Directors continue to owe fiduciary duties even after a company has entered administration or CVL

The company had entered administration and subsequently liquidation. The liquidator brought proceedings claiming that the director, Mr Michie had acted in breach of his duties to the company. The case was unusual in that the transactions complained of occurred after the company had entered a formal insolvency process.

The liquidator claimed that Mr Michie had bought company property from the administrators at a substantial undervalue which the liquidator said was a breach of his fiduciary duties. The liquidator also asserted misfeasance and breach of fiduciary duties in respect of payments which Mr Michie caused or allowed to be made to a creditor after administration.

Mr Michie’s Counsel argued that once a company had entered administration or CVL the director’s duties only continued insofar as they were necessary for him to undertake his limited role as a director as permitted by the Insolvency Act 1986.  

The Court was not persuaded by this approach and found that the duties imposed on a director by sections 170 to 177 of the Companies Act 2006 extended beyond the exercise by a director of any given power as a director.  For example a director’s duties to avoid a conflict of interest does not depend on his exercise of a power as a director. Although some of the duties so imposed did not necessarily make sense in an insolvency context, the Court was persuaded that there was sufficient flexibility in those duties. Therefore the duties continue after a company enters administration or a CVL. On the facts of the case the judge found that Mr Michie acted in breach of duty.

This is a welcome reminder to the delinquent directors that they cannot simply walk away from their responsibilities in respect of insolvent companies. From a director's point of view, they should consider resigning in advance of negotiating any management buy-out from an insolvency practitioner.

Hunt (as liquidator of System Building Services Group Limited) v Michie & Others [2020] EWHC

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