UK court confirms where burden of proof lies in directors' duties cases

In Re City Build (London) Ltd (in liquidation) [2022] EWHC 364 (Ch), the Court confirmed that the burden of proof in directors' duties cases, and in cases alleging a transaction at an undervalue, lies with the applicant.

Background

A litigation funder, as the assignee of the claims by the liquidator, brought proceedings against:

• a director of two companies, alleging a breach of directors' duties in making certain payments, and that those payments were transactions at an undervalue
• the two recipients of those payments, claiming one of the recipients was a de facto or shadow director (ie acting as a director but not validly appointed and controlling the board behind the scenes).

Decision 

The applicant failed to prove that:

• The recipient was a de facto or shadow director. Where it is unclear if a person is acting as a director, that person is entitled to the benefit of the doubt.
• The payments were "by way of gift or on terms that the [company] received either no consideration or consideration, the value of which, in money or money's worth was less than the consideration given away by the [company]". The Court did not agree that the recipients were required to prove that the payments were made for sufficient consideration. 

Key takeaways

In cases such as this, directors do not bear the burden of proof. Applicants must provide sufficient evidence to prove their case.  

Find out more

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