Dangerous Company: What To Consider And What To Avoid When Suing Or Defending Company Directors

A salutary reminder of the dangers of not getting your claim straight when suing directors has come in the form of Global Corporate v Hale [2017] EWHC 2277 (Ch). In that case the applicant took an assignment of liquidators' claims against directors of a failed company. The assignment was described as relating to a "potential debt owed to the company comprising alleged illegal dividends and/or transactions at an undervalue" (under s. 847 of the Companies Act 2006 and/or s. 238 of the Insolvency Act 1986 respectively). In fact, the assignee also wanted to bring a claim which went wider, for example to include claims that could be brought by the "misfeasance summons" process (under s. 212 of the Insolvency Act 1986) and/or the giving of a preference (under s. 239 of the Insolvency Act 1986). The court held that the assignment was not wide enough to cover these latter causes of action. The rest of the claim failed on the facts: the "unlawful dividends" claim because as a matter of law no dividends had been declared and the "transactions at an undervalue" claim because no such payments had been made. So the assignee was left empty handed (and I suspect with emptier pockets, if it was ordered to pay costs).

The case got me thinking about some of the dangers inherent in bringing claims against directors for breaches of their duty to the company, and how they can be avoided. The message is that you need to do full research about the potential causes of action and who possesses them before taking a step such as issuing a claim form, entering into a standstill or an assignment. If you are defending a director, you need to go carefully over what the claimant suing the director has done to see whether they have fallen into any of the core errors.

Five key areas occurred to me:

Check that you understand who is the right party to bring a claim. This is a theme I have warned about before in the context of standstills but since it particularly bedevils the company and insolvency area it is worth repeating it here. If the claim still belongs to the company, a good place to start finding your cause of action against the directors is s. 171 to 178 of the Companies Act 2006. These set out the core duties of directors, such as a duty to act within powers, a duty to exercise reasonable care, skill and diligence, a duty to avoid conflicts of interest and so on. If claims have passed into the hands of an insolvency practitioner (or you think they may have done)...