequana SA [2022] UKSC 25
A director who receives company money must account for its use, even without proper records. The benefit of any doubt goes to those enforcing the duties.
Re Idessa (UK) Ltd [2011] EWHC 804 (Ch); Toone v Robbins [2018] EWHC 569 (Ch); Re Mumtaz Properties Ltd [2011] EWCA Civ 610
Outcomes
McKeand is liable to account for the £149,861 used to buy Now Technologies shares.
McKeand used Lion House funds for his personal benefit without proper justification.
McKeand is liable to account for the CorpAcq Payment (£1,757,168).
He received the payment and used it without proper accounting or justification.
McKeand is liable for breaches of duty in making payments to Mac Capital, Mac1 Sports, Country Park, and Accrued Equities after November 28, 2013.
The payments were made to insolvent entities without proper commercial justification or consideration of Lion House's interests.
No claims lie in respect of the Fruehauf shares or consultancy fees from Fruehauf.
The Fruehauf shares were held under a trust deed for McKeand's benefit, and the consultancy fees were not found to be unauthorized or improper.
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