Author
Lorna Bramich

Lorna Bramich

Senior Associate

Read More
Author
Lorna Bramich

Lorna Bramich

Senior Associate

Read More

5 August 2022

R&I Update - August 2022 – 3 of 7 Insights

Can a UK liquidator claim breach of duty against a director when the company has been fined for the same misconduct?

  • Quick read

In Stratford Hamilton (joint liquidator of Mobigo Ltd (in liquidation)) v James Mcateer, Teresa Delgaudio [2022] the court dismissed the directors' application to strike out misfeasance claims against them. 

Background 

  • Mobigo was an internet subscription service.  The regulator, Phone-Paid Services Authority Limited ("PSA") fined Mobigo £250,000 for i-frame masking and petitioned for Mobigo's winding-up for non-payment. 
  • The Liquidators of Mobigo began misfeasance proceedings against Mobigo’s two directors for breach of their directors' duties. 
  • The directors applied to strike out the proceedings, on grounds that the company could not recover from them a fine issued for its own misconduct - the "illegality defence" (Safeway Stores Ltd v Twigger) and, if the directors had breached their duties, their actions were approved of by one of them as sole shareholder and therefore ratified (the Duomatic principle).

Decision 

  • The prohibition in Safeway was due to the unusual applicable statutory regime which imposed the prohibition and penalty only on the company. 
  • The Judge was not satisfied that the regulatory framework here and the conduct of the directors excluded the possibility of recovery from the directors for breach of duty. 
  • The application of Safeway and the Duomatic principle (which does not apply to an insolvent company) must be considered in the context of the complete factual picture at trial as both raise questions of law that are fact sensitive. 

Key takeaways 

  • A liquidator may claim for breach of duty against a director where a company has been fined for the same misconduct, but this will turn on the factual context.  
  • Issues which raise questions of law that are developing and are fact sensitive are not suitable grounds for strike out. 

Find out more 

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

 
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