Directors of companies incorporated in England and Wales must be mindful of their duties and responsibilities to the company as well as the potential personal liability that could arise from breaching those duties and responsibilities in the context of an insolvency.

With the current financial difficulties faced by the oil & gas industry, this issue is especially pertinent to that sector.

Over the past 15 years or so, one of the most commonly recurring themes in my practice has been advising both insolvency practitioners and directors on the prospects of legal proceedings being pursued for breach of director duties and/or wrongful trading. Very often the two claims are put together for the purposes of an actual or threatened claim, and very often sitting behind the scenes as well is a possible investigation and/or claim that one or more directors should be disqualified.

Introduction

Recent weeks have seen a number of decisions concerning liquidations – in this article we explore three of the more interesting ones.

1)  Overseas application of s.213 - Jetivia SA and another v Bilta (UK) Ltd (in liquidation) and others [2015] UKSC 23

On 22 April 2015 the Supreme Court handed down its judgment in the case of Jetivia SA and another v Bilta (UK) Ltd (in liquidation) and others [2015] UKSC 23, which was heard in October last year.  In short it decided that: 1) defendant directors cannot raise illegality as a defence to a claim by a company where the directors themselves acted wrongfully; and 2) a claim in fraudulent trading under Section 213 of the Insolvency Act 1986 (Section 213)has extra-territorial effect.

Background

Where a company brings a claim against its directors for losses caused by their wrongdoing, the Supreme Court has confirmed the established position that directors cannot escape the claim by arguing that their actions are attributed to the company itself on the basis that the directors were acting as the agents of the company. 

The Supreme Court recently handed down its judgment in Jetivia SA and another v Bilta (UK) Ltd (in liquidation) and others [2015] UKSC 23. The Court was unanimous in dismissing the appellants’ case that the claimants’ claims against them should be struck out on the grounds of illegality and on the basis that section 213 of the Insolvency Act 1986 does not have extra-territorial effect.

The Supreme Court has confirmed in Jetivia v Bilta that where a company brings a claim against its directors for losses caused by their wrongdoing, the directors cannot escape the claim by arguing that their actions are attributed to the company itself.

The Supreme Court also held that s.213 of the Insolvency Act, (which permits the Court to take action against those who  have conducted the business of a company in order to defraud creditors) was not jurisdictionally confined and applied to people and companies resident outside the UK.

In general terms, section 110 of the Small Business, Enterprise and Employment Act 2015 (the 2015 Act) amends the provisions of the Company Director Disqualification Act 1986 (the CDDA 1986) in relation to directors’ disqualification.

One of the changes introduced is that the Secretary of State will be able to apply to the court for a compensation order against a director who has been disqualified where creditors have suffered identifiable losses from the director’s misconduct¹.

The fortunes of agricultural businesses across the world have always been vulnerable to natural and economic forces such as climate change, world commodity pricing and exchange rate movement. Nowhere is this more evident today than in the current crisis facing the UK dairy farming industry where the unique political and environmental conditions of 2014 have driven milk prices down to some of the lowest levels seen in recent years testing the viability of many of the country’s dairy farmers.