Representatives of a lender on a board will not automatically impose directors' duties on the lender, but they may apply where a director's specific instructions have led directly to a breach of fiduciary duty. The High Court recently explored this issue in an appeal in the case of Standish v Royal Bank of Scotland plc.⁽¹⁾

Facts

In the Matter of System Building Services Group Limited (In Liquidation) [2020] EWHC 54 (Ch), the court confirmed that a director’s fiduciary duties continued after the appointment of an administrator or liquidator and that the subsequent purchase from the administrator/liquidator of a property at an undervalue was in breach of those duties. As a result, the property was declared to be held by the director on a constructive trust for the company.

We previously considered the potential implications for insolvency professionals of the rise of cryptocurrencies (available here). One of the principal issues identified was the uncertainty surrounding the legal status of cryptocurrencies; what class of asset were they and, subsequently, how would they be treated under English law?

A winding up petition is a legal document that can be served by a company’s creditors when they are owed money by the company. If the debt amounts to £750 or more, then a creditor has the right to go to court and ask for a winding up petition to be issued, although courts view this remedy as something that should be reserved for when a company is genuinely believed to be insolvent, and not simply used as a means of debt collection.

Restructuring & Insolvency analysis: In Re C A & T Developments Ltd, the court found that the appointment of administrators had been motivated by an improper purpose and the purpose of the administration could not be achieved. In an application under Paragraph 81 of Schedule B1 to the Insolvency Act 1986 (IA 1986), the court therefore ordered the administration to end and the company to be wound up compulsorily.

This judgment is an important one. It concerned an application by the joint liquidators of Comet (formerly joint administrators) for directions permitting them not to carry out any further investigation into the validity of the fixed and floating charge held by a single purpose vehicle (“HAL”) that had been granted by Comet under a year before it collapsed into administration. The joint liquidators also sought a direction that they be permitted to transfer a further tranche of funds to HAL that had been realised in the administration.

Are the regimes of construction adjudication and insolvency incompatible? Recent Court of Appeal authority suggested that they are, but in Meadowside Building Developments Ltd (In Liquidation) v 12-18 Hill Street Management Company Ltd [2019] EWHC (TCC), Adam Constable QC sitting as a district judge in the high court has clarified the exceptional circumstances in which a company in liquidation can enforce an adjudicator’s decision in its favour.

The case of Hunt (as Liquidator of System Building Services Group Ltd) v Michie & Ors [2020] EWHC 54 (Ch) examines whether directors’ duties continue after the company has become insolvent and confirms that they do, bringing welcome clarity to the point. As such, Insurers will need to review their policies to make clear if they wish to cover this risk.

Systems Building Services Group Ltd, Re [2020] EWHC 54 (Ch)

Liquidation is not a panacea for the relevance and application of directors' duties. A practical example of which involves a director of a company in insolvency procuring and agreeing to an off-market sale of a property to himself by a rogue IP at a price which he knew to be a significant undervalue.

Section 239(5) of the Insolvency Act 1986 (the “1986 Act”) limits the jurisdiction to reverse a preference to situations where “the company which gave the preference was influenced in deciding to give it by a desire to produce” the prohibited result. This involves a subjective enquiry which turns on the relevant actor’s state of mind.