Directors’ fiduciary duties and using company accounts as personal bank
Corporate
Directors’ fiduciary duties and using company accounts as personal bank
Most company directors appreciate that using company cash for their own benefit invariably amounts to a breach of duty, and could amount to fraud. Directors owe strict fiduciary duties, including avoiding conflicts of interest - and making financial decisions that benefit the company.
However, a recent case is a salutary reminder of the strict nature of a director’s fiduciary and statutory duties in the context of the personal use of company bank accounts.
The director involved used the company account as his own ‘piggy bank’ over a sustained period of time, but claimed he intended to make some repayments in future.
What’s the background?
In McCarthy v Marshall [2026] EWHC 1585, a meat wholesale company (Meats) owned by the parties was wound up in July 2013. The company had folded after a dispute between the two directors arose when accounting irregularities were discovered. Their other company (a property management business) went into liquidation in 2014.
Mr McCarthy brought proceedings alleging that Mr Marshall had abused his role and breached his duties as a director of both companies over a long period of time. The claims had been assigned by the company to Mr McCarthy in August 2022.
The events in question included:
· The sale of an Aston Martin DB5 by Meats to Mr Marshall’s wife for £20,000, when its insurance valuation was between £55,000 and £90,000. The judge found this was, on the face of it, a fraudulent breach of fiduciary duty
· Misappropriation of company funds and rents for personal expenditure (and not properly accounted for) eg the maintenance and insurance of the Aston Martin
· Mr Marshall charged his personal expenses to the companies by way of DLA. He admitted that his ‘borrowing’ exceeded £1 million. Mr McCarthy did not even know about Mr Marshall's operation of a DLA.
The judge found that he did intend to repay Meats for items of personal expenditure, however, the failure to repay was in each case a separate breach.
Mr Marshall accepted his wrongdoing to some extent, such as poor record-keeping; and multiple instances of wrongly recording personal expenditure as company expenses over several years and totalling well over £100,000. Though not all of those resulted in claims against him; there were many instances of him making repayments when he was challenged.
Unfortunately for Mr McCarthy, some of his claims against his former co-director were time-barred as Meats was wound up more than a decade previously. However, the claims based in fraud were not time-barred.
While it is initially for the claimant to show fraud, it is then for the defendant to rebut the alleged fraudulent breach.
The judge upheld the claim in respect of Mr Marshall’s unauthorised operation of the DLA, as it amounted to a fraudulent breach of duty. The claims flowing out of the fraudulent activity also succeeded as Mr Marshall had been unable to justify or explain the receipts or transactions in question.
The judge also noted the distinct lack of any “transparent or open relationship in the running of the companies”, leaving Mr McCarthy “in the dark as to what was going on”.
Key takeaway
An allegation of fraud against a director is very serious and it is far preferable to avoid the risk of a claim in the first place. So, if you are a director you should avoid treating company money as your own cash – even if you intend to make repayments or believe you can otherwise justify it.
More broadly, you must ensure your company has robust systems and controls in place to ensure accurate records of income, expenditure and sales are kept. In this case, the companies’ systems and controls “were Mr Marshall” – and this directly enabled his fraudulent activity.
If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you