Can a Director use company money for personal expenses?
For directors of small or owner-managed companies, it can sometimes be tempting to use company funds to cover personal expenses, particularly where a director’s loan account is already in place.
However, company money cannot simply be treated as a director’s personal funds. A recent High Court decision provides an important reminder of the potential consequences of using company money without proper authority.
The recent High Court decision
In McCarthy v Marshall [2026] EWHC 1585 (Ch), the High Court considered a dispute between directors and shareholders concerning the use of company funds.
One of the directors had a longstanding practice of using company money to pay personal expenses through a director’s loan account. He argued that there was an understanding that the directors could use company funds for personal expenditure provided the money was eventually repaid.
The other director disputed this and said that he had never authorised or agreed to the arrangement.
The High Court rejected the argument that there was a general agreement allowing the director to use company funds in this way.
More importantly, the court found that the unauthorised use of company money amounted to a breach of fiduciary duty and, on the facts of the case, a fraudulent breach of fiduciary duty.
What is a director’s loan account?
A director’s loan account records money moving between a company and its directors which is not salary, dividends or reimbursement of legitimate business expenses.
Director’s loan accounts can be perfectly legitimate. However, the underlying transactions must be properly authorised, lawful and accurately recorded.
Under section 197 of the Companies Act 2006, a company generally requires approval from its members before making a loan to a director, subject to certain statutory exceptions.
A director therefore should not assume that they can withdraw company funds simply because they own shares in the company or control its day-to-day operations.
“But I intended to pay the money back”
This is one of the most important points arising from the decision.
The director argued, in effect, that there was no improper intention because he intended to repay the money.
The court did not accept this as an answer.
A director’s obligations are not determined solely by whether the money is eventually repaid. The director must also consider whether the transaction was authorised and whether they were acting in the company’s interests.
The court found that using company money as an unauthorised interest-free loan could amount to reckless indifference to the company’s interests.
The court also applied the principles on dishonesty established in Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67, concluding that ordinary decent people would consider the conduct dishonest in the circumstances.
What does this mean for directors?
The decision is particularly relevant to owner-managed and family businesses, where corporate arrangements can sometimes become informal.
Directors should:
- keep personal and company finances separate;
- ensure loans and withdrawals are properly authorised;
- obtain shareholder approval where required;
- maintain accurate accounting records;
- keep appropriate board and shareholder resolutions; and
- take legal advice where there is uncertainty about the use of company funds.
An arrangement that has operated informally for years can become a serious issue if shareholders or directors subsequently fall out.
What if there is already a dispute?
If shareholders disagree about a director’s loan account, the issue may go beyond accounting.
The parties may need to establish:
- what was actually agreed;
- whether the withdrawals were authorised;
- what the other directors knew;
- whether shareholder approval was obtained;
- how the transactions were recorded; and
- whether the director breached their fiduciary duties.
Depending on the circumstances, the company may have claims against the director to recover money or other property.
Key takeaway
A director’s loan account is not a personal bank account.
The High Court’s decision in McCarthy v Marshall demonstrates that using company money for personal expenses without proper authority can expose a director to serious personal liability, even where the director intended to repay the money.
For directors and shareholders, proper authorisation, transparency and record-keeping are essential.
Taking advice before using company funds can help prevent costly disputes. Bhakar Greenfield LLP advises directors and business owners on their responsibilities and the proper use of company assets.
