In this week's update: directors implementing a management buy-out did not owe fiduciary duties to the other shareholders and a distribution was valid despite the relevant accounts not being in the usual format.

Directors did not owe fiduciary duty to shareholders

The High Court has held that the directors of a company did not owe a fiduciary duty to the company’s shareholders when implementing a management buy-out (MBO).

What happened?

In this week's update: a distribution was valid despite discrepancies in the accounts justifying the dividend and an examination of vexatious resolutions.

Court considers whether demerger by dividend was valid (part 2)

The press reported recently that British Steel Limited had been placed into compulsory liquidation putting 5,000 jobs at risk. The Official Receiver took control of the company as part of the liquidation process. We understand that British Steel Limited continues to trade normally, but the limited company was transferred to the Official Receiver because the company did not have sufficient funds to pay for an administration.

A statement from the Official Receiver reported

Reliance Wholesale Ltd v AM2PM Feltham Ltd [2019]

In the recent case of Reliance Wholesale Ltd v AM2PM Feltham Ltd, the High Court provided some much needed guidance and clarification as to how the Court should approach the issues of costs

when a petition debt is dismissed following a payment in full being made by the debtor company, even when such a payment is made ‘under protest’ with no admission of liability as to the petition debt.

Background

Insolvency is a common issue in the construction industry. While newspaper headlines frequently focus on the top ten to 15 large contractor insolvencies, this is not reflective of how insolvency impacts the industry as a whole.

In all construction projects, there is a long tail of smaller contractors that are adversely impacted by an insolvency event that occurs further up the chain. As a result, when parts of the supply chain fall apart, the tremors can be felt by large sections of the industry.

The Directors of a Company that cannot pay its debts can choose to put the Company into voluntary liquidation. Indeed Directors have statutory responsibilities not to permit a Company to trade insolvently. If they allow the Company to trade insolvently they can become personally liable for the debts.

A creditor can also put a company debtor into compulsory liquidation. The amount owed must be not less than £750 and the creditor must either have an admission that the debt is owed, or a Court judgment.

With the introduction of electronic filing which allows parties to file documents at court 24/7 we consider the recent case of Wright v HMV Ecommerce Limited (2019) in which the court was asked to confirm whether administrators were validly appointed following the directors filing a notice of appointment after the court office was closed.

The Electronic Working Pilot Scheme (“EWP“) Practice Direction came into effect in 2015, initially in the London region. It now applies in all Business and Property Courts in England and Wales from 30 April 2019.

As the insolvency profession in Scotland continues to get to grips with the new corporate insolvency rules, Re Sprout Land Holdings Ltd (in Administration) serves as a timely reminder not to forget the basics when dealing with the appointment of administrators by the directors of a company.

This is often a question for faced by office-holders of insolvent companies when investigating a company’s affairs, and more of a concern for former directors and shareholders when potentially facing a claim for the return of unlawful dividends or misfeasance.

The recent decision of the English High Court in the case of Fry v Sherry [2012] (In the matter of Ruscoe Ltd (In Liquidation)) serves as a timely reminder of the potential personal liabilities faced by directors should they breach their fiduciary duties. 

Summary of the facts