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Digital pharmacy business Phlo Technologies has fended off an attempt by a lender to reinstate its right to appoint administrators after a high court judge ruled that doing so could derail a potential investigation into serious allegations against the company’s former CEO.

Deputy high court judge Nicola Rushton KC handed down a ruling on June 16 in which she said scrapping the injunction preventing the appointment of out-of-court administrators, which was obtained without notice at an urgent hearing in March, would likely trigger an “immediate” sale of Phlo.

She said such a sale could prevent the full investigation and resolution of claims that Phlo founder Nadeem Sarwar – who was dismissed for gross misconduct in August 2024 – had used the company's investor funds to pay off debts that belonged to another of Mr Sarwar's companies. These claims have not yet been tested at trial. 

Lending company Cubefunder, which lost the battle to have the injunction recalled, had asserted its right to appoint administrators in order to claim back loans made to Phlo after a debenture executed by Mr Sarwar in January 2024.

Allegations of close ties

The current owners of Phlo, which is headquartered in Glasgow and operates ‘same-day’ medicine deliveries in some UK cities as well as a nationwide prescription mailing service, accuse Mr Sarwar and Cubefunder CEO Gary Miller-Cheevers of having an “unduly close business relationship”.

They claimed this manifested in the lender allegedly “making an unsustainably large number of loans” at high interest rates to Universal Pharmacy Limited, another company where Mr Sarwar serves as a director. 

They allege that between April 2023 and August 2024 Cubefunder made loans using a “secret” bank account to Phlo that were then used to pay Universal Pharmacy’s debts. Cubefunder disputes these allegations. There are no allegations of wrongdoing by Universal Pharmacy as a company. 

It was also claimed that from early 2020 Cubefunder began to knowingly accept repayments from Mr Sarwar using Phlo investor funds. Mr Miller-Cheevers, they claimed, knew the rest of Phlo’s board was unaware of this.

Mr Sarwar reportedly admitted “some of the alleged misappropriations” to Phlo director Adam Hunter and investor Paul Munn in mid-July 2024, leading to the termination of his employment the next month.

Lawyers for Phlo made the case that Mr Sarwar “did not have actual authority to execute the debenture” and that Cubefunder was aware of this.

The debenture is therefore “void and unenforceable,” claimed barristers Simon Goldstone and Jonathan Schaffer-Goddard.

Lender claims Phlo is ‘insolvent’

For its part, Cubefunder asserted that as the holder of the floating charge it is entitled to appoint administrators withstanding any dispute over the charge’s validity.

In making a previous settlement offer Phlo had “admitted” that “at least the principal” of the debenture - £483,747 plus 10 per cent interest – was owed to Cubefunder, said barrister David Chivers, adding that “some of the sums” were therefore “indisputably true”.

The lender’s lawyers also described Phlo’s failure to give “even short notice” of the hearing this March as “a grotesque breach of the rules”. 

Cubefunder’s lawyers argued that Phlo had failed to disclose certain facts when applying for the injunction, such as that it had offered to pay the principal in a December 7 email, and that it had “failed to make any reference” to a meeting of Phlo directors on August 7, 2024 at which the debenture was discussed.

The parties dispute one another’s accounts of what was said at this meeting.

Cubefunder also alleged that current Phlo CEO Adam Hunter had “made a misleading and inaccurate assertion about its financial position,” claiming that the company had net assets of £2.7m when in fact it was “increasingly loss making”. 

Cubefunder’s lawyers described Phlo as “an insolvent company which was continuing to trade at the expense of its creditors and whose investor’s had already lost £30m” to date. 

Phlo disputed this, arguing its financial problems were “the consequence of Cubefunder’s loans” and that its financial profile was “typical of a startup”.

Cubefunder said it would rather reach a structured agreement than appoint an administrator but argued that the injunction allows Phlo to “avoid paying anything with impunity”. 

Judge’s decision

The judge found that Phlo’s failure to provide a full and frank disclosure of its financial position at the March hearing was so serious that ordinarily it would lead to it losing its case to continue the injunction, and on those grounds ordered Phlo to pay Cubefunder’s indemnity costs.

However, she also found that this was not a “deliberate” omission given the “pressured circumstances,” and that it should not outweigh the need to establish at a future trial whether Mr Sarwar and Cubefunder did engage in any of the misconduct alleged by Phlo. 

The judge was also highly critical of Phlo’s failure to provide even short notice to Cubefunder of its intention to apply for an injunction.

Phlo’s team “treated the situation as being one where secrecy was essential, even though this was patently not the case,” she said. 

Phlo Technologies, Cubefunder and Mr Sarwar have all been approached for comment.