Directors of insolvent company personally liable

An unpaid supplier to a limited liability company in liquidation was successful in damages claims against the company's director and a shadow director. This was despite neither director having provided personal guarantees.

Background

The company had no independent financial resources and the shadow director was its sole funder. The shadow director stopped funding the company and sought to terminate the contract with the supplier.

Not only was this a repudiatory breach of the construction contract but funds which were available had been diverted to a new company that was established by the shadow director to undertake the same business as the company in liquidation.

The supplier brought claims against the director and shadow director for inducing a breach of contract, unlawful means conspiracy and unlawful interference.

Held

The court found that the shadow director was the principal decision maker but that both he and the director attempted to use the company's separate legal personality unreasonably to avoid paying the debt owed.

The shadow director was held liable for inducing a breach of contract and both were liable for unlawful interference. However, there was nothing "unlawful" about the shadow director ceasing to fund the company, so he was not liable under unlawful means conspiracy.

Comment

It is not always necessary to "pierce the corporate veil" for claimants to recover losses from directors personally, and it may be possible to pursue directors on the basis of their own conduct.

Palmer Birch (A Partnership) v Lloyd & Anor [2018] EWHC 2316 (TCC)