• A director of a company was liable to account for payments made to him because he had not kept financial records
• The FRC publishes its annual review of corporate reporting for the 2023/2024 season
• The FCA confirms changes to its Knowledge Base following reforms to the UK’s listing regime
• The Government updates its guidance on the UK’s payment practices reporting regime

Director liable to account for company funds in the absence of proper accounting records

The High Court has granted summary judgment against a company director because he could not show that monies he received from the companies of which he was a director had been applied for proper purposes.

In Omnimax International LLC v Cullen and ors [2024] EWHC 2367 (Ch), two companies had made certain payments of money to their sole director.

During the companies’ liquidation, the liquidators assigned any claims they may have had against the director to a third party (the claimant), who brought proceedings against the director in question.

The claimant alleged that the director had caused the companies to make the payments in breach of his statutory duties to them under the Companies Act 2006. These included duties to act within his powers (section 171), to promote the companies’ success (section 172) and to avoid conflicts of interest (section 175).

Above all, the claim was based on the overarching premise that the director, as a “quasi-trustee” of each company’s assets, was obliged to apply those assets only for the proper purposes of that company, but he had not done so. In particular, part of the monies had been used to fund a private house purchase.

The proceedings turned closely on the facts. However, notably, the court noted the general principle that, once it has been shown that a company director has received company money, the burden of proof is on the director to show that the payment was proper.

In this case, the director was unable to discharge this burden, because he had not kept financial records (specifically, an individual general ledger account) recording transactions between him and the companies beyond his salary, expenses and any dividends.

This was all the more important because, as the sole director of the companies in question, maintaining these records was his responsibility.

The court therefore granted summary judgment against the director.

The judgment is a useful reminder of the need to keep comprehensive and accurate records of all financial transactions to which a company is party.

This is particularly important when it comes to transactions between the company and one of its directors. In these circumstances, directors will need to be able to demonstrate clearly that any payments or other transactions are to the company’s benefit and not merely for personal advantage.

Access the court’s decision that a director was liable to account for payments from a company because he had not kept financial records of them

FRC publishes review of corporate reporting in 2023/2024

The Financial Reporting Council (FRC) has published its annual review of corporate reporting, examining the 2023/2024 reporting season.

The review covers annual reports and accounts of 243 companies, of which 40% were within the FTSE 350. The review focussed in particular on issuers in the travel, hospitality and leisure, retail and personal goods, construction and materials, and industrial transportation sectors.

Key points arising from the review include the following.

• There were improvements in reporting on provisions and contingencies and on disclosures of judgments and estimates.
• However, the FRC observed a widening gap in the quality of reporting between FTSE 350 companies and those outside the FTSE 350.
• In particular, queries on impairment of assets and cash flow statements arose frequently, predominantly outside the FTSE 350, with these remaining the FRC’s two areas of most concern. The FRC expects to focus on these closely in the coming reporting season.
• Companies should continue to consider and disclose the effect of geopolitical tensions, as well as localised low growth, on their results and financial position, valuation assumptions and forecasts.
• Reporting against the Taskforce for Climate-related Financial Disclosures (TCFD) framework has moved into the FRC’s “top ten issues”. It noted a lack of clarity around statements of consistency with the framework, lengthy disclosures, and difficulty in identifying material information as issues.
• The FRC continues to encourage companies to consider whether their annual report and accounts as a whole tell a consistent and coherent story and to focus on providing material disclosures that are clear, concise, and company-specific.

In 2024/25, the FRC intends to focus on issuers in the construction and materials, food production, gas, water and multi-utility, industrial metals and mining, and retail sectors.

Read the FRC’s press release on its annual review of corporate reporting in 2023/24

Access the FRC’s annual review of corporate reporting in 2023/24 (opens PDF)

FCA confirms changes to Knowledge Base following listing rules reforms

The Financial Conduct Authority (FCA) has published Primary Market Bulletin 51, in which it has confirmed the changes it is making to technical notes in its Knowledge Base following the introduction of reforms to the UK’s listing regime in July this year.

You can read more about the changes to the UK’s listing regime in our separate in-depth piece.

The changes to the technical notes follow the FCA’s previous consultation. (You can read more about the FCA’s consultation on changes to its technical notes in our previous Corporate Law Update.)

The FCA explains that it made changes to the new listing regime since its original proposals and, therefore, has reassessed its approach to the technical notes in question.

As a result, the FCA has decided to consult again on certain technical notes, including those relating to the independent business requirement and aggregating transactions.

The FCA has adopted other technical notes on which it consulted, in some cases after making further amendments. These include the notes on classifying transactions, smaller related party transactions, working capital statements, pro forma financial information, profit forecasts and estimates, and cash shells and SPACs.

Finally, the FCA has deleted other technical notes, including on financial information and track record, and on scientific research based, property and mineral companies.

The bulletin also explains what changes the FCA is making to technical notes relating to sponsors.

Read FCA Primary Market Bulletin 51

Government publishes updated guidance on invoice payment practice reporting

The Government has published updated guidance on the UK’s payment practices reporting regime.

Under the regime, large UK companies and limited liability partnerships (LLPs) must publish a half-yearly report setting out their practice for paying supplier invoices, as well as statistics for their actual performance in paying invoices over the preceding year.

The updated guidance principally reflects changes to the regime made earlier this year. Read our previous Corporate Law Update for more information on changes to the UK’s payment practices reporting regime.

Access the updated guidance on the UK’s payment practices reporting regime (opens PDF)