Facts 

Lime and Black BPS Limited (the Company) went into liquidation in March 2022.  Mr Mistry was a sole trader who provided payroll services to clients of the Company.  He had been disqualified from acting as a company director for 12 years. 

The liquidators discovered a potential significant VAT fraud committed by the Company where funds had been paid to third parties, including Mr Mistry.  

The liquidators claimed: 

• Mr Mistry acted as a "de facto" director (someone who appeared to be but was not formally appointed as a director).

• Mr Mistry breached his director duties and orchestrated a fraud to be committed against HMRC by under-declaring and under-paying VAT. 

• Mr Mistry had deleted a Dropbox account containing Company documentation and lied in his written evidence.

Held

The Court determined that:

• The Company was used to perpetrate a fraud on HMRC for £3,791,134.02.

• Mr Mistry was a de facto director of the Company and breached his fiduciary duties. 

The judge highlighted the importance of contemporaneous documentation over oral testimony when assessing the credibility and intentions of a witness.

Key Takeaways

This judgment emphasised that contemporaneous documents are more important than oral testimony in establishing facts, particularly in fraud cases.

Failure by directors to produce necessary records can lead to adverse inferences being drawn against them.

The question whether a director is a de facto director is one of fact and degree.  

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring and Insolvency team.

Lime and Black BPS Ltd (in liquidation) v Gill and others [2024] EWHC 1898 (Ch)