Angelmist Properties Limited v Leonard And Others

The case1, a summary judgment application/interim payment application, provides important guidance on the discharging of the director's duty of care. It can be seen as a warning to all directors, especially those of companies that form part of a larger structure where other interests might come into play. It is a timely reminder to offshore directors of English companies as to their obligations under English law. The judgment sets out the minimum standard of care expected from all directors and makes clear that falling short of that standard is not acceptable.

The central question in this case was whether the directors of Angelmist Properties Limited ("Angelmist") were in breach of their duty of care to the company when they approved the sale of a company asset for a very substantial undervalue in comparison to its market value. A valuable property was sold to the sole, corporate, shareholder of Angelmist, i.e. to its parent company. That corporate shareholder was owned by the trustees of an offshore trust. While the directors should have been acting in the sole interest of the company, the Court found that they were influenced by the interests of both the shareholder and the beneficiaries of the overlying trust, interests which conflicted with those of the company, and that as a result they failed in their duty to the company..

While each case is decided on its facts, this judgment affirms that in transactions that involve parent companies or subsidiaries, the duty all directors owe is to the company for which they act as director. As fiduciaries, directors owe a duty of utmost loyalty and good faith and should not take into account others' interests when acting as such.

Overview

The first and second Defendants ("the Defendants") were directors of Angelmist from 2 August 2005 until 12 October 2006. The third Defendant was a Jersey company which provided trust administration services and which employed the Defendants. The transaction in question was one of a series of transactions whereby a large office block on the south bank of the Thames ("the Property") was to be brought within an offshore trust structure in a tax efficient way.

Angelmist owned the Property. Angelmist was originally not part of the offshore trust structure, but that changed when its shares were purchased by a company owned by the trustees ("HoldCo"). Thereafter the shares were to be transferred in specie to HoldCo as part of a solvent members' liquidation of Angelmist.

In the event, the Property was transferred to HoldCo by a straightforward sale and purchase of the Property. It is that sale and purchase which was in question in this case.

Angelmist's claim was that the Directors, in breach of their duty of care to it, allowed the Property to be transferred at a very substantial undervalue. The sale price was £148m, however Angelmist's expert at the hearing valued the Property at £189m and the Defendants' expert at £180m. On any view, therefore, the Property was undersold to the extent of at least £32m.

As a result of the the sale at undervalue, Angelmist was left without any significant assests, but with very substantial tax liabilities. These arose as the sale, although to its own holding company, was a sale to an offshore company and by reason of section 17 of the Taxation of Chargeable Gains Acts 1992, Corporation Tax became payable upon the true gain in the value of the Property. The resultant liability was £7.7m with penalties of £1.5m. With additional interest at £1.3m and a further sum of £3.2m in respect of liquidation expenses and other creditors, a total liability of £13.7m arose. Angelmist was, on any measure, insolvent. In the event Angelmist was not wound up on the basis of this assessment, which was raised by HMRC in July 2012, but due to unpaid corporation tax arising from its tax return dated May 2008.

Angelmist sought summary judgment in the sum of £40.5m or an interim payment in respect of, or arising out of, the undervalue. The figure of £40.5m refelcted the estimated undervalue given by the Claimant's expert with reference to the value at which the property was actually sold.

Directors' duties - the standard required

The Court set out the minimum standard that is expected from a director when discharging his duty of...