The Outer House of the Court of Session found that its founder and former chief executive breached his statutory duties as a director by transferring company funds to another business with which he was associated. Judge Lord Richardson ruled that Mr Sarwar acted with dishonest intent when he directed 26 transfers from Phlo to Universal Pharmacy Ltd via a Tide account, contrary to his duty of loyalty to the company.
Since 2015, Mr Sarwar had served as both a director and shareholder of Universal Pharmacy Ltd. While he admitted authorizing the payments, he claimed they were intended to help Universal Pharmacy Ltd repay a loan from Cubefunder—one originally secured to support Phlo. However, the court concluded that Mr Sarwar hid the Tide account from Phlo’s finance team and fabricated a bank statement purporting to show funds that never existed.
Payments and Concealment
The court heard that Phlo and Universal Pharmacy Ltd had historically had a close financial relationship, with Universal Pharmacy Ltd supporting Phlo during its start-up period and providing it with a £700,000 revolving loan facility in 2019. However, Phlo’s other directors and finance staff said the companies’ finances were separately accounted for.
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Mr Sarwar contended that the two businesses operated what was effectively a fluid running account. However, the court heard that Phlo’s chief financial officer repeatedly requested information and statements for the Tide account but did not receive them. In December 2023, Mr Sarwar provided Phlo’s finance director with a bank statement showing a balance of £1,737,999 in the Tide account as at 31 March 2023, which was later found to be falsified.
Lord Richardson called the falsification ‘clearly a matter of grave concern,’ noting that combined with repeated attempts to hide the account’s activity from senior financial staff, it severely undermined Mr Sarwar’s credibility. The judge also reviewed testimony from July 2024, where witnesses claimed Mr Sarwar confessed to using Phlo’s funds for personal or Universal Pharmacy Ltd debts and offered to repay the amounts.
Breach of Fiduciary Duties
Phlo argued that Mr Sarwar had breached sections 171 and 172 of the Companies Act 2006, which require a director to act within their powers and in good faith to promote the success of the company. Lord Richardson agreed that the evidence failed to show the payments to Universal Pharmacy Ltd benefited Phlo or prevented its collapse. Instead, the transfers appeared to have created an unsecured and growing debt owed by Universal Pharmacy Ltd to Phlo.
Lord Richardson held that Mr Sarwar had exercised his powers for an improper purpose in breach of section 171(b) and that his conduct was dishonest, breaching section 172. The court also found that Mr Sarwar’s explanation was difficult to reconcile with the concealment of the Tide account and that his attempts to conceal the information had “gone to extraordinary lengths”, including falsification of the March 2023 statement.
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As a result, the court granted decree in favour of Phlo and awarded it the expenses of the action. Mr Sarwar sought relief from liability under section 1157 of the Companies Act 2006, which permits a court to excuse a company officer who has acted honestly and reasonably. Lord Richardson held that the application failed at the first hurdle. The court quantified Phlo’s loss at £1,756,998, which was the value of the funds transferred away.
According to the judgment, Lord Richardson’s decision was based on the evidence presented, which showed that Mr Sarwar had acted in breach of his fiduciary duties. The court’s finding that Mr Sarwar had concealed the Tide account and falsified a bank statement was a key factor in the decision. The judgment also noted that Mr Sarwar’s attempts to justify the payments as being for the benefit of Phlo were not supported by the evidence.
Representing Phlo were Roddy Dunlop KC and Elisabeth Roxburghe KC from Addleshaw Goddard LLP, while Bowen KC, instructed by BTO Solicitors LLP, defended Mr Sarwar. This legal battle is one element of a broader dispute over leadership and operational control at Phlo, an online pharmacy business.
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Mr Sarwar founded the company and was its chief executive until August 2024. Separate litigation concerns whether he ceased to be a director at that point. The present case concerned payments instructed between August 2022 and March 2023, with some £1.738m moved from Phlo’s Royal Bank of Scotland account to a Tide account.
Wider Dispute and Litigation
Mr Sarwar rejected this interpretation, insisting the transfers were made to support Phlo’s interests.
The financial evidence pointed to UPL becoming increasingly indebted to Phlo during the relevant period, with the parties’ experts ultimately agreeing that UPL owed Phlo £1,864,500 once all transactions were reconciled.
