Director's Desk

THE DIRECTOR’S FRIEND - A director fails to validate his obligations to a company

Director's Desk
The Director's Friend

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

 

The case:

This is a discussion about a recent case decided in the Chancery Division of the High Court - Officeserve Technologies Ltd (In Liquidation) v Anthony-Mike [2017] EWHC 1920 (Ch) by HHJ Paul Matthews.

Summary

In summary, prior to Officeserve Technologies Ltd (In Liquidation) (the ‘Company’) being placed into Compulsory Liquidation and importantly post the presentation of a winding up petition. The director asserted that the right of the Joint Liquidators to bring a Misfeasance claim against him had been compromised by a settlement agreement entered into between the Company and the director post the Petition being presented and prior to the liquidation in respect of what was expressed as the director’s employment by the Company.

Section 127 of the Insolvency Act 1986 (the ‘Act’)

This section of the Act renders void any ‘disposition’ of property made by a company between the presentation of a winding up petition and the winding up order.

Section 129(2) of the Act deems that the winding up commences as a matter of law at the time that the winding up petition is presented (to the Court).

This is to protect the creditors of a company and to ensure that the assets of that company are distributed fairly or ‘pari passu’.

Surprisingly

Perhaps surprisingly to those that practice insolvency was that at the time of the negotiation of the settlement agreement post the Petition being presented was that (per paragraph 52) there was no discussion between the two sides of the possible application of section 127 of the Act.

Findings

At paragraph 59 the judge found that:

The claims put forward in the present litigation against the respondent, however, arise out of the respondent’s holding of an office. I therefore conclude that on its true construction the settlement agreement does not in any event protect the respondent against claims of the kind which are being put forward now.

At paragraph 90:

‘The mischief against which the section (127) is directed is clear. The destruction, or at least the reduction in value, of a property right belonging to the company, causing an immediate and equivalent accrual in value to another person, is well within that mischief.’

At paragraph 98:

‘I consider that I am therefore free to hold that the release of contractual rights such as a debt by a creditor company in favour of the debtor constitutes a ‘disposition’ of the property of the company within the meaning of s 127.’

At paragraph 99:

‘In my judgment, it is sufficient that identifiable property by some act having legal consequences (so excluding mere effluxion of time) ceases to be in the ownership of the company, so that it is no longer available to the liquidator of the company for the statutory purposes, and the value accrues to some other person (so excluding consumption or waste), even though that other person cannot necessarily be said to become the owner of the same property.’

At paragraph 104:

In my judgment, if the settlement agreement on its true construction extended to the claims being made against the respondent in the present application, that agreement would be void pursuant to s 127, to the extent that it operated either to release the respondent from those claims or to create an enforceable promise not to sue on them.’

At paragraph 110:

  • ‘In my judgment, s 127 is not, and is not intended to be, a prescription for the behaviour of company directors in future.’
  • At paragraph 118:
  • I hold that, on its true construction, the settlement agreement does not release the respondent from his obligations to the company in his capacity as a director, but that, if it did, section 127 of the Insolvency Act 1986 would operate on the releases of such obligations and avoid them, and that I would not validate such releases under the discretion given to the court by section 127 itself.’

The Director’s Friend comments

It is clear therefore that the Court is not going to allow a compromise of the company’s claims against a director or former director post the presentation of a winding up petition and pre-liquidation to bind subsequently appointed liquidators from bring a claim against that person in misfeasance.

In order for the actions of the director to be retrospectively validated under section 127 of the Act then at the very least it should be shown by the director that matters have turned out well for creditors. That may also go some way to assist in defending a misfeasance claim.

The fact that it turned out well for creditors is also likely to assist with responding to any subsequent director disqualification / compensation investigation brought by the Insolvency Service.

WHAT TO DO NOW

If you are faced with:

  • worrying insolvency issues with your company;
  • a winding up petition (and have payments that need to be made);
  • a claim against you for misfeasance; and / or

then please talk to me today on +44 (0)1992 558411.  That is in order to protect your position without delay.  The earlier that you speak with me the more that I can likely help.

I am a Hertfordshire / London based solicitor and a full member both the Insolvency Lawyers Association and the Association of Business Recovery Professionals.

Until the next time...

THE DIRECTOR’S FRIEND


notarising documents

Good practice vital for employers in managing tribunal claims

notarising_documentsIn July, the Supreme Court ruled that employment tribunal claim fees were unlawful, and now it’s been confirmed that an ex-employee has been granted an extension of time to pursue their out-of-date unfair dismissal claim, on the basis that the original action was dropped due to the fees.

In giving the go-ahead for an extension in the case of Dhami v Tesco Stores Ltd, the claimant could show they had lodged the original claim within the three-month time limit and the fees were an important reason for not proceeding.  It is likely that many more out-of-date claims will be put forward, and, as a result, employers may find themselves firefighting situations that were considered closed.

The Supreme Court ruling in July in R (on the application of UNISON) v Lord Chancellor put an end to the requirement for a fee to be paid on submitting a claim, known as the issue fee, and another a few weeks before the hearing.  Introduced in 2013, the cost was more than £1,000 for complex claims, and the number of tribunal claims dropped by two-thirds as a result.

The public service union UNISON brought the case, arguing that the fees undermined the fundamental principle of access to justice for all, and that it was discriminatory as women generally earn less and so were likely to find it harder to pay. The Supreme Court agreed, saying it was unlawful under both domestic and EU law, and the fees were abolished with immediate effect, and  payments made under the scheme are to be refunded.

Commentators and employer groups were quick to predict a steep increase in claims back to previous levels, arguing that with no financial risk involved, employees will be more likely to make a claim, whether legitimate or bogus.

Said employment law expert, Sharon Matchwick of Hertford town solicitors Breeze & Wyles:  “For now, employers who focus on best practice and knowing their responsibilities will be better placed to manage any such claims.  This is the time to identify any potential claims that may be made, and having reviewed the circumstances take steps to avoid such things recurring.  Demonstrating a positive attitude to any Employment Tribunal will stand a business in good stead.”

She added: “It’s more important than ever to have a positive working environment, as well as complying with the many laws applying in the workplace. It’s good for business, as well as minimising the risk of claims.

“If you do find yourself facing a claim, then think about maximising mediation efforts, and using ACAS Early Conciliation as an opportunity to resolve things swiftly. Equally, if having investigated the claim and having tried to resolve the matter by conciliation, you believe that the employee is just trying it on because they have nothing to lose, it may be worth being bullish and going for costs, a deposit order or applying to strike out proceedings.”

If you want to know any more, feel free to contact our Business Services Department on 01992 558411

 

R (on the application of UNISON) v Lord Chancellor

Dhami v Tesco Stores Ltd

Web site content note: 

This is not legal advice; it is intended to provide information of general interest about current legal issues.


Giving rookie renters a helping hand

StudentFollowing the recent A level results, many first-time students will be looking for last-minute accommodation, if they aren’t heading to their first choice of university with an assured place in the halls of residence.

Parents can help guide the rookie tenants through the process, but may themselves not be aware of how things have changed since their uni days or first-time flat rental.

All too often both parents and students get focused on the emotional upheaval or logistics, rather than the important details of checking out the property and making sure the landlord is a safe bet.

Privately-owned student accommodation is likely to be an HMO - or house of multiple occupation – if it accommodates three or more students, which places extra obligations on the landlord. For example, an HMO will need to satisfy special requirements regarding fire and general safety, utility supplies and management of communal areas, which could include fire alarms, extinguishers and fire blankets on every floor. You can also ask to see landlord's HMO licence. If a landlord doesn't have a licence when they should, they can be prosecuted and you may be able to reclaim up to 12 months’ worth of rent paid during the time that the HMO was unlicensed.

Whether the property is classed as an HMO or not, all landlords should ensure that gas appliances are covered by an annual check, that all electrical installations are checked every five years by a qualified electrician and that any appliances like washing machines, kettles or toasters have a PAT certificate.

In privately-owned student accommodation, any agreement is likely to be based on an assured short hold tenancy. This can be for a fixed term such as the academic year, for 12 months, or periodic, which may run from month-to-month. Most lets include the summer holiday period these days, with either full or reduced rent due.

A written agreement should be provided by the landlord, and as a minimum this should be a statement of the main terms, including the date it will begin, the rent due, when and how it must be paid, if the rent can be changed and how long the agreement is for. Under some agreements the tenants may be jointly and severally liable for the rent. This means that, if one of the tenants does not pay their share, the landlord can sue any of the other tenants for the unpaid rent and may pursue the easiest option.  For example, in a house share with a mix of home and overseas students, the landlord may choose to pursue one UK resident for the whole sum, rather than any of the overseas students. Also, it’s likely that every student will have to be backed up by a guarantor such as a parent.

By law, any deposit must be held by the landlord in a registered deposit protection scheme and you should ask to see evidence of this being done within 30 days. The deposits may be held in the name of one or more designated tenants.

The property should be checked carefully against the inventory, and whether this is a comprehensive record of all contents and the general condition of each aspect of the accommodation or a simple list, it's worth taking photographs of the condition of everything, including any damage or poor condition that you pick up as you go round the property, to ensure that you have a strong case for the full return of your deposit at the end of the tenancy.

Recently, a group of student tenants in Bristol took a letting agent to court and managed to overturn a deduction of £780 worth of charges which was being taken from their deposit to cover redecoration and cleaning. The students had photographic proof of the state of the accommodation when they took it on and could show it was cleaner when they left, as well as having evidence to demonstrate that works claimed for by the letting agent had not subsequently been done. Their attention to detail helped them secure a County Court judgement, and the return of the deposit.

Explained tenancy legal expert Rita Wright, of solicitors Breeze & Wyles Solicitors based in Hertford: “Thanks to the huge rise in demand for university places over recent years, many different types of investors and private landlords have entered the student accommodation sector. There’s been a big shift away from the scruffy digs that people used to experience at university, but there are still many older properties that may be more likely to pose problems in terms of repairs and general condition, and no sector is immune from difficult landlords.

“The important thing is to make sure young people have some guidance, and if necessary get the contract and terms checked out professionally. It's likely to be the parent who is on the line as guarantor, so it’s worth taking time to be sure, and not just jumping to secure a last-minute property.”

Some tips from Rita include:

  • If you’re using a letting agent be sure of their procedures and where a holding or advance rental deposit is required, find out if it will be refunded if the application fails to complete, for example if you don’t pass a credit check
  • Ask to see the relevant licences, such as for a House in Multiple Occupation, and for any gas or electrical installations and appliances
  • If the letting agent or landlord says that any work will be undertaken as a condition of you taking on the tenancy, get it in writing before signing any agreement
  • Read the small print on the tenancy agreement and if anything doesn’t sound right then get it checked out, as once you’ve signed, you’re committed
  • Check the inventory – dispute anything that’s not accurate and take photographs when you move in
  • Make sure the deposit is being held in a Government-backed scheme.

If you have any questions about Tenancy agreements and Landlord Disputes, please contact our Landlord and Tenant department on 01992 558 411 and we will be happy to discuss this in greater detail with you.

Web site content note: 

This is not legal advice; it is intended to provide information of general interest about current legal issues.

Reference:

Licensing of houses in multiple occupation in England: a guide for tenants

News coverage of student getting back their deposit after court action


home 2

Name and Shame in Divorce and Adultery Cases

tug-ropeThe government has introduced a new form in England and Wales to apply for divorce which invites the applicant to name and shame adulterers.

Although there is no actual obligation to fill in this box, the new form gives the impression that this is not the case, unless you read the small print. Applicants will also fill it in because it is there. The new box is an opportunity for the injured party to punish their cheating spouse. The guidance notes on the form advise it “is not normally necessary to name the person your spouse committed adultery with; you should only consider doing so if the petition is likely to be disputed” but how many aggrieved spouses who actually read these notes are going to ignore them?

What applicant’s often don’t know is that if someone is named on the application as having committed adultery with your husband or wife, they usually become a party to the court proceedings. This can cause an increase in costs and a delay to proceedings.

The question solicitors will be asking themselves now is what is this going to do for the legal system? We advise our client’s to keep the divorce petition as neutral as possible in order to reach a swift and amicable settlement thus keeping costs down, yet this form is an opportunity for the applicant to seek revenge which will, no doubt, invite “defended” divorces and lengthy litigation.

At Breeze and Wyles, our expert family lawyers in Essex, Hertfordshire and North London can advise how best to proceed with your divorce application so you can move forward with your life. When applying for a divorce, you must give one of these reasons – adultery, unreasonable behaviour, desertion, you have lived apart for more than two years and your spouse agrees to the divorce or you have lived apart from your spouse for at least 5 years (your spouse does not have to agree). We can help you work through which is the most suitable option for you.

If you are wanting to divorce your spouse or formally separate from your civil partner, contact the family team on 01992 558 411 for help and advice.