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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

08 JUL 2009

A de facto director of 42 insolvent companies? Holland v Revenue and Customs & Anor [2009] EWCA Civ 625 (02 July 2009)

In a previous blog entry I mulled on the position of de facto directors, corporate directors and insolvent companies. This area has now been considered in an insolvency context by the Court of Appeal in Holland v Revenue and Customs & Anor [2009] EWCA Civ 625 (Rimer, Ward, Elias, LJJ). The case is one of numbers; 4 judges, an 80 page first instance decision, A 143 paragraph appeal court decision, 42 originating applications, 42 insolvent companies, unlawful dividends totaling £13,000,000. The case involves s.212 of the Insolvency Act 1986 (IA86) and allegations that, as de facto directors of 42 insolvent companies, Mr and Mrs Holland had been guilty of misfeasance and breaches of duty in causing the payment of unlawful dividends totaling some £13m. The pertinent section of the IA86 notes:

"212.— SUMMARY REMEDY AGAINST DELINQUENT DIRECTORS, LIQUIDATORS, ETC.

(1) This section applies if in the course of the winding up of a company it appears that a person who—

(a) is or has been an officer of the company,

(b) has acted as liquidator [...] or administrative receiver of the company, or

(c) not being a person falling within paragraph (a) or (b), is or has been concerned, or has taken part, in the promotion, formation or management of the company, has misapplied or retained, or become accountable for, any money or other property of the company, or been guilty of any misfeasance or breach of any fiduciary or other duty in relation to the company.

...

(3) The court may, on the application of the official receiver or the liquidator, or of any creditor or contributory, examine into the conduct of the person falling within subsection (1) and compel him—

(a) to repay, restore or account for the money or property or any part of it, with interest at such rate as the court thinks just, or

(b) to contribute such sum to the company's assets by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just..."

On the de facto point it is noted at paragraph 6: "Mr Holland was not a de jure director of any of the companies: the sole director of each was a company of which he was a director. But the judge found that he was a de facto director of each company and so was answerable to HMRC's claim under section 212. Mr Holland challenges that finding as wrong"

On the corporate director point it is noted at paragraph 65 that, "I respectfully accept that that is the crucial issue and also that it matters not what the individual is called but what he does. What we were not shown, however, was any authority in which someone who acted as a director of the sole corporate director of a company was, merely by so acting, regarded also as a de facto director of the subject company; and the general statements in the authorities as to the badges of de facto directorship cannot, in my judgment, be treated as deciding that someone so acting will automatically also be so regarded, because they were all focused on different circumstances. The only authorities cited to us that lend any assistance on the question were Hydrodam and Nuttall, although in both the claim of shadow or de facto directorship failed."

The Court of Appeal overturned the first instance decision of Mr Mark Cawson QC (sitting as a deputy High Court judge of the Chancery Division) holding that Mr Holland was not a de facto director of the 42 insolvent companies. An interesting aside arises from the judgment, at paragraph 36 it is noted: "I know John Tallon QC will not give a view on this (he made clear to us he was not an insolvency man)." Mr Tallon is a tax man. He who knows he doesn't know knows most!

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