The English High Court has rejected a director's argument that liability should be capped at the value of the shortfall in the administration and not the loss caused to the company.

Background

Manolette Partners Plc took an assignment of the claims of the joint administrators of Just Recruit Group Limited (in administration). Manolette pursued a director of the company for the sum of GBP918,590 for breach of duty in making payments to connected companies when the company was insolvent. The director argued that the shortfall in administration was GBP350,000 and as a result this should be the maximum limit of any award. 

Decision

Judge Mullen ordered that the sums claimed be paid in full holding the director and the connected companies jointly and severally liable.  Where the office-holder has assigned a cause of action, to introduce a limit on claims would allow wrong doers to retain a greater proportion of the proceeds of their wrongdoing and would prejudice claimants, as innocent third parties. To place a limit of this nature would also disincentivise potential purchasers of claims, who may have their recovery restricted. 

This judgment will be welcomed by insolvency practitioners and funders as it confirms that claims will reflect the loss caused and will not be limited to the shortfall in the insolvent estate. 

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring & Insolvency team.

Manolete Partners Plc v Freed & Others [2024] EWHC 2242 (Ch)