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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

07 JUN 2012

Guest Post by Stephen Hunt: "Limitation starts to run from the date of the breach of duty by a director"

So it was held in Eurocruit Europe Ltd (In Liquidation) sub nom Ashley v Poppleton, Ch D, 21/6/2007. But further reading of that case suggests that this is not the final word on the point. There is a lot of unexplored territory around this subject and it could lead to valuable assets being rediscovered by insolvency practitioners.

One employment case in particular interests me. Item Software (UK) Ltd v Fassihi & Ors [2004] EWCA Civ 1244 which was confirmed at the COA.

The Court of Appeal held that Fassihi's position as a director and his fiduciary relationship with his employer meant he had a duty to act in what he, in good faith, considered to be the best interests of the company. This duty included an obligation to disclose his own misconduct to his employer.

In the ruling - "One route by which it might be concluded that Fassihi had a duty to disclose his own wrongdoing is that no logical distinction can be drawn between a rule that an employee must disclose his own wrongdoing and a rule that he should disclose the wrongdoing of fellow employees even if that involves disclosing his own wrongdoing too."

Exerpts from the relevant parts of s.32 Limitation Act 1980 -

Postponement of limitation period in case of fraud, concealment or mistake..

(1) .... where in the case of any action for which a period of limitation is prescribed by this Act...(b)any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant....

the period of limitation shall not begin to run until the plaintiff has discovered the... concealment or could with reasonable diligence have discovered it.

(2)For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.

So, to kick off a debate, how best could a officeholder use this section to restart the 6 years running on a breach of duty? My suggestion would be to have a specific and comprehensive part of the initial questionnaire to the director. I would set out the above cases and the statute and then require detailed and specific disclosure of every breach of duty from whatever date. I would ask for evidence that disclosure had been made to the company for each and every breach. I would also advise them to take their own legal advice about these questions.

It has to be made clear that for Limitation to have not begun running the concealment must be deliberate and so the officeholder must press hard on the duties to disclose assets under s.235 IA86 and give the director all opportunities to 'remember' the breach by having access to the paper records etc. I would make it clear to the director that if a breach is found to have occurred that was not dislcosed atthis stage then the purpose of this part of the questionning is to deny them the defence of pleading limitation in the future.

It puts the director in an invidious position and on the whole he would probably choose to remain silent than hand the claims on a plate to the officeholder. Therefore this is mainly an exercise in doing enough to trigger s.32(2) LA80. In Eurocruit, concealment was raised in the context of answers given at a s.236 interview, but s.235 duties and questions in writing seem much stronger.

Would that work? Anyone got any better ideas?

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