Director wins dispute over £2.3m loan to his company

A director has won a dispute with his company that he was entitled to immediate payment of a £2.3m loan.

Selina Gonzalez Solicitor in our dispute resolution team reports on this recent case.

The case involved Malik and Henley Homes Plc.

Henley accepted that the money was owing to Malik on a company loan account but claimed that it was not repayable on demand, but by oral agreement between Malik and two other shareholders, in the event of a sale or other liquidity event, or by unanimous consent.

The judge found that the alleged oral agreement was not supported by the contemporaneous documents or evidence.

He said he was not persuaded that the position might be different at trial and he did not consider that Henley’s defence had a realistic prospect of success.

Henley appealed, submitting that the judge had wrongly taken the view that a fuller investigation of the facts at trial would not affect the outcome, wrongly concluded that its case was inconsistent and unsupported by contemporaneous documents, and failed to consider evidence which undermined Malik’s case.

The Court of Appeal ruled in favour of Malik.

It held that there had been an oral agreement, but the essential question was whether anything had been expressly agreed about whether the loans could not be repaid except with the consent of all three shareholders.

A loan that was not for a fixed term was prima facie repayable on demand.

Shareholders commonly lent their companies money interest-free, but they did not usually bind themselves to leave it there indefinitely or give up their right to recover it when they wanted.

Henley’s defence depended on establishing that it had been agreed that Malik could not withdraw his money, lent to the company interest-free with no fixed term, unless the other shareholders agreed.

There was no trace of such an agreement in the documentation and the evidence in support of it was thin. There was no reason to think that the material available at trial would be any better.

If you would like more information about the issues raised in this article or any aspect of contract law please contact Selina on 01228 516666 or click here to send her an email.