Failing to recognise his one-man company was a legal person separate from himself will potentially cost Fakhrodin Abedi $143,000. With cash from his takeaway shop either pocketed or paid into his personal bank account and then later used to pay company debts he could not claim a set-off when ordered to hand over the cash drawings.
West Auckland takeaway business Sultan Kebab Ltd did not keep good accounting records. Tax compliance was no better. The High Court was told no GST returns or income tax returns were filed for a number of years. After the company folded, the liquidator found cash takings had not been paid into a company bank account. Mr Abedi was sued by the liquidator, demanding repayment of the company’s money. Mr Abedi’s defence was that he had used this money to pay company expenses. He claimed a set-off.
The Companies Act prohibits director/shareholders of small companies from claiming any set off for transactions in the two years prior to liquidation, unless they can prove their company was solvent at the time. Mr Abedi did not deny his company was insolvent. Justice Hinton ruled Mr Abedi could claim the benefit of company expenses he paid personally if he could prove he acted as an intermediary; funds flowed contemporaneously through his personal bank account in payment of company expenses. Mr Abedi had no documentation to prove this had happened, except in relation to a few payments totalling $9,896. Mr Abedi was held liable to return $143,468 to Sultan Kebab’s liquidator. He is left to prove as an unsecured creditor in the liquidation.
Abedi v. Sultan Kebab Ltd (14.09.18)
18.181