This is the next in my series of blogs for the Director’s Friend.

In a recent decision of Terence Mowschenson QC sitting as a deputy High Court Judge in the case of Oakdene Homes PLC (In Liquidation) (the ‘Company’) and Carl Stephen Turpin dated 03 November 2016 the director of the Company in Liquidation was ordered to pay the total sum of circa £825,000.00.

That is a significant sum of money for a director of a company to find post that company’s liquidation. So, what happened?

BACKGROUND

The Company’ business was residential house building. In 2007 there was a sharp slowdown in the market for residential homes as a consequence of the financial crisis.

The judge found that the Company was insolvent from the end of 2007 to 23 January 2009 when it was placed into administration.

THE CLAIMS

The lead claim advanced against the director was for £750,000.00 for a call in respect of subscription monies due on a subscription of shares in the Company.

The judge found that the Company was short of cash in 2008. In about May 2008 the director agreed to subscribe for further shares for a consideration of £750,000.00. The judge referred to contemporaneous evidence where it was found that the shares had been allotted and the liability due from the director. The judge found that the director was liable to pay that sum.

A further claim was advanced by the director in the sum of £75,000.00 for monies that the judge found were simply a misappropriation of company monies to meet the directors’ personal liability to a bank. The judge found that the director had a fiduciary duty to safeguard company assets. He did not do so, therefore he was required to make good the assets as if he was a trustee and repay the monies.

A further claim in the sum of just over £5,000.00 was found to be owed by the director as a debt.

On the facts and the law the director’s counterclaims for set off and other claims were rejected.

A small crumb of comfort was allowed by way of the director’s counterclaim for a month’s unpaid salary, 12 week’s salary by way of wrongful dismissal and a redundancy payment.

ANALYSIS

Oddly the judgment does not set out the pleaded legal basis of the Liquidators claims. However, it is likely that they were for Misfeasance pursuant to section 212 of the Insolvency Act 1986. This is a fairly typical claim that directors of a company can face it that company has been placed into Administration or Liquidation to make them personally liable.

The Court may explore the conduct of a director and may via a Misfeasance claim compel the director to repay, restore or account to the company for any property or money (plus interest), or contribute such sum to the company’s assets by way of compensation in respect of the breach of duty as the Court thinks fit.

If the company is insolvent or financially distressed, an additional duty is imposed on the director to consider or act in the interests of creditors of the company (section 172(3) of the Companies Act 2006). However, that duty is owed to the company.

This is in circumstances where, as in this case, the judge found that the Company had been insolvent over a long period of time and that means that the director(s) of the company then have a duty to consider the best interests of creditors as a whole. These interests are paramount.

COMMENT

Particularly when the company is or may be trading insolvently the paramount consideration for the well-advised director is to consider the best interests of creditors. That protective advice should be sought from an accountant, a Licensed Insolvency Practitioner or an insolvency Solicitor to forestall an application by a subsequently appointed Administrator or Liquidator for Misfeasance to make you personally liable.

WHAT TO DO NOW?

If you are faced with a claim for Misfeasance please talk to me today. That is in order to protect your position without delay. The earlier that you speak with me the more that I can help. Why not call me today on 01992 558 411 and speak to me without obligation, pressure or cost.

If you are happy to instruct me my firm and I are happy to talk to you about fixed fees or staged fees that are agreed with you in advance of any work being carried out or we can liaise with your insurers. Your work will be carried out by me or others under my close supervision. I am happy to come to you to take instructions. My firm is based in London and Hertfordshire, here in the UK.

Finally, is you advisor a practising solicitor (and thus insured to advise you – check with the SRA) and if so is your solicitor a full member of the Insolvency Lawyers Association (‘ILA’) (ask them). Membership of the ILA is a public mark from insolvency peers that your representative has the requisite knowledge, skill and experience to advise you. I am both. Accept no substitutes.

Until the next time…

THE DIRECTORS FRIEND