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A court has ordered the founder and former chief executive of an online pharmacy to pay £1,756,998 to the company after it found he had hidden from his fellow directors 26 payments to a separate distance-selling pharmacy at which he acted as director.

In a decision published on October 28, Lord Richardson, a judge of the Scottish Court of Session, found that Nadeem Sarwar had breached his fiduciary duties under the Companies Act 2006 in concealing payments from Phlo Technologies to Universal Pharmacy Limited through Phlo’s bank account with Tide, which only Mr Sarwar had access to. 

Giving evidence at the hearing, Lauren Nicholson, Phlo’s chief financial officer, said she had repeatedly asked to see Phlo’s bank statements with Tide after learning of the account’s existence in August 2022 and that Mr Sarwar had failed to provide them.

On December 6, 2023, Mr Sarwar showed finance director Christopher Cullen a statement showing a balance of £1.74m – but later admitted this had been falsified.

Lord Richardson found that “the true balance at that time was zero” and that the falsification of the statement, which Mr Sarwar attributed to an administrative error, was “obviously a very serious matter”.

Mr Cullen said matters came to a head at the end of April 2024 when Phlo was required to provide financial information to an investor, and that when he told Mr Sarwar he would reclassify the Tide balance as a director’s loan as there was no documentation to show where the monies had gone, Mr Sarwar threatened to sack him.

Mr Sarwar argued that movements of money between the two companies should be considered part of a continuous running account.

He said Phlo had depended on cash injections from Universal Pharmacy in its early years, and that the Tide payments enabled Universal Pharmacy to repay loans from lending company Cubefunder which he claimed had been taken out for Phlo’s benefit.

He denied concealing the arrangements from Phlo’s other directors or investors, saying the Tide account had been used to “isolate” transactions rather than hide them, and that the inter-company balance was visible on Phlo’s management accounts.

He also strongly denied misappropriating the funds or benefiting personally, arguing he had acted to ensure Phlo’s financial survival.

However, Lord Richardson found the evidence did not support Mr Sarwar’s claim that he had acted in Phlo’s interests, noting that Universal Pharmacy’s indebtedness to Phlo continued to grow from December 2022 to August 2024, when Mr Sarwar ceased to be CEO.

The judge rejected the ‘running account’ argument put forward by Mr Sarwar to describe the relationship between the two companies. 

Refusing to relieve him of liability under section 1157 of the Companies Act, Lord Richardson stated: “I am satisfied that the defender has failed to demonstrate that he has acted reasonably.

“I do not consider that to have made payments to and for the benefit of another company, without authority, unregulated and unsecured by any loan agreement, can sensibly be characterised as reasonable.”

Mr Sarwar was also ordered to pay Phlo’s expenses arising from the action. 

There are currently four other cases before the Court of Session involving the parties to this case, with Lord Richardson describing the broader dispute as concerning the control and leadership of Phlo, of which Mr Sarwar continues to be the largest shareholder. 

Related: Digital pharmacy fends off administration after sacking its founder