Sheriff Appeal Court refuses insolvent company director’s appeal against decree reversing illegitimate disbursements

About this case:

• Citation:
  [2026] SAC (Civ) 58
• Judgment:
  External link
• Court:
  Sheriff Appeal Court
• Judge:
  Sheriff Principal Aisha Anwar

A sheriff granted decree against the appellant after the joint liquidators of his former company alleged that he had received payments in breach of fiduciary duty. The appellant challenged that decision before the Sheriff Appeal Court.

The appeal was heard by Sheriff Principal Aisha Anwar, with the appellant appearing in person and Michael Vaughan, solicitor advocate, for the respondents.

Insufficient explanation for averred defences

Between 2019 and 2022, the appellant was a director of a company providing telecommunications and IT consultancy services. After the company failed to pay a supplier of personal protective equipment with whom it had contracted during the pandemic, an English High Court judgment of over £6 million resulted in its liquidation at the supplier’s instigation in 2022.

Alleging that prior to liquidation several of the company’s directors had illegitimately received significant sums from the company, the company’s joint liquidators raised an action for recovery under sections 212 or 242 of the Insolvency Act 1986. In March 2026, the sheriff granted decree against the appellant in respect of a sum of nearly £360,000. In his view, the appellant had not provided sufficient explanation in connection with his averred defences – that the sums advanced to him consisted merely in the payment of salary and bonuses – to amount to a relevant or specific defence against the respondents’ crave.

Submitting that the sheriff had erred in granting decree against him, the appellant advanced various grounds of appeal before the Sheriff Appeal Court. Not having held that the appellant’s defences were bound to fail, the sheriff should have allowed a proof before answer. Even if he had been correct to hold that further specification was required, the sheriff should not have granted immediate decree; affording the appellant an opportunity to amend his pleadings would, he submitted, have been the appropriate disposal.

Averments in the main bare denials

Sheriff Principal Anwar began her decision by noting that: “There was no dispute between the parties as to the applicable law. The appellant did not dispute that while the strict rules of pleadings do not apply to applications made in terms of section 212, just as the respondents required to provide fair notice of their claims, so too he required to provide fair notice of his defence.

“The principal function of pleadings, as explained by Lord Brodie in JD v Lothian Health Board (2017), is to explain what a party’s case is about. That explanation is provided to the court and to the party’s opponent. That is because the opponent requires to know what case he has to answer and the court requires to know what case it has to adjudicate. The degree of specification required in pleadings which will be deemed sufficient for fair notice depends upon the particular circumstances and the nature of the case.”

Comparing the parties’ submissions, she continued: “The respondents aver that [sums of around £360,000] were received by the appellant in breach of his fiduciary duty. More particularly, they aver that by 31 March 2020, it was, or ought to have been clear to the directors of the Company that the Company was in financial difficulties…

“The respondents aver that no reasonable director could have taken the view that it was proper to make payments in this quantum to themselves in circumstances where the Company was balance sheet insolvent and experiencing severe difficulties in its delivery commitments to customers and its financial obligations to its suppliers.

“The appellant’s averments in response are, in the main, simply bold statements or bare denials. He states that the sums he received were agreed salary and bonus. He fails however to specify when or how these sums were agreed by the Company, what the nature of any bonus scheme was, how he qualified for bonuses and why these payments were reasonable having regard to the Company’s financial circumstances.”

Restating the distinction between the requirements of specification and relevancy, Sheriff Principal Anwar observed: “The appellant relied upon the oft quoted observations of Lord Normand in Jamieson v Jamieson (1952) that ‘an action will not be dismissed as irrelevant unless it must necessarily fail even if all the pursuer’s averments are proved’. He conflated the requirements of specification and relevancy.

“A director who is able to aver that sums claimed under section 212 or 242 of the 1986 Act were legitimately paid as remuneration for services provided by that director, as approved by the Company, and that the sums paid were reasonable notwithstanding the financial position of the Company, is likely to have averred a relevant defence. Such a defence may nevertheless be found lacking in specification if it does not give fair notice of the facts upon which it is based.”

In that regard, she added: “The appellant correctly recognised that he would require to lead evidence of the role he performed, the work he carried out, the agreed salary structure, the agreed bonus arrangements, and the company’s circumstances and only then could the court decide whether the payments were reasonable.

“The difficulty for the appellant is that he has failed to make averments in relation to any of these matters, notwithstanding clear calls in the respondents’ pleadings for him to do so. These are all matters which might reasonably be expected to be within his knowledge. Contrary to the appellant’s submissions, to make averments setting out these matters is not to plead evidence; it is to plead the facts which the appellant offers to prove.”

Satisfied that the sheriff did not err in concluding that the appellant’s averments failed to give fair notice of the relevant facts, Sheriff Principal Anwar concluded: “For completeness, I should note that I am not without sympathy for the position the appellant finds himself in. He is not represented, albeit his answers were drafted by a solicitor.

“I accept that the court should be slow to find his pleadings lacked specification if there was other information before the court which might provide the respondents and the court with notice of the particulars of his defence. However, the appellant did not refer the court to any such information.”

The appeal was accordingly refused.