See also: UK company law, Directors' duties in the United Kingdom, Directors' duties, Misfeasance, and CDDA 1986
Under the Insolvency Act 1986 section 212,[171] a liquidator or administrator can bring a claim for summary judgment in the company's name to vindicate any breach of duty by a director owed to the company. This means the directors' duties found in the Companies Act 2006 sections 171 to 177, and in particular a director's duty to act within her powers, her duty of care and duty to avoid any possibility of a conflict of interest. "Director" in this sense is given a broad scope and includes de jure directors, who are formally appointed, de facto directors who assume the role of a director without formal appointment, and shadow directors, under whose directors the official directors are accustomed to act.[172] The candidates for de facto or shadow directors are usually banks who become involved in company management to protect their lending, parent companies, or people who attempt to rescue a company (other than insolvency practitioners). In Re Paycheck Services 3 Ltd a majority of the Supreme Court held that acting as a director of a corporate director cannot make someone a de facto director unless they voluntarily assume responsibility for a subsidiary company.[173] Similarly to be shadow director, according to Millett J in Re Hydrodam (Corby) Ltd[174] it is not enough to simply be on the board of a parent company.
As an emphasis to the standard codified list of duties, and now reflected in the Companies Act 2006 section 172(4), at common law the duty of directors to pay regard to the interests of creditors increases as a company approaches an insolvent state. While ordinarily, a director's duty is to promote the company's success for the members' benefit,[175] in the vicinity of insolvency a director's actions affect the financial interests of the creditor body the greatest.[176]
Because the misfeasance provision reflects causes of action vested in the company, any money recovered under it is held so that it will go to pay off creditors in their ordinary order of priority. In Re Anglo-Austrian Printing & Publishing Union[177] this meant that a liquidator who had successfully sued directors for £7000 had to give up the funds to a group of debenture holders, who had not yet been paid in full, so there is no discretion to apply the assets in favour of unsecured creditors. A potential benefit is that because the causes of action are vested in the company, they may be assigned to third parties, who may prefer to take the risk and reward of pursuing litigation over the liquidator or administrator.[178] These features are the reverse for money recovered through the statutory based causes of action of fraudulent and wrongful trading.
Unlawful trading
[show]
Under the Insolvency Act 1986 section 212,[171] a liquidator or administrator can bring a claim for summary judgment in the company's name to vindicate any breach of duty by a director owed to the company. This means the directors' duties found in the Companies Act 2006 sections 171 to 177, and in particular a director's duty to act within her powers, her duty of care and duty to avoid any possibility of a conflict of interest. "Director" in this sense is given a broad scope and includes de jure directors, who are formally appointed, de facto directors who assume the role of a director without formal appointment, and shadow directors, under whose directors the official directors are accustomed to act.[172] The candidates for de facto or shadow directors are usually banks who become involved in company management to protect their lending, parent companies, or people who attempt to rescue a company (other than insolvency practitioners). In Re Paycheck Services 3 Ltd a majority of the Supreme Court held that acting as a director of a corporate director cannot make someone a de facto director unless they voluntarily assume responsibility for a subsidiary company.[173] Similarly to be shadow director, according to Millett J in Re Hydrodam (Corby) Ltd[174] it is not enough to simply be on the board of a parent company.
As an emphasis to the standard codified list of duties, and now reflected in the Companies Act 2006 section 172(4), at common law the duty of directors to pay regard to the interests of creditors increases as a company approaches an insolvent state. While ordinarily, a director's duty is to promote the company's success for the members' benefit,[175] in the vicinity of insolvency a director's actions affect the financial interests of the creditor body the greatest.[176]
Because the misfeasance provision reflects causes of action vested in the company, any money recovered under it is held so that it will go to pay off creditors in their ordinary order of priority. In Re Anglo-Austrian Printing & Publishing Union[177] this meant that a liquidator who had successfully sued directors for £7000 had to give up the funds to a group of debenture holders, who had not yet been paid in full, so there is no discretion to apply the assets in favour of unsecured creditors. A potential benefit is that because the causes of action are vested in the company, they may be assigned to third parties, who may prefer to take the risk and reward of pursuing litigation over the liquidator or administrator.[178] These features are the reverse for money recovered through the statutory based causes of action of fraudulent and wrongful trading.
Unlawful trading
[show]
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