Directors' duties and assessing insolvency

Directors' duties and assessing insolvency
When will a respondent director be held liable to repay sums to the company for breaches of duty and how will the courts determine when a company is insolvent?

Original news

Hellard v Carvahlo—HLC Environmental Projects Ltd (in liquidation) [2013] EWHC 2876 (Ch), [2013] All ER (D) 240 (Sep)

The respondent was the former director of a company to which the applicants were appointed as joint liquidators. The applicant's claim was brought under section 212 of the the Insolvency Act 1986 (IA 1986). The applicant claimed relief against the respondent for sums paid out of the company in breach of his duties as a director, in circumstances where the company had substantial creditors and liabilities and without the respondent giving any consideration to the best interests of the company's creditors as a whole.

What happened in the case?

HLC Environmental Projects Ltd (the company) was a holding company for a Portuguese entity and there were also a number of associated companies in the UK. The company's business was conducted through four direct subsidiaries (the group). The group's core business was providing waste management services to public authorities. A number of these projects ran into difficulties.

The company's accounts for 2007 showed that a trend had built up over the years of net current liabilities increasing steadily. Between 2004 and 2007, net liabilities increased from £535,000 to £2.7m. Retained losses and shareholders' deficit also increased. The company also had many contingent liabilities. The company eventually collapsed and joint liquidators were appointed.

What was the claim for?

The applicants' claim (brought under IA 1986, s 212) was for financial relief against the respondent in respect of a number of payments that he caused the company to make between November 2005 and October 2008 (at a time when the company was insolvent) (the payments). The applicants alleged that the respondent h

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