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Legal 500 | 2020 Edition

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Claims Against Company Directors

Our team of insolvency specialists has extensive experience in both:

  • acting on behalf of company directors to defend claims brought against them, and
  • acting on behalf of Liquidators/Administrators to bring claims against company directors.

How We Can Help | Our Insolvency Litigation Services

We are here to assist in cases where claims are being brought against company directors.

We understand that being involved in such litigation can be very stressful and upsetting particularly where a director maintains that there has been no wrong doing.

We assist clients through many types of insolvency claims and we use our experience to deliver fast, cost-effective solutions wherever possible.

Please feel free to call us for a no obligation confidential discussion concerning claims involving company directors:

Can a Company Director be held personally liable?

Generally speaking, company directors benefit from limited liability status.

However, in certain circumstances that protection can be removed leading to either:

  • a civil claim being brought against the director personally, or
  • criminal proceedings.

This can happen when a company director breaches his/her fiduciary duties.

What are the Fiduciary Duties of a Company Director?

Company directors have a duty to act in the best interests of the company and its shareholders at all times.

The duties of a director are known as fiduciary duties and are enshrined in statute.

A Company Director must:

  • act within the powers of the company as set out in its Articles of Association
  • promote the success of the company for the benefit of all shareholders/members
  • exercise independent judgment for the benefit of all shareholders/members
  • exercise reasonable care, skill and diligence in performing his/her duties
  • avoid conflicts of interest (and declare any such conflicts to the board of directors)
  • not accept undisclosed benefits from third parties
  • declare an interest in any transaction or arrangement proposed by the company.

In addition to the above fiduciary duties of a director, there are additional obligations for a director to:

  • file company accounts and associated statutory papers with Companies House
  • maintain and deliver when required the appropriate accounting records and books for the company
  • refrain from the publication of misleading information about the company and its activities
  • refrain from the publication of misleading marketing/promotional material aimed at customers.

Who can bring a claim against a Company Director?

If there is a breach of fiduciary duty by a company director, there are a number of entities that can bring proceedings against that person including:

  1. Liquidators/Administrators

The liquidator or administrator of an insolvent company is under an obligation to consider the financial performance of the company and investigate the conduct of the company director(s).

If any breach of fiduciary duty is discovered, the liquidator/administrator can bring a civil claim against the director in the director’s personal capacity. For the types of claims that can be brought please see ‘What are the most common types of claims against directors?’‘ below.

  1. Secretary of State

The Secretary of State has the power to bring Director Disqualification Proceedings against any director of an insolvent company if considered appropriate.

  1. HMRC

HMRC possesses a wide range of powers to compel company directors to comply with tax laws in relation to corporation tax, PAYE tax, personal taxation arising from director loan accounts/dividends and VAT.

In addition, HMRC has extensive powers of criminal investigation and prosecution which include arrest, interview under caution, freezing of assets, criminal prosecution and forfeiture of assets under the Proceeds of Crime Act 2002. 

Our award-winning white-collar defence team is accustomed to assisting clients throughout the country in relation to such complex investigations.

  1. Creditors

Creditors can bring civil claims against directors for breach of their duties as well as claims for the enforcement of any personal guarantees.

  1. Shareholders

Although not a common situation, shareholders are able to bring a civil claim against a company director.

  1. The Company

The company is in a position to take civil action against a director. The shareholders can vote to remove a company director from the board or a court injunction can be obtained to prevent the director engaging in conduct that is detrimental to the company and in breach of the director’s fiduciary duties.

The company director can also be pursued through the civil courts for any consequential financial losses that the company has suffered arising from the director’s conduct.

  1. Criminal Prosecution by the State

Companies House can bring criminal prosecutions if the company director fails to comply with his/her statutory obligations in accordance with the Companies Act 2006 such as failure to file financial statements annually.

A company director can also be criminally prosecuted for Fraudulent Trading if:

  1. the company is insolvent, and
  2. the company director continued to trade, knowing that the company is unable to settle any of the ongoing trading invoices, and
  3. the company director knew that the company had no prospect of ever being in a position to settle the invoices.

What are the most common types of claims against directors?

The most common types of claims that are brought against company directors include:

  1. Director Disqualification Proceedings 

A civil claim brought by the Secretary of State or an ancillary order made against a company director in criminal proceedings.

  1. Misfeasance Claims

If a loss has been caused to creditors where misfeasance has occurred, the company director can be personally liable.

A misfeasance claim can arise due to a company director misapplying company funds or property such as ‘transactions at an undervalue’ and ‘preferences’.

  1. Directors Loan Account & Dividend Payments

A claim based on the improper or unauthorised use of company funds for the personal benefit of a company director to the detriment of creditors.

A liquidator/administrator may pursue a company director for the return of such funds for the benefit of the creditors.

  1. Breach of Fiduciary Duties

A claim for breaching any of the fiduciary duties detailed above.

  1. Wrongful Trading

A claim that a director has continued to trade the company knowing (or where there is good reason to know) that the company will go out of business and there is no genuine way of ‘trading through’.

The company director could be personally liable for the losses incurred by the company from the date that such knowledge did exist or should have existed.

  1. Antecedent Transaction – Preferences

A claim based on payments being made or not being made to one creditor or group of creditors in preference to other creditors.

The liquidator/administrator will usually look to recover the payment from the receiving party or from the director personally.

  1. Antecedent Transaction – Transactions at an Undervalue

A claim based on company assets being disposed of for less than market value or for no consideration at all. If such transactions exist, quite often the liquidator/administrator will uncover that such transactions are not at arms- length and involve friends, family members or other associates of a company director.

  1. Antecedent Transaction – Concealment of Company Assets & Property

A company director can be pursued personally if evidence emerges that company property or assets have been concealed or removed leading to such property or assets becoming unavailable to the company’s creditors.

Who else can a claim be brought against?

Other than a company director, the liquidator/administrator can pursue claims against:

  • Any director including non-executive director
  • Former directors
  • An inactive company director who consider themselves a director in ‘name only’ such as a spouse or family member
  • Family members who have received company property, funds or assets
  • Creditors
  • Shareholders.

All of the above categories of persons may have received property, assets or funds from the company through transactions which took place pre-insolvency. On appointment, the liquidator/administrator may look to set aside such transactions and pursue these individuals for the return of company assets.

What are the timescales?

Depending on the type of claim being pursued, the time limit for bringing such actions is usually either six years or twelve years.

The administrator/liquidator will usually look to investigate all financial transactions going back up to two years or up to five years depending on the individual case. The power to investigate matters beyond this timeframe is extended particularly where dishonesty, fraud and breach of fiduciary duties are being alleged.

What Can We Do To Help?

It is important to seek legal advice as soon as you become aware of a potential issue that could lead to a claim against you. Early advice and assistance are imperative and can lead to a considerable saving of time and costs in these cases.

We will:

  • listen to you as you will know the affairs of the company better than anyone else
  • consider the claim form and supporting documents that have been served on you
  • provide you with expert legal advice in plain language without legal jargon
  • guide you on the options available to you and which option is best suited for your case
  • liaise with the Insolvency Practitioner on your behalf
  • where appropriate, negotiate and attend ‘without prejudice’ settlement meetings with the Insolvency Practitioner to try and resolve the dispute.

Who Can I Contact For Help? | Kangs Insolvency Solicitors

We welcome new enquiries by telephone or email.

Our team of expert lawyers is here to guide you in relation to any issues concerning claims against company directors.

We are happy to provide an initial no obligation consultation at our offices in London, Birmingham or Manchester or via video conferencing facilities to explore the issues in your case and to provide an assessment of how we can assist you.

Contact

Mr Stuart Southall | Head of Insolvency Team
ssouthall@kangssolicitors.co.uk
0121 449 9888 | 020 7936 6396

Mr Tim Thompson
tthompson@kangssolicitors.co.uk
020 7936 6396 | 0121 449 9888

Mr Naz Maqsoom
nmaqsoom@kangssolicitors.co.uk
0161 817 5020 | 0121 449 9888

 

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