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The Duties of Directors Apply at All Times, Not Just at Insolvency

Director Not Using Company Funds for Legitimate Company Purposes Leads to Personal Liability for Director

There are numerous duties of Directors, enshrined in law, many of which relate to when a company becomes insolvent. However, a company does not have to be in an insolvency procedure for a Director’s conduct to be scrutinised and attacked.  This is precisely what happened on the facts of this case: Anne Muriel Barrett v (1) Hugh Cecil Barrett and (2) Barrett’s Liquormart Limited (2018).

In this case, Mr Justice Mann found that the Director’s – Hugh Cecil Barrett – explanations for large payments out of the company bank account was a ploy by him to misappropriate funds and that such funds had not been applied for a genuine company purpose.

The Outcome?

Summary Judgment was granted in favour of the Claimant against the Director on a claim for repayment of these funds, with an order that the funds be repaid.

The Details of this Case – Misappropriation of c.£2,000,000 of Company Assets

The Claimant, Anne Muriel Bennett, in a derivative action on behalf of the Second Defendant company (Barrett’s Liquormart), applied for Summary Judgment on the claim that the First Defendant (Hugh Cecil Barrett) had misappropriated company assets to the sum of £2,097,421.91, following the sale of the company property for £3,500,000.00.

The money from the property sale was to be used to discharge bank loans of £2,000,000.00. However, following the transfer of funds by the First Defendant, there were insufficient funds left to discharge the bank debt.

The improper payments made by the First Defendant included:

  • £292,571.91 to an Italian company.
  • £250,000.00 to a former employee.
  • £1,554,850.00 to his personal bank account.

The First Defendant filed a Defence that explained how:

  • He had acted to prevent the Claimant taking the money, which she had claimed was due to her,
  • That both he and the former employee were due redundancy payments and had other contractual rights to the money, and that
  • the money paid to the Italian company was for a property development investment that would benefit the company.

It was found by the Court that the First Defendant had not put forward an arguable Defence, or one that would give him a real prospect of defending the claim. As a result, Summary Judgment was entered against him, giving the company an entitlement to receive back the misappropriated money.

Our Comments on this Case About the Duties of Directors

As solicitors specialising in the law surrounding the duties of Directors, we are well used to dealing with the tactics and strategy of prosecuting and defending such cases, whether in the context of a live company (as here) or (more commonly) in the context of an insolvent/liquidated company.

Despite this decision, based on the particular facts of this case, Directors still have legal arguments, as well as practical and strategic approaches that can be deployed on their behalf, to achieve the best possible settlements in cases such as this, where resolution might otherwise seem totally unattainable or unachievable.

Our insolvency and litigation solicitors here at Neil Davies and Partners regularly advise on and achieve such solutions in such cases. Click here to see some of our testimonials and if you need help and advice in this area, please contact us or call us on 0121 200 7040 for a free initial discussion. There really is ‘No Hole Too Deep’ for us to be able to help make a difference.