Directors often believe that once a company is placed into administration or liquidation and an administrator or liquidator is appointed, they become absolved of any of their duties.
That is a myth, as the duties continue during administration and liquidation. Just like the Respondent found out in the case of Stephen John Hunt (as liquidator of Systems Building Services Group Limited) (1), Systems Building Services Group Limited-in Liquidation (2) v Mr. Brian Michie(1), and Systems Building Services Limited (2) [2020] EWHC 54 (Ch).
What happened in the case?
Systems Building Services Limited’s (“SBSL”) principal activity was selling ‘passive fire protection, fire stopping and intumescent coating’. It was incorporated on 10 August 2000 and the first Respondent was appointed as a director on the same day.
In July 2012, SBSL was placed into administration and Ms. Sharma was appointed as an administrator. A year later, SBSL entered into a creditor’s voluntary liquidation (CVL), with Ms. Sharma appointed as a liquidator. SBSL was dissolved on 24 February 2016.
Mr. Hunt was appointed as a liquidator following a block transfer order in respect of 44 insolvency cases handled by Ms. Sharma. Mr. Hunt conducted an investigation into certain transactions carried out whilst Ms. Sharma was an administrator and thereafter liquidator of SBSL and brought the following claims against the first Respondent:
- Breach of fiduciary duties in relation to his purchase of a property belonging to SBSL at a price he knew to be a substantial undervalue from the liquidator of SBSL.
- Payments were made to a third party shortly after SBSL’s entry into administration.
- Payments by SBSL to the First Respondent from 22 July 2020 to 10 July 2012, prior to SBSL administration.
- There was also another head of claim against the second Respondent.
The Respondents argued that once SBSL entered into administration or CVL the duties owed by the first Respondent under the Companies Act 2006 (“CA 2006”) only continued as long as the first Respondent is exercising the powers of a director, in the capacity of a director and under powers preserved or permitted by the Insolvency Act 1986.
By finding in favour of the Applicants in respect of all the heads of claim, the Judge held that the general duties of a director of a company set out in ss171 to 177 CA 2006 survive the company’s entry into administration and CVL.
About the author
Iain heads Beeston Shenton Solicitors’ commercial litigation department.
Iain has 30 years of experience in Commercial Debt Recovery and Insolvency fields having worked in both Private Practice and Industry and has extensive experience working across all industry sectors and has particular expertise in working with Insolvency Practitioners in advising and recovering outstanding insolvent company ledgers.
Iain brings a pragmatic and commercial approach to legal claims and disputes.
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