Directors who seek to undermine creditors’ rights by extracting cash from insolvent companies rarely get away with it and, as a High Court ruling showed, they can expect to be pursued for recompense, even to beyond the grave.
The case concerned payments totalling £128,920 made by a company that was at the time facing a substantial Employment Tribunal (ET) claim. Some of the money was paid in connection with the purchase of a car for the company’s sole director whilst the balance was paid into his personal bank account. Shortly after the payments were made, he resolved to place the company in liquidation.
The director later died. However, that did not prevent the company, via its liquidator, launching proceedings against his estate under the Insolvency Act 1986. His authorisation of the payments was alleged to amount to misfeasance and to affording himself an unfair preference over the company’s creditors.
Ruling on the matter, the Court had no doubt that the company was insolvent when the payments were made. On the Court’s reading of the evidence, the director acted in a thoroughly dishonest manner, fully intending to defeat the company’s creditors’ claims – principally that of the former employee who was pursuing the ET proceedings – whilst retaining the core business for himself.
The Court found no legal impediment to entering judgment for the full amount of the payments, plus interest of more than £20,000, against the director’s estate. Given that the estate was itself insolvent and being administered in bankruptcy, however, the Court acknowledged that enforcement of the judgment was currently barred by operation of Section 285(3) of the Act.