Important Decision For Directors Of Companies In 'Soft Touch' Provisional Liquidation

The recent English judgment of System Building Services Group Limited1 is an important decision for directors of offshore companies in 'soft touch' provisional liquidation, and highlights the importance of conducting a thorough analysis of the order appointing provisional liquidators for the purposes of ascertaining the scope of directors' duties that apply during the course of their post-appointment restructuring efforts.

The English Court has held that the general duties of directors of an English company survive the company's placement into administration and creditors' voluntary liquidation. Given the underlying similarities between these English corporate rescue mechanisms and the offshore 'soft touch' provisional liquidation regime, an offshore court may consider the reasoning in System Building Services Group as persuasive when determining the scope and extent of the duties of directors of a company in 'soft touch' provisional liquidation.

Systems Building Services Group Limited (Company) was placed into administration under the UK Companies Act 2006 (UK Companies Act). The administration was converted into a creditors' voluntary liquidation in July 2013 and the Company was subsequently dissolved. However, the company was restored by a different liquidator after dissolution for the purpose of pursuing several claims against a director of the Company. The liquidator alleged that a director of the Company had breached his statutory duties as a director of the Company under the UK Companies Act during the course of the administration.

Arguments on behalf of the director that "... once a company enters into administration or CVL, the 'general duties' of a director under [the UK Companies Act] only survive in respect of any exercise by that director of powers qua...