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Post-Insolvency Directors’ Duties

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A recent ruling in the case of Systems Building Services Group Limited [2020] EWHC 54 (Ch) should be considered by directors in relation to the survival of directors’ duties, as listed in sections 171 to 177 of the Companies Act 2006, following the insolvency of a company.

This case considered, amongst other claims, a situation whereby a director of the company purchased a property from the company, acting by way of its liquidator, at a substantial undervalue.

In doing so, the Court held that the director had breached his duties to the company, particularly his fiduciary duty to act in the best interests of the company's creditors as a whole from the time at which the company became insolvent.

ICC Judge Barber commented that the general duties of a director of a company to the company do survive the company's entry into administration and creditors' voluntary liquidation. 

She added that the fact that, on a company's entry into administration or creditors voluntary liquidation, the Insolvency Act 1986 is engaged, imposing a series of additional specific duties on the part of a director and limiting their managerial powers, does not operate to extinguish the fundamental duties owed by a director to the company.

The director was therefore liable to pay the liquidators of the company the sum he had saved on the purchase price.

This case should serve as a reminder to directors that their duties to the company and creditors remain following the onset of insolvency. This is particularly important when considering ‘pre-pack’ sale agreements, as this case highlights the potential pitfalls of placing a company into administration or liquidation to buy the assets back from a ‘friendly’ insolvency practitioner.

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