John Szepietowski reviews Paul Atkinson & Glyn Mummery (As Joint Liquidators of Solid Homes Ltd) (Applicants) v (1) Rodney Adu Kinglsey & (2) Sharon Maria Smith (Respondents)

The High Court heard proceedings commenced by the Joint Liquidators of Solid Home Limited (the ‘Company’) against the former directors of the Company who were also the shareholders. The claim concerned the Respondents’ alleged breach of their directorial duties owed to the Company pursuant to sections 171, 172, and 174 of the Companies Act 2006 (the ‘Act’).

The case concerns a transfer of funds of £83,000.00 from the Company’s bank account to a third-party with authorisation from the First Respondent (the ‘First Payment’). The Liquidators put forth that no consideration was provided for the payment. However, as the First Respondent had been declared bankrupt, the Applicants sought to recover the funds from the Second Respondent.

At a later date, the Liquidators included two further payments of £60,000.00 (the ‘Second Payment’) and £31,126.00 (the ‘Third Payment’) made by the Company to the Second Respondent which they claimed to be in breach of the Company’s Articles of Association on the basis that the Company had insufficient profits at the time to make such a distribution. The Second Respondent addressed the Liquidators’ claims by asserting that the First and Second Payments were made as dividends to the Respondents, whilst the Third Payment was monies owed from the Company to a partnership whom she reimbursed on behalf of the Company.

Furthermore, the Liquidators contended that the Second Respondent should have taken anticipatory measures to have prevented the First Respondent from having the authorisation to transfer such funds on behalf of the Company. The reasoning for the Liquidators’ assertion was based on the unamicable and deteriorating relationship between the First and Second Respondent. The incidence of the First Payment steered the Second Respondent to implement subsequent measures which required dual signatories from both Respondents prior to the transfer of funds from the Company.

Section 172 of the Act obliges the directors of a company to act in a way they consider to be in good faith, and which would most likely promote the success of the company. This duty encompasses both subjective and objective aspects, however, in these circumstance the objective test is applicable due to the lack of evidence of actual consideration of the company’s interest. Therefore, the relevant legal consideration is whether an intelligent and honest person in the position of a director could, in the circumstances, reasonably have anticipated that their act or omission was in the company’s interest.

It was found, by the court, that the First Respondent’s actions could not have been reasonably anticipated as there was no prior indication that the transfer would be unlawful as it was a common occurrence that dividends be paid by the Company to the Respondents in that manner.  The court considered that the First Payment did not advance the Second Respondent’s personal interests; and, the presumption that the First Respondent would defy the directors’ duties pursuant to the Act on the basis that the Respondents disagreed on a Company matter rightly did not amount to the Second Respondent automatically restricting the First Respondent’s control of the Company’s account. In any event, the court held irrespective of the Second Respondent’s liability, she ought to be discharged of such responsibility on the basis she acted honestly and reasonably considering the circumstances of the matter.

Please contact John Szepietowski at Audley Chaucer for details on this matter or any other legal topic

Larissa Bourgi

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