Attribution of company’s loss to misfeasant director; crystallisation of loss and calculation of interest

The liquidators had brought misfeasance proceedings against Mr Rich, the sole director of the company. Mr Rich had caused the company to acquire a number of vehicles and then supply these to associates of the company’s shadow director. The terms of supply were uncommercial and largely undocumented. The liquidators also sought interest.

At first instance the judge found that Mr Rich had been misfeasant, but was only prepared to award 75 per cent of the loss actually suffered by the company as a proper and just contribution pursuant to Section 212(3) Insolvency Act 1986. Alternatively he abated the award by 25 per cent pursuant to Section 1157 Companies Act 2006. He awarded interest, but only from the date of the company’s liquidation.

The liquidators appealed.

On appeal, the court held in favour of the liquidators. This was a case where the director mindlessly and intentionally implemented a series of transactions to which he gave no thought and failed to make sure that monies were recovered for the company. In those circumstances the judge did not consider that it was open to a court to find that Mr Rich was liable for anything other than the whole of the loss which resulted from this conduct. The appeal court decided that the judge was wrong and that Mr Rich should be liable for 100 per cent.

In relation to the calculation of interest, the appeal court decided that the deputy judge at first interest was wrong to decide that the loss only crystallised when the company went into liquidation and this was the date from which interest should run. In principle the loss was incurred when the company parted with property in an uncommercial and unjustifiable transaction in circumstances when it was not clear what, if any, payments should be made.

In the matter of DCL Hire Limited (in liquidation) Dumville and Clunie –v- Rich [2019] EWHC 2086 (ChD)

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