Personal liability for directors

Company directors face many rules and regulations during their day to day working life, and most certainly at a time of their company going into administration or liquidation.

The recent case of Oxford Pharmaceuticals Ltd (2010) involved a company that had gone into liquidation, the directors of which were found to have breached numerous provisions of the Insolvency Act, namely in relation to misfeasance and preferential payments. Misfeasance involves a wide range of potential breaches ranging from a director intentionally misapplying company funds once winding up has started to a director failing to comply with any number of the fiduciary obligations that they owe to the company and its creditors.

In this case, the breaches occurred by the directors failing to comply with their fiduciary duty, to act in the best interests of the company and its creditors and also by making a preferential payment with the intention to benefit one creditor over the other. The Court ordered, quite emphatically, that the director who had made the preferential payment be ordered to repay the £450,000 sum paid out.

As a result of a second director failing to act in the best interests of the company, the director was thus found liable under the misfeasance provisions of the Insolvency Act. The director involved was ordered to pay £115,000 towards the company’s assets reflecting the payments he had made in breach of the misfeasance provisions. The director was found to be unable to benefit from the defence available under s.1157 of the Companies Act 2006 as it was held that the director had not acted honestly and reasonably and thus could not warrant evasion of the penalty involved.

Such a case clearly demonstrates that the Courts are clearly prepared to investigate into allegations of such breaches to ensure that directors fulfil their duties to their company and its creditors to the very end.