The Directors Friend - Director's Personal Liability for Costs


‘Directors personal liability for costs’

This is the next in the series of blogs for the Directors Friend blog.

The case

In the recent case of Mullaley and Company Limited and (1) Regent Building Services Limited (2) Christopher White [2017] EWHC 2962 (Ch) heard by David Stone sitting as a Deputy High Court Judge considered (amongst other issues) an application for injunctions to prevent the presentation of a winding up petition.


The company Mullaley & Co. Limited (the ‘Company’) by way of opposing a Statutory Demand issued by Regent / Mr White brought the proceedings due to the threat to wind it up made by the same.

That was in circumstances where Regent Building Services Limited (‘Regent’) / Mr White chose not to use the option to pursue a contested debt in the usual way under Part 7, rather than using the Statutory Demand procedure for uncontested debts.

Responding to a Statutory Demand by a company

In the Directors Friend earlier blog this area of law was explained briefly. Essentially an application should be made to Court within 18 days of service of the Statutory Demand (if, in the meantime it is not withdrawn). The application should set out the detail of why the debt is disputed or there is a cross claim. This should be put across in good faith and has sufficient substance to justify it being determined in a normal civil action.

The debt in this case was disputed by the Company on the basis that (at paragraph 14) that:

  1. The debt was not assignable without the Company’s consent, which it has never given;
  2. Some of the amounts that made up the debt had been paid, or were not at that stage due; and
  3. The Company contested the ability of Regent / Mr White to claim the debt on behalf of the (alleged) assignor.

Correspondence between the parties had elicited 3 different copies of an Asset Purchase Agreement (‘APA’) all of which were subject to criticism for various reasons.

A winding up petition was presented against the alleged Assignor and any APA post that date would have been void under section 127 of the Insolvency Act 1986 (discussed here). In any event a third party had a fixed and floating charge over the assets of the Assignor (paragraph 16).

The judgment

The judge set out that the:

  1. Courts power to grant an injunction in these circumstances stems from its jurisdiction to prevent an abuse of process (per paragraph 41);
  2. Court does have to go into the argument sufficiently to be able to form a view about whether the dispute to the debt or the cross-claim put forward in good faith and has sufficient substance to justify it being determined in a normal civil action (per paragraph 42);
  3. Threshold for establishing that a debt is disputed on substantial grounds in the context of a winding up petition is not a high one for restraining the presentation of the winding up-petition (per paragraph 43); and
  4. Hurdle is a low one. Winding up procedure should not be pursued on the basis of a debt which is disputed in good faith, and where that dispute is of sufficient substance to warrant determination in the usual way (per paragraph 44).

The judge found at paragraph 51 that:

… any of these three disputes on its own would have been sufficient to grant an injunction to restrain Regent/Mr White from presenting a winding up petition against Mulalley. Together they are compelling.

The injunctions were granted.

Unfortunately for Mr White it was found that his conduct was unreasonable and an order for indemnity costs was made against Regent and him. That is payment of costs in full!

The Directors Friend comments

It is telling that the ‘Agent’ as stated by the judge at paragraph 49(b) in all of the APA’s was Rigil Kent Corporate Rescue Limited now Rigil Kent Corporate Acquisitions and Turnaround Limited. This company was placed into Provisional Liquidation on 19 December 2017 and compulsorily wound up on 28 February 2018. The Insolvency Service press release dated 08 January 2018 is here.

The press release states:

All of the companies were part of a scheme and business model which purported to provide advice and business recovery services to directors of insolvent companies.’

Whilst Regent / Mr White did have the benefit of legal advice at an earlier stage of the case it is notable to see the ‘Rigil’ name here.

It was also unsurprising that in the circumstances that the injunctions were granted where the threshold is not a high one.

Therefore, the lessons for a well-advised director would be:

  1. Obtain the right professional advice at the right time from a regulated firm;
  2. Make sure that in attempting to collect a debt that you / the company use the right process to do so; and
  3. Make sure that your conduct as a director in litigation with driving the actions of the company is not unreasonable or that director may be at risk of personal liability for costs.


If you are faced with:

  • worrying insolvency issues with your company;
  • a claim against you for misfeasance / breaching your duties as a director to a company or any claim for personal liability; and / or
  • director disqualification

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.

The Directors Friend is 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...




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The Risks of Gifts

This is the next in my series of blogs for the Directors Friend.


In respect of a risk under Section 238 of The Insolvency Act 1986 (the “Act”) a director must be very mindful where they are transferring company monies to themselves without good reason and / or supporting accounting records. In the following case, the directors had to personally repay significant sums that they were found to have gifted to themselves.


In a recent case (Nicholson and Anor v Sukhjit Ghuman and Others [2016] EWHC 3509 (Ch)) HHJ Barker QC heard the Applicant Joint Liquidators only in a case. The Respondents did not attend.

This was a case that sought to make the first and second Respondents liable for their actions as directors of a company. The claims (amongst others) brought included for undocumented payments to one of the Respondents in the sum of £174,000 and undocumented payments to the other Respondent in the sum of £38,000.

The claims were claimed as transactions at an undervalue. The claims were also claimed as preferences, breaches of duty as directors by way of section 212 of the Act as misfeasance and the claim for £174,000 was also pleaded as an unlawful distribution.


The Judge did not consider it necessary to have regard to the Applicants secondary cases. I can actually do little better than to set out what the Judge succinctly said at paragraphs 12 to 14 (inclusive):

  • Transactions at an undervalue are addressed in section 238 of the Act.
  • It is a precondition that the company should have entered into administration or gone into liquidation, and the claim is made at the suit of the office holder
  • The issue is whether, at a relevant time, the company gave away or disposed of assets (including money) for no consideration or for significantly less valuable consideration.
  • A relevant time is two years before the onset of insolvency.
  • In this case, it is not necessary to ascertain the precise date for the onset of insolvency because a winding up order was made in July 2010, and no transaction at an undervalue is alleged to have occurred before 2009.
  • Section 238(5) of the Act provides that:

The court shall not make an order under this section in respect of a transaction at an undervalue if it is satisfied—

(a) that the company which entered into the transaction did so in good faith and for the purpose of carrying on its business, and

(b) that at the time it did so there were reasonable grounds for believing that the transaction would benefit the company.

  • Section 240(2) adds a further condition, namely that at the time of entering the transaction at an undervalue the company should either be unable to pay its debts as they fall due or should become unable so to do in consequence of the transaction.
  • This insolvency condition is presumed where the recipient, or other transacting party, is connected with the company. So, the evidential burden is on that party, here Mr. and Mrs. Ghuman, to demonstrate that company's solvency.


The Judge had no hesitation in finding that the Respondents were directors of the company at all material times.

As to evidence of insolvency the Judge was mindful of the evidenced increasing debt to H M Revenue & Customs (‘HMRC’) owed by the company. The Judge found that HMRC was used as a source of funds or working capital. The Judge found that that pointed to an inability to pay debts as they fell due. That was especially so when there was no evidence that the company had made any provision to pay PAYE or NIC.

The Judge found that on the evidence that there was no documentation at all in the company books and records to explain the payments. Absent clear independent or documentary corroborating evidence the Judge was unable to make a finding that the payments were remuneration as asserted by one of the directors.

The Judge concluded that the payments were gifts and consequently transactions at an undervalue.


The well-advised director will note the number of different ways in which a claim against them is likely to be pleaded. This maximises the opportunity of the office holder to succeed on one or other of the heads of claim and for an adverse costs order to follow against the director.

Insolvency is typically (as in this case) evidenced by reference (amongst other indicators) to the (increasing) debt to HMRC.

In addition, the case shows that absent documentation or evidence to the contrary that personal liability for transactions at an undervalue is likely to follow with the additional adverse costs consequences.


If you are faced with worrying insolvency issues with your company, a claim for transactions at under value and/ or other worrying claims for personal liability please talk to me today.  That is in order to protect your position without delay.  The earlier that you speak with me on +44 (0) 1992 558411 the more that I can help.

I am a Hertfordshire / London based solicitor and a full member of the Insolvency Lawyers Association (‘ILA’). Membership of the ILA is a public mark from insolvency peers that a member has the requisite knowledge, skill and experience to advise you.

Until the next time...


Facing Personal Liability for 'Smelting the Assets Transactions'

This is the next in my series of blogs for The Directors Friend.


In respect of a risk under Section 423 of The Insolvency Act 1986 (the “Act”) a Director must be very mindful where their own interests in respect of a company take precedence over those of the company or perhaps creditors as a risk of personal liability (amongst other risks that may follow).  In this particular case, we focus upon where the company assets are moved with the objective of putting assets beyond the reach of or otherwise prejudicing the interests of persons making or who may make a claim against the company.


This case (Henry George Dickinson and NAL Realisations (Staffordshire) Limited and others [2017] EWHC 28(Ch)) concerned a company Norton Aluminium Limited (“Norton”) which operated an aluminium smelting foundry in Staffordshire. Norton went into Administration following the circulation of a draft judgment that upheld in part claims of nuisance brought by a group of local residence against Norton.  The Managing Director and controlling shareholder of Norton Mr Dickinson brought the claim to recover in the liquidation various sums totalling just over £1M which he alleged were due to him and secured by debenture over Norton’s assets.

Materially for this article the liquidators brought various counterclaims to include setting aside or recovering compensation for transactions entered into in 2010 to include that Norton bought back most of its shares from Mr Dickinson and connected parties for £2.5M, which was left outstanding as a secured loan and again materially Norton sold a subsidiary (North Castings Limited) to Mr Dickinson for £1, which was alleged to be at an undervalue.

Section 423 of the Act is concerned with transactions that defraud creditors that the Court has jurisdiction to review.


His Honour Judge David Cook made various findings in respect of Section 423 from paragraph 95 onwards to include as follows:

In respect of the share buyback:

(1) At paragraph 105 the Judge commented that he was satisfied that Mr Dickinson had embarked on the various transactions now challenged in order to ensure that if the worst came to the worst he would be able to retain control of the business and its future profit potential and little would be available in the terms realisable assets from which an adverse judgment could be satisfied. This, the Judge found, was not merely a substantial purpose but the dominant one in Mr Dickinson’s mind.

(2) At paragraphs 109 and 110 the Judge found that net assets in the accounts of circa £2.7M did not disprove the Section 423 purpose as there was nothing in the evidence to disprove that.  In fact, the Judge found that there was evidence to the contrary.

(3) At paragraph 111 the Judge found that the converting of the rights of shareholders into claims for secured debt both prejudiced the interests of the environmental claimants and put assets beyond their reach by ensuring that shareholder debt had prior claim on the assets.  Thereby the pool of liabilities was increased and therefore Mr Dickinson’s dominant intention and therefore the buyback fell within Section 423 and that the Court may order relief.


In respect of the Norton shares at paragraph 145 onwards the Judge found that he could also exercise the jurisdiction under Section 423.

Interestingly relief was not available under section 1157 of the Companies Act 2006 and the reason for that (as set out at paragraph 154) was that Mr Dickinson’s ...”liability arises because he was party to the transaction that is to unwound, not because he was a director.  It would be illogical to have a power to grant relief in favour of a beneficiary of a transaction who happens to be an officer of the company where no such power will exist in favour of an equally honest outsider”.


Be aware that there is no requirement for the application of Section 423 that the company be insolvent, in liquidation or in administration.

Following this decision it can be seen that a director who is found to have had a dominant intention to put assets beyond reach of persons bringing a claim or prejudicing the interests of persons bringing a claim in these particular circumstances is at risk of being found liable for these transactions and it shows the risks of that director.  However, with the early and right advice the well-advised director could mitigate or perhaps avoid this outcome.


If you are faced with insolvency issues with your company, a claim for transactions defrauding creditors or a transaction at under value claim for personal liability 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 558411 and speak to me without obligation, protect your costs.

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...


Directors Duties when the Company may be or is insolvent - Be aware of personal liability stalking you!

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?


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 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.


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.


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.


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...


Big Business: Pay your debts or risk damage to your reputation

On the 4th of May the Enterprise Act 2016 received Royal Asset. The Act established the role of the Small Business Commissioner to support small businesses, in particular, in relation to disputes with larger businesses. As part of this role, the Commissioner is to provide an in-house complaints handling function allowing small business suppliers to seek a decision from the Commissioner about a payment issue with a larger business with which the small business has a previous, current or potential supply relationship.

The consultation sets out BEIS's proposals on how the Commissioner should operate the complaints scheme, and seeks views on certain aspects of the scheme. For instance, how a small business's headcount should be calculated for the purposes of determining its eligibility to use the scheme. BEIS also asks what factors the Commissioner should take into account when considering whether to identify the larger business, if publishing a report on the dispute. The consultation closes on 7 December 2016.

While there is no date set for implementation of the regulations larger businesses need to be aware that the government proposes to give smaller business suppliers additional means of holding them to account over payment issues. They also need to be aware of the potential reputational impact, should the Commissioner publish a report about a complaint involving them. Larger businesses should familiarise themselves with BEIS's complaints scheme proposals, so that they are prepared to respond to complaints submitted by such business suppliers.

Managing Director of Breeze & Wyles Solicitors Limited Brendan O’Brien said: “The Government has made itself clear about the need to give more forms of redress to small business to ensure that it gets paid on time by larger business. It has become common practice for Large Business to use smaller businesses as a form of free banking. Given the benefit to the economy of healthy small businesses it is essential that this process creates a fair balance between the parties. Everyone must have their say in this process if it is to be effective.”

Web site content note: 

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

Employees in an administration: Oakland decision overturned

Employees have rights even when company is insolvent

Companies entering so-called pre-pack administration arrangements will have to deal with TUPE rights for employees.

That’s the outcome of a recent Employment Appeals Tribunal (EAT), which has reversed an earlier ruling to confirm that employee rights should be protected in the sale of an insolvent business in administration, including any businesses sold in a so-called ‘pre-pack’.
This reverses an earlier EAT decision which had held that a pre-pack administration – where the sale of the insolvent business is planned before entering administration - could be similar to a liquidation and therefore employee protection provisions of TUPE did not apply.
TUPE – which stands for Transfer of Undertakings (Protection of Employment) Regulations – was introduced in 1981 and updated in 2006. It is designed to protect employees where business changes hands, by moving the employees and any liabilities associated with them from the old employer to the new employer, to create a situation where their continuity of service and any other rights are all preserved.
Over the years, the regulations have proved complex to interpret and many companies underestimate the employment liabilities that can arise under TUPE. Some of the most common circumstances being when they buy or sell part of a business as a going concern, or if they outsource or otherwise change the supply route; or where they grant or take over the lease of a premises and operate the same business.
The changes in 2006 were intended to make it easier to rescue insolvent businesses, including a distinction between two types of insolvency situation, “terminal” proceedings and “non-terminal” proceedings.
Terminal proceedings are when a business cannot be rescued and has to be liquidated. In those circumstances, the key principles of TUPE do not apply; such as employees being automatically transferred to the buyer and the buyer taking on all employee-related liabilities.
In non-terminal proceedings the administrator is looking to sell the insolvent business as a going concern and the key principles of TUPE apply with minor relaxations, for example there is greater scope for the buyer to alter the employees’ terms of employment.
Initially, it was taken for granted that pre-pack administrations would be classed as non-terminal proceedings and so TUPE would apply, because their intention is to rescue the business rather than to sell off the assets piecemeal. This assumption was challenged in the 2008 case of Oakland v Wellswood, where the tribunal ruled that in certain circumstances pre-packs could be classed ‘terminal’, depending on the administrator’s intentions.
But now, the latest EAT decision of Olds v Late Editions reverses that decision, as the Tribunal decided that the Insolvency Act requires the administrator to consider whether a business can be sold as a going concern and so it cannot be said that, at the time the administration commences, the intention was to liquidate the assets.
Said Brendan O’Brien, Company Commercial and Corporate Recovery Director with Breeze & Wyles Solicitors LLP : “The earlier Oakland decision caused practical difficulties, because whether or not TUPE applied depended on what was in the mind of the administrator at the time of his appointment. The Olds decision means that any sale of a business by way of administration will be subject to TUPE, which will not make it easier for administrators to find buyers, but at least we have certainty.
“One of the most important things to remember is that even when a business is liquidated, the provisions of TUPE requiring consultation with employees will apply, even though there is no automatic transfer of employees to the buyer.”

ENDS – word count 585
Web site content note:
This is not legal advice; it is intended to provide information of general interest about current legal issues.

Patron Membership of the Hertfordshire Chamber of Commerce and what it means for us

It is undoubtedly the case that the Chamber serves an extremely important function with the economy of the region and it is with this in mind that we decided in January of this year to commit to Patron membership.

In these uncertain times the success of any business is dependent on the economic conditions within the region in which the business is located. Breeze & Wyles Solicitors LLP has been a member of the Hertfordshire Chamber of Commerce and Industry but perhaps could have used membership to its greater advantage. In recent times, it has become clear that it is very much in our interests to engage with the right people and to play an active role in the economic growth of the region.

In the recession, we have been generating a significant number of opportunities but were finding it increasingly difficult to reach potential customers despite the marketability of the propositions. Following discussions with the Chamber it has become clear that we and the Chamber have very similar development areas. It enables us to ensure that credible people demonstrate belief in the ideas that we have and assist us in promoting them for the benefit of the region.

An example of this is one that I have been trying to develop since I joined the firm in 1996. I was keen to provide a legal surgery within Hertfordshire that would allow potential clients to have a ‘sounding board’ for their problems, areas of development or potential successes. Over the years this has become increasing difficult to achieve. However, upon becoming a Patron member the Chamber has shown increasing interest in the various projects of which this is one. This project enables us to meet potential clients, and also to point potential clients to other professional service providers and businesses where opportunities may arise for them. In tandem with my ‘Lonely Business Owner’ blog to be found at this provides some of the support that regional businesses may require particularly in the hoped-for growth phase of the economic cycle when development can be constrained by lack of funding and information.

Bearing this in mind we must ensure that we get value for money for our membership. This can only be achieved if we work hard at what we wish to achieve from it. As the economy grows so will our business and with this in mind we wish to participate closely with some of the educational establishments who are members to develop local talent and provide a solution to the skills gap. This will have a long term benefit for our business in that it will both provide excellence in new staff and further our objective to enhance the reputation of our brand.

We hope that our membership and involvement will enhance the profile of the Chamber and its benefits leading to both greater participation and increased membership. We look forward to working closely with the Chamber in the future

Brendan OBrien
Director and Head of Company/Commercial and Corporate Recovery
Monday, 29 March 2010

Weathered the recession: have you planned for growth?

Come along and join me for this great networking opportunity where I will be the guest speaker. Meet with like minded people, make contacts and discuss business opportunties over a full English breakfast.

Those who follow my blog or LinkedIn will know that I am a Director and the Head of Company Commercial and Corporate Recovery at Breeze & Wyles Solicitors LLP. The firm's Corporate Recovery team was launched in mid 2009 to meet the changing demands of a number of high profile clients. The team has handled a number of corporate recovery instructions within this period and associated work such as claims against directors and book debt recovery.

Networking is an effective way of generating new business leads, raising your companies profile and promoting your services and products.

Member: - £22.5 Per Person
Non-member: - £30 Per Person
Latest Booking: - 8 Feb 2010
Contact: - Jodie Reid
Tel: - 01707 398400
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Insolvency: A new species of debt relief for debtors

On 6 April 2009 a new species of debt relief for debtors was created. Affecting debtors with low debts (less then £15,000), surplus income (disposable income of less than £50 per month) and assets (under £300). This is a cheaper option to bankruptcy and does not require the sanction of the courts.

With some similarity to the rules on bankruptcy this may be an avenue to Official Receivers and other appointees where there is limited funding available from the estate to cover the professional and other costs of recovery. Similar rules apply such as Debt Restriction Orders and Undertakings restricting the actions of the debtor during the period of the disability. In the same way with bankruptcy debtors period of disability can be extended if necessary where the debtor has in some way contributed to his/her financial situation.

If you would like to discuss about Insolvency & Corporate Recovery please contact Brendan O'Brien on 01279 715333.