Directors Duties Can Survive Insolvency

A few weeks ago the Courts handed down Judgment in Systems Building Services Group Limited [2020] EWHC 54 (Ch), which may have long reaching consequences for the Insolvency Profession, and also directors.

The background to this case is that the Company was initially placed into Administration, which then converted to a Creditors Voluntary Liquidation.

During this initial period a property was sold to the director, the liquidation was closed, and the Company was dissolved.

The Company was restored to the Register at Companies House several years later, and another Liquidator was appointed.  That Liquidator brought a claim against the director on the basis that he purchased the property at a significant undervalue.

The Court ruled that the director must have known that he was purchasing the property at a significant undervalue and he was ordered to pay compensation to the Company.

This Judgment is important because it means that directors duties survive insolvency.  Secondly it means that it is possible to unpick sales by Administrators and Liquidators, long after the event, if the assets were sold to a connected party at an undervalue.

This Judgment highlights the importance of dealing with the sale of assets from insolvent companies properly, which includes proper valuations, by suitably experienced valuers and the Insolvency Practitioner dealing with the matter correctly and instructing the right valuer.

This decision comes not long after the ruling in Brewer & Anor v Iqbal [2019] EWHC 182 (Ch), where the Courts were very critical of the Insolvency Practitioner, selling the assets at a significant undervalue.

With more and more scrutiny being placed on pre-pack sales and phoenix companies, making sure everything is done correctly has never been more important.

For example, if you are dealing with specialist items, you need to go to valuers with suitable experience.  Sometimes more than one valuation will be appropriate, even if it comes to the same figure.  That second valuation will be a good insurance policy, should the Insolvency Practitioner or director ever need to justify their actions.

One thing that I have always done is to contact the local Official Receiver’s Office where the Company is based and ask them what valuer or agent they use or recommend. I have always taken the view that if the Government is using a particular valuer then they will be reputable.

To find out more about Phoenix Companies and Pre-Pack Administration, please click on these links to take you to the relevant pages of our website.

If you need assistance with your limited company and are looking to do a pre-pack, or have a phoenix company, or would just like some free general insolvency advice, contact Chris Parkman on 01326 340579 or chris@purnells.co.uk