The Directors Friend - Director's Personal Liability for Costs

THE DIRECTORS FRIEND BLOG

‘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.

Summary

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an application should be made to Court within 18 days of service of the Statutory Demand (if, in the meantime it is not withdrawn).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.

WHAT TO DO NOW

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...

 

THE DIRECTORS FRIEND

 


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Director's Friend

THE DIRECTOR’S FRIEND BLOG - ‘Directors assumption of personal liability’

Director's Friend

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

The case:

This is a discussion about a recent case decided in the Chancery Division of the High Court – Situl Devji Raithatha (as Liquidator of Halal Monitoring Committee Limited and Mir Nazeer Ahmed Baig and others a judgment by Chief Registrar Briggs.

Summary:

The company The Halal Monitoring Committee Limited (the ‘Company’) was incorporated as a community project ensuring that the meat and poultry consumed by the Muslim community was Halal.  The Company was intended to be run on a not for profit basis. The Company did not register for VAT. HMRC asked that the Company register for VAT. It did not do so. A VAT Assessment was raised and not paid. HMRC presenting a winding up petition that was not opposed by the Company. A winding up order was made on 30 April 2012.

So, were the directors of the Company liable for the failure to register for and pay VAT?

Section 212 of the Insolvency Act 1986 (the ‘Act’)

In the Director’s Friend earlier blog this section of the Act was explained. Whilst the Chief Registrar does not refer specifically to this law it is likely that the claim advanced was for Misfeasance under this section of the Act.

The pleaded issue for the Court to decide was in circumstances where HMRC had submitted a proof of debt; the Company suffered a loss as a result of the failure to register for VAT in 2005 and collect in that VAT. The Liquidators case was that as a consequence the directors acted in breach of duty of care, skill and diligence owed to the Company (and so were personally liable).

The directors admitted the failings in respect of VAT. They took issue that they had breached their duty to exercise reasonable care, skill and diligence. Amongst other technical arguments put the directors argued that they were non- specialist volunteers and were entitled to rely upon independent specialist advice. The directors also relied upon the Company accountants to advice. The latter argument was a key part of the defence.

The judgment:

At paragraph 27 the Chief Registrar proceeded on the basis that the Company should have been registered for VAT from 2005. The Registrar went on to consider whether the directors had acted in breach of section 174 of the Companies Act 2006 (which is a part of the presumed claim for Misfeasance claim).

The Chief Registrar considered the evidence and law at paragraphs 28 to 34 and observed at paragraph 34 that:

… part of the modern landscape of corporate responsibility is to place on directors the obligation to ensure adequate monitoring and supervision of delegates’

 At paragraph 35 the Chief Registrar found:

In my judgment the duty of the Directors to acquire and maintain sufficient knowledge and understanding of the Company’s business to enable them to discharge their duties as director, is inescapable. It may seem harsh on the facts of this case that an incoming, inexperienced director should acquire the necessary knowledge and understanding of the Company’s operations, and ensure that it is compliant with issues as wide ranging as trading standards, health and safety and taxation.’

At paragraph 36 the Chief Registrar went on:

The Directors were not required to obtain the specialist knowledge of an accountant but needed, in my judgment to ask if the Company had an exemption for VAT rather than assume the situation. Reliance on the accountant’s silence demonstrates, objectively, a lack of care, skill and diligence.’

 37. … The Directors worked on an assumption and did not take any or any proper steps to discharge their duty of care and skill… The Directors obtained no advice but made an incorrect assumption and took no steps to validate the assumption.’

It was found that there was a loss to the Company caused by the failure to collect in VAT as the VAT will have to be met from its own resources rather than from customers (as per paragraph 42).

The directors should have asked the Company accountants about liability for VAT on the supplies (per paragraph 45). It was found at paragraph 46 that the Company should have been collecting in VAT from April 2010.

As to the directors’ request for relief under section 1157 of the Companies Act 2006 also failed (per paragraph 56) due to the failure to explore the tax position or to take advice which were found to be unreasonable steps.

The Director’s Friend comments:

This case is a harsh lesson for directors of a company. The Directors Friend says that if you wish to be appointed a director of a company then you must understand your duties to the company. The directors in this case have been made personally liable for the loss of VAT when the company did not register.

The directors assumed without checking that the company was not liable for VAT. They did not seek advice. They should have done so.

Therefore, the Director’s Friend says that three lessons need to be drawn from this case:

  1. Do not sign up to being a director without first understanding your duties;
  2. If you want to rely upon professional advice then you must ask for it; and
  3. If you delegate then you must monitor and supervise that delegation.

No doubt this has been a very expensive and harsh lesson for these directors.

WHAT TO DO NOW:

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 Director’s 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...

THE DIRECTOR’S FRIEND


Director's Friend

The Director’s Friend and a Statutory Demand – a testimonial received:

Directors Desk
The Director's Friend

This blog post features a testimonial from a director client who was served with a Statutory Demand by two purported creditors. The client was recommended to the Director’s Friend by their business adviser.

A Statutory Demand:

A Statutory Demand is served by a creditor. It demands that the person pay a sum of money within 21 days or apply to set aside the Statutory Demand within 18 days.  Otherwise that person could be served with a bankruptcy petition.  If they are made bankrupt their property and goods are taken away from them.  Therefore, it is a very serious matter for the person in that it is a very real threat of being made bankrupt.

A Statutory Demand can also be served upon a company.  How the company can respond is different as a company cannot apply to set aside a Statutory Demand.  Amongst the options a company has is to apply to court to restrain presentation of a winding up petition.  This should also be made within 21 days of service.

Details of the Statutory Demand:

The Statutory Demand was attempting to make the director client personally liable for debts of his company.

The Director’s Friend was able to help:

This is the testimonial for the advice of the Director’s Friend:

“I instructed Richard Cole (the Director’s Friend) in respect of a Statutory Demand that had been served upon me. I was extremely concerned and worried by receiving the Statutory Demand particularly as my first language is not English.  I was referred to Richard Cole who was able to take my instructions.  Richard Cole was able to file my application to set aside the Statutory Demand at court within 48 hours of receiving my initial instructions.

Negotiations were entered into with my purported creditors. The Statutory Demand was successfully set aside at Court on the basis that I disputed the same.  With Richard Cole’s timely advice, the Deputy Registrar awarded me 90% of my legal costs for making the application.

I was very pleased and impressed with the service that Richard Cole as the Director’s Friend provided to me and the result that he achieved for me. Richard Cole certainly is the Director’s Friend!  I would have no hesitation in recommending Richard Cole to you for insolvency / directors’ advice.”

RL – Oxfordshire.

The Statutory Demand was dismissed with costs awarded.

If you, someone you know or a company is served with a Statutory Demand then bearing in mind the short timescales to respond please contact the Director’s Friend for help.

As the Director’s Friend, I was very grateful to receive this testimonial. It demonstrates the approach (and speed) that the Director’s Friend takes with the experience and knowledge that the Director’s Friend can bring to bear for you in your corner.

My name is Richard Cole. I am an insolvency solicitor who formerly worked in the Insolvency Service carrying out director disqualification investigations.  I am now the Director’s Friend.  Why not contact me to discuss on +44(0) 1992 558 411.  The earlier that you speak with me the more that I can likely help.

Until the next time ...

The Director’s Friend


Director's Desk

THE DIRECTOR’S FRIEND BLOG - Breaches of Directors’ duties for health and safety offences can be costly!

Directors Desk
The Director's Friend

Breaches of Directors’ duties for health and safety offences can be costly!

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

 Introduction:

One area of law that impacts upon the duties of directors that appears overlooked is that of the personal liability and potential loss of liberty suffered by directors of companies in breach of The Health and Safety at Work Act 1974 (the “Act”).

The national regulator for work place health and safety is the Health and Safety Executive (“HSE”). Investigations and prosecutions of individuals for safety related breaches are increasing.  The fines imposed upon companies and individuals can be expensive.

Who can be prosecuted?

A wide range of entities and individuals can be prosecuted to include limited companies, individuals and directors or senior managers. Section 37 of the Act states:

“Offences by Bodies Corporate

(1) here an offence under any relevant statutory provisions committed by a body corporate is proved to have been committed with the consent or connivance of, or to have been attributable to any neglect on the part of, any director (emphasis added), manager, secretary or other similar officer of the body corporate or a person who is purporting to act in such capacity, he as well as the body corporate shall be guilty of that offence and shall be liable to be proceeded against and punished accordingly”

Case Summary of a prosecution by the HSE:

In a recent press release the HSE confirmed that a Rochdale based car repair company and its director were fined after failing to comply with Improvement Notices (“IN”) issued by the HSE.

Rochdale MOT Centre Limited (the “Company”) and its director a Nazar Hussain (the “Director”) failed to comply with three INs.  The INs required the thorough examination of three two-post vehicle lifts by specified dates in the IN.  These offences were considered by Manchester Magistrates Court on 10 June 2016.            

Section 33(1)(g) of the Act makes it an offence for a person:

...to contravene any requirement or prohibition imposed by an improvement notice or a prohibition notice...

The Company and the Director of the Company pleaded guilty to breaching this section of the Act. They were ordered to pay fines of £1,500.00 and £3,000.00 respectively. In addition, both defendants were ordered to pay the full prosecution costs in the sum of £15,609.14.

Comment by the HSE Inspector:

The HSE Inspector, Sarah Taylor said that:

This case highlights the impact of HSE’s work, ensuring duty holders are held to account for their failings and taking the appropriate action to ensure workers are safe.

 All workers have the right to return home from work safe and healthy, but the Company and Director (emphasis added) in this case placed employees at risk of harm by failing to address concerns raised by HSE Inspectors.

A Director Disqualification?

The Magistrates Court would likely have had a jurisdiction under Section 2 of the Company Director Disqualification Act 1986 to disqualify the Director upon conviction of the offence under the Act which may have resulted in a maximum period of director disqualification of up to 5 years.

It would appear fortunate for the Director that he was not also disqualified as a company director and therefore possibly barred from continuing to trade his business. Although there are other options available.

Comment:

It can be seen that the duties of directors can extend in to areas that directors of companies wouldn’t necessarily consider such as health and safety law at issue here. The Director’s Friend says that the well-advised director would be wise to consider their duties and obligations under the Act bearing in mind the potential personal liability and possible director disqualification action that can arise following a prosecution and conviction of that individual director personally.

A final thought:

Sometimes directors may have insurance policies that will likely cover defence legal costs for these kinds of actions. However, the Director’s Friend says that any fine imposed upon a company following a conviction certainly will not be.  As a general principle, it is against public policy to be able to insure against a criminal act.  Similarly, where a Court orders the defendant to pay the prosecution’s reasonable costs in bringing a case, these costs are rarely covered by business insurance and may have to be funded by the business/individual themselves.

So, it is even the case that if you have protected yourself by way of taking out an insurance policy that is not a panacea to pay off all or any liability that the company or you as a director may face under the Act.

What to do now:

If you are faced with:

  • Potential personal liability in your capacity as a director under the Act;
  • Director disqualification; and / or
  • All other forms of personal liability in your capacity as a director

then talk to me today on +44(0) 01992 558411.

 That is in order to protect your position without delay. The earlier that you speak with me the more than a can likely help.

I am a Hertfordshire/London based solicitor and a full member of both The Insolvency Lawyer’s Association and The Association of Business Recovery Professionals.

Until the next time ...

THE DIRECTOR’S FRIEND

 


Director's Desk

The Director’s Friend and a winding up petition – a testimonial received:

 

Directors Desk
The Director's Friend

 

This blog post features a testimonial from a director client whose company was faced with a winding up petition in a substantial sum presented by H M Revenue & Customs. The client was recommended to the Director’s Friend by their business adviser.

A winding up petition:

A winding up petition presented by a creditor asks the Court to order a company into compulsory liquidation. Part of the process pre order is that the winding up petition is advertised. The Director’s Friend says that this can be terminal for the company as its bank and the wider world becomes aware of the winding up petition. That usually means that the company bank account is frozen and suppliers cease trading with the company and/or support the winding up petition. Therefore, a winding up petition is very serious for a company.

Details of the The Director’s Friend and a winding up petition – a testimonial received::  

The client’s company was faced with a winding up petition for National Insurance Contributions, income tax PAYE, company tax, VAT as well as interest and surcharges.

The Director’s Friend was able to help:

 This is the testimonial for the advice of the Director’s Friend:

I instructed Richard Cole (the Director’s Friend) in respect of a winding up petition that had been presented against my company by H M Revenue & Customs. I was a director of that company. I was extremely concerned and worried by the winding up petition. I was referred to Richard Cole who was able to take instructions and the worry away from me.

 After negotiating with H M Revenue & Customs over a protracted period of time Richard Cole was able to negotiate to pay a lesser sum than was demanded by way of the winding up petition and importantly to me personally obtain time for payment from the sale of a property.

I was very happy and impressed with the service that Richard Cole as the Director’s Friend provided to me. Richard Cole certainly is the Director’s Friend! I would have no hesitation in recommending Richard Cole to you for insolvency / company / directors advice.

SH, Kent, United Kingdom’

The winding up petition was dismissed.

If you or someone you know is a director of a company that may be insolvent or is facing a winding up petition, contact the Directors Friend for help

As the Director’s Friend, I was very grateful to receive this testimonial. It demonstrates the approach that the Directors Friend takes with the experience and knowledge that the Director’s Friend can bring to bear for you in your corner.

My name is Richard Cole. I am an insolvency Solicitor who formerly worked at the Insolvency Service carrying out director disqualification investigations. I am now the Director’s Friend. Why not contact me to discuss on: +44(0) 1992 558 411. The earlier that you speak with me the more that I can likely help.

Until the next time...

The Director’s Friend


Director's Desk

THE DIRECTOR’S FRIEND BLOG - No ‘Wrongful Trading’ here

Directors Desk
The Director's Friend

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

The case:

 This is a discussion about a recent case decided in the Chancery Division of the High Court – (1) Nicholas William Nicholson and (2) Stratford Edward Hamilton (As Joint Liquidators of Main Realisations Limited) and (1) Thomas Geoffrey Fielding and others a judgment by Deputy Registrar Prentis (it would appear unreported).

Summary

 In summary, prior to Mainland Car Deliveries Limited (In Liquidation) (the ‘Company’) being placed into Administration is was alleged by the subsequently appointed joint Liquidators of the Company that the three directors of the Company had caused the Company to wrongfully trade and that they were liable to personally contribute over £2.12M to the assets of the Company. The Deputy Registrar appeared to be less than impressed with the Liquidators evidence and dismissed the application.

Section 214 of the Insolvency Act 1986 (the ‘Act’)

In the Director’s Friend earlier blog this section of the Act was explained.

In summary, the issues that the Court considers includes:

  • Whether the directors of the Company should have known or ought to have concluded that from a date that there was no reasonable prospect that the Company would avoid entering into insolvent liquidation (i.e. not that the Company is insolvent);
  • The focus is on the individual director’s conduct;
  • The maximum loss that the Court can take into account is the loss to the Company (not to creditors) as a result of the liquidation being delayed (net deficiency);
  • How far there is a sufficient connection between the increase in net deficiency and the factors which made the directors decision that the Company should trade on wrongful; then
  • What would be a fair order as between the various Respondents.

The judgment

The Deputy Registrar went through the detail of the evidence in some detail to consider whether or not there was any wrongful trading (paragraphs 54 to 96 of the judgment).

At paragraph 97 the Deputy Registrar found:

The hallmark of the Company’s correspondence with HMRC is that of ongoing detailed consideration of its position, entirely consistent with the evidence of Mr Fielding and Mr Tait that the directors were constantly monitoring and discussing the situation. They were doing so backed by exemplary management accounts prepared by Mr Tait, and they were taking tough decisions: laying off staff, laying up trucks.

 98. All this was against a background of an uncertain financial world, oscillating fuel prices, and an industry entering a significant downturn of uncertain duration. The evidence is that the directors were doing their best to take account of those, and they cannot be criticised for not predicting their full effect.

At paragraph 105 the Deputy Registrar was mindful of the fact that HMRC (a large creditor) ‘… was willing even in early 2009, after multiple failures of the Company to meet its promises, to enter into a further time to pay agreement.

The Deputy Registrar’s observations

The Deputy Registrar did not appear impressed that a deficiency account had not been prepared by the joint Liquidators (per paragraph 112) nor was an explanation provided as to why not.

In addition, he observed at paragraph 112:

I am left without any real clue as to what losses would have been incurred anyway consequent on an earlier liquidation.

The Deputy Registrar was also less than impressed (at paragraph 113):

Next, it seems to me that to rely now without qualification on the statement of affairs in the administration, prepared more than 7 years ago, is utterly inappropriate. Quantum is not an assessment of a notional figure. It is in this context assessment of the loss to the Company caused by ongoing trading.

Perhaps unsurprisingly the application was dismissed.

The Director’s Friend comments

This is another application for wrongful trading that has failed due to a lack of the required evidence being put forward by the Liquidators. The Court did not appear impressed in this case with that lack.

The Director's Friend says that from the perspective of the directors it would appear fortunate that there was enough contemporaneous evidence in the Company’s correspondence with HMRC to explain the position. The directors were constantly monitoring and discussing the situation backed up by the exemplary management accounts prepared by one of the directors. The situation that the Company found itself in was not found to be the fault of the directors.

Finally, there is no reference to possible consequent director disqualification for participation in wrongful trading, however, with this type of claim there is always a risk of being subject to director disqualification as well. Please see the Director's Friend earlier blog for more details.

What to do now

If you are faced with:

  • worrying insolvency issues with your company;
  • a claim against you for wrongful trading or perhaps misfeasance; 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.

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


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


Director's Desk

The Director's Friend – Director Disqualification – Current and Future Misconduct Trends

Director's Desk
The Director's Friend

 

This is the next article in a series by the Director's Friend.

The Director's Friend recently attended the Insolvency Live! 2017 event run by The 

(‘IS’). This was attended by a lot of stakeholders in the insolvency industry.

Director Disqualification current misconduct trends:

From a perspective of director disqualification, the IS have identified a growing number of trends in terms of misconduct at least worthy of director disqualification proceedings being considered to include:

The theme seems to be that a public interest winding up petition is presented, the offending company wound up by order of the Court and then director disqualification proceedings follow.

These are in addition to the, at present, usual themes of the insolvent company not paying HMRC or employing illegal workers, being as a consequence fined by the Home Office and thereafter being placed into liquidation to avoid paying the fine.

 Future Director Disqualification focus:

 According to the IS complaints about Binary Options appear to be on the increase.

According to the FCA website these are a form of fixed-odds betting on movements in financial markets. Typically, a trade in binary options involves a simple question of whether an event will happen or not – for example, will the price of a particular share or asset go up. The outcome is either yes or no, hence the term binary option. If the investor is correct, they ‘win’ and should see a return on their investment. If the investor is wrong, they lose their full investment.

For more details please also see the Action Fraud website.

Top tips by the Director's Friend:

  1. When you are faced with an investigation by the IS the Directors Friend’s advice is that you should usually engage with that investigation and put forward carefully crafted answers and representations to the IS.
  2. If the well-advised director does not put across their side of the story with the assistance of specialist legal advice then that director (however well intentioned) could make matters worse for themselves.
  3. Your legal adviser will be able to advise you as to the risk of other parallel investigations that may be going on at the same time. To include criminal and compensation proceedings.
  4. If the IS can be persuaded that it is no longer in the public interest to bring director disqualification proceedings then in the Directors Friend’s experience the IS can, will and do drop the investigation or discontinue their case. Director disqualification is not inevitable.

What to do now:

My name is Richard Cole. I am a Solicitor who formerly worked at the IS carrying out director disqualification investigations. I am now the Director's Friend. Why not contact me to discuss on: +44(0) 1992 558411. The earlier that you speak with me the more that I can likely help.

Until the next time...

THE DIRECTOR'S FRIEND


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Inquorate appointment of administrators

weightThe Court of Appeal has given a recent judgment (Randhawa and Turpin [2017] EWCA Civ 1201 dated 01 August 2017) upon the inquorate appointment of administrators by a sole director. That case is here.

The question:

The question that the Court of Appeal had to decide was this:

‘… whether the sole director of a company, whose articles required two directors for its board meeting to be quorate, could validly appoint administrators under paragraph 22 of Schedule B1 to the Insolvency Act 1986.

Sir Geoffrey Vos, Chancellor of the High Court gave the lead judgment.

The answer:

At paragraph 79:

‘… I conclude that the judge was wrong to have held that the sole director of the Company had the right to appoint the Joint Administrators under paragraph 22(2) of Schedule B1 notwithstanding the provision in the Articles requiring a quorum of 2 directors at board meetings of the Company.’ 

The warning:

At paragraph 97:

… the administrators could themselves have been expected to check that their appointment was valid as long ago as September 2013, when it was made. They had the Articles and a copy of the resolution appointing them. That resolution contained a clear inaccuracy, when it said that [the director of the Company] constituted a quorum for the directors’ meeting. A brief inspection of the Articles would have uncovered that inaccuracy.

 … the  ought to have … [investigated any impediment to their appointment] immediately they were appointed if not before they accepted their appointment.

 [one of the Joint Administrators] failed to investigate the matter to ensure that the appointment of his firm would be valid.

 The conclusion:

At paragraph 101:

… I would hold that the appointment of the Joint Administrators was invalid.

 The lesson:

Check that the director(s) have a quorum to appoint pre-appointment. Check again post appointment.

I am an insolvency solicitor. If you have any questions please give me a call on +(0) 1992 558 411 or drop me an email on: Richard.Cole@breezeandwyles.co.uk