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Misfeasance Claim Win by our Insolvency Litigation Solicitors

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Success for Neil Davies and Partners in a heavily contested Misfeasance Claim Trial for our Liquidator Client against a Director Resulting in a £900,000 Plus Judgement

Summary of this Misfeasance Claim Case. This recent case outcome details how we, as corporate insolvency litigation specialists, succeeded in successfully pursuing a Misfeasance claim against a company Director.  As part of the £900,000 plus Judgement, our Liquidator client also obtained a declaration from the High Court that the Director’s home, which he had purchased  in the name of him and his wife, was an asset of Greenbuy Energy Limited (‘the Company’) and thus available to the Liquidator.

We often act for Liquidators who are looking to bring misfeasance claims against Directors. These claims are often complicated pieces of litigation involving complex financial transactions. This is a case that truly evidences our belief that we deliver ‘results through experience.’ 

The Details of the Liquidator’s Claim

We were instructed by the Liquidator of the Company to investigate and then pursue a claim against the Company’s Director for repayment of his overdrawn Director’s Loan Account (‘DLA’) as well as for Misfeasance, as a result of his moving money out of the Company to other companies he had control of and even to his own bank accounts, to put the same out of reach of the Company’s creditors.

The Liquidator also (successfully) claimed that the Director’s family home had been purchased with Company money and was rightfully an asset of the Company.

The Company went into Administration on 7 July 2015 with debts of over £3.2m. The Company’s Creditors were particularly aggrieved about the sudden demise of the Company.

What Did Our Misfeasance Lawyers do?

We worked with specialist Counsel to settle a High Court Application and evidence in support (‘the Application’) claiming about £1m against the Director and his wife, seeking Orders that:

  1. The Director’s property (which was in the name of the Director and his wife) was held on Trust for the Liquidator as an asset of the Company. The equity in this property was estimated at £90,000 – £100,000;
  2. The Director repay to the Company his overdrawn DLA in the sum of around £200,000;
  3. The Director was guilty of Misfeasance under section 212(1) of the Insolvency Act 1986 for making various payments out of the Company valued at £450,000.

What is Misfeasance?

‘Section 212 of the 1986 Insolvency Act: Summary remedy against delinquent directors, liquidators, etc.

  • This section applies if in the course of the winding up of a company it appears that a person who:
  • is or has been an officer of the company, has misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company.’
  1. The Director pay interest on 2 and 3 above valued at around £20,000;
  2. That the Director and his wife pay the Liquidator’s Legal Costs.

Our Litigation Action was Defended

The Director and his wife defended the Application with the help of their Insolvency Litigation Solicitors. They opposed every part of the Application.  Part way through the litigation, their Solicitors came off record and they began acting in person. That continued until Trial in early 2018.

Failure by the Director to Disclose Bank Accounts

The Director was ordered to provide full and frank disclosure. The Liquidator had identified a bank account that the Director had not disclosed into which it appeared that up to £0.5m of Company money had been transferred.

The Director denied the existence of this bank account.  We were required to apply for and obtain a Court Order to resolve that matter. The account was later traced by the diligent work of the Liquidator and that was instrumental in the case outcome.

Failure by the Director to Disclose Tax Returns

The hidden bank account was just one issue we faced. The Director also failed to disclose his tax returns despite the Court ordering him to do so. This required us to make an application for specific disclosure of documents (made) and, when that was not complied with, an application for an ‘Unless’ Order (made). This was an Order that was again ultimately breached by the Director although this did not stop the Trial from going ahead.

Despite taking nearly 2 years from the date of issue (for the reasons set out above) the matter was eventually listed for Trial in February 2018. The Director and his wife represented themselves.

The Outcome of this Insolvency and Misfeasance Claim Trial

The Liquidator succeeded on all aspects of her Application. Mr Edward Pepperall QC, sitting as a Deputy High Court Judge, held that:

  1. The property was indeed held on Trust for our Liquidator client with our client having a right to possess and sell the same within three months;
  2. The Director was liable to repay the Company the sum of £196,333.35 in respect of his overdrawn DLA;
  3. The Director was liable in Misfeasance and ordered to repay the Company £450,000;
  4. The Director was ordered to pay £20,771.20 in interest;
  5. The Director and his wife were ordered to pay the Liquidator’s legal costs estimated at over £160,000 with an immediate £50,000 interim payment.

Commentary by our Misfeasance Claims Lawyers

The High Court’s decision represents a significant win for the Liquidator.

Neil Davies, NDP Director, who led the NDP team and who acted for the successful Liquidator in this case said:

“This case shows that Directors who ignore Insolvency Act and Companies Act requirements and who wrongly apply company funds can expect to be successfully challenged by office holders, on behalf of Creditors.

The Director and his former Partner could and should have settled these claims at the beginning, without the need for litigation.  They did not do so and will now have to face the costs consequences of not having done so.

Our Liquidator client worked extremely hard to get the evidence together  to get this legalaction off the ground and to enable it to be pursued on behalf of the general body of aggrieved creditors in this case.”

The Judgement

A copy of the Judge can be accessed by clicking this link….Greenbuy Energy Ltd [2018] Judgement

This case study shows how our Insolvency Litigation and Misfeasance Claim Specialists worked with the Liquidator to get the desired outcome. Click here to see some testimonials for our work in this area and contact us or call us on 0121 200 7040 for help and advice in this area.

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