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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

01 MAY 2012

GHLM Trading Ltd v Maroo [2012] EWHC 61 (Ch)

(Chancery Division, Newey J, 23 January 2012)

A claim was brought against the former directors of a company alleging various breaches of fiduciary duty. Newey J considered the relevant principles in respect thereof:

(1) Directors' Loan Account: Whilst the burden is on the liquidator to prove that a company director has received company money, it is for the director to show that the payment was proper.

(2) Preference Payments: Where creditors' interests are relevant, it will be a breach of fiduciary duty to advance the interests of a particular creditor without believing the action to be in the interests of the creditors as a class. Whether or not s 239 of the Insolvency Act 1986 is in point cannot be determinative since a director responsible for a fraudulent preference will not necessarily commit a breach of duty.

However, the applicability of s 239 of the Insolvency Act 1986 may have a bearing on what, if any, remedy is available in respect of the breach of duty. Accordingly, where a factual preference is not caught by s 239 of the Insolvency Act 1986, it will be necessary to demonstrate that (1) the company has suffered loss; (2) the director has profited (so that the ‘no profit' rule operates); or (3) the transaction in question is not binding on the company.

(3) Own Wrongdoing: It can be incumbent on a director to reveal his own wrongdoing as part of his ‘fundamental duty to act in what he in good faith considers to be the best interests of his company'. However, as that duty is subjective, the complainant must establish that the director subjectively concluded that disclosure of his wrongdoing was in his company's interests or, at least, the director would have so concluded had he been acting in good faith.

More generally, there was no reason to restrict the necessary disclosure to the directors' misconduct. Were a director subjectively to consider that it was in the company's interests for something other than misconduct to be disclosed, he would, it appears, commit a breach of his duty of good faith if he failed to do so.

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