The Hidden Cost of Poor Record Keeping

A £155,000 Lesson for Directors

Record keeping might not be the most exciting part of running a business, but ignore it at your peril. A recent case involving the director of a tech company shows just how serious the consequences can be when financial records are lacking—or missing altogether.

The Case of Wifime Ltd

Mr Haq, the sole director and shareholder of Wifime Ltd, found himself in hot water when the company—providing tech services to the education sector—collapsed, leaving creditors short by nearly £280,000. As part of the liquidation process, the Official Receiver discovered a number of suspicious payments and cash withdrawals that seemed to have no business justification. On top of that, Mr Haq’s director’s loan account was overdrawn.

Legal action was taken against him, not only for failing to keep proper records but also for breaching his duties to promote the company’s success and avoid conflicts of interest.

When Creditors Come First

If a business becomes insolvent or is nearing insolvency, the director’s legal duties shift—it's no longer just about running the company, but protecting the creditors' interests. Any financial transactions made during this time must be justifiable and in the best interests of creditors. And here's the catch: you need solid records to prove it.

Without them, you're open to suspicion and serious consequences.

No Evidence, No Defence

Mr Haq argued that the transactions in question were legitimate—either business expenses, his salary, or other company-related payments. But there was little to no paperwork to back this up. And without invoices, board minutes, or even witness statements, he couldn’t prove his claims.

The court ordered him to repay over £155,000.

Record Keeping Isn't Optional

This case sends a clear message: keeping proper records isn’t just good practice—it’s a legal requirement. Every company must maintain, at the very least:

• Daily records of income and expenditure

• A record of assets and liabilities

• Inventories if it trades in goods

Failure to do so isn’t just risky—it’s a criminal offence, punishable by a fine of up to £5,000 and/or up to two years in prison.

No Free Pass for Small Businesses

The court recognised that small businesses often struggle with formal record keeping. But that didn’t excuse Mr Haq. Directors of small companies aren’t held to a lower standard. If anything, poor records might even suggest you’re hiding something.

Final Thoughts

This case is a stark reminder that good record keeping protects you just as much as it helps run your business. Whether it’s day-to-day accounts, board decisions, or director loans, having evidence matters—especially if things go wrong.

Need help keeping your records in order? Let’s have a chat and make sure your business is protected, compliant, and ready to grow.