Directors’ duties in insolvency—paramountcy of creditors’ interests (Re Micra Contracts Ltd (in liquidation))

Directors’ duties in insolvency—paramountcy of creditors’ interests (Re Micra Contracts Ltd (in liquidation))

In Re Micra Contracts Ltd (in liquidation) the court examined directors’ duties with respect to company insolvency and clarified the fiduciarynature of such duties. Christopher Brockman, barrister at Guildhall Chambers, examines the case and concludes that the courts are increasingly willing to focus on the paramountcy of creditors’ interests as whole when a company is insolvent.

Original news

Re Micra Contracts Ltd (in liquidation) [2015] Lexis Citation 165, [2015] All ER (D) 24 (Aug)

The applicants, in their capacity as liquidators of Micra Contracts Ltd (the company), brought a misfeasance application, under section 212 of the Insolvency Act 1986, against the respondent directors. The Companies Court held that, among other things, whether the subjective or objective test was applied, on the evidence, the respondents had acted in breach of their duties under section 172 of the Companies Act 2006 (CA 2006). The court proposed to order that the respondents restore the sum of £72,225.66 to the company.

What was the background to the application briefly?

The misfeasance application was brought by the liquidators of Micra Contracts Limited (Micra) against its three directors for breach of duty. In 2008, Micra ran into financial difficulty as a result of failures in relation to a building contract on which it was working. On 9 April 2008, the directors contacted an insolvency practitioner and on 16 April 2008 a meeting of creditors was convened.

On 9 April 2008, the directors carried out the following transactions:

  • a £400,000 loan to an associated company, Micra Interiors Limited (Interiors) was notionally called in
  • an invoice for £142,500 from Interiors was set off against the loan
  • a book entry for £329,725.66 (the recharges) representing a tallying up of certain recharges was entered into the nominal ledger and was also set off against the loan
  • this left a sum of £72,225.66 (the payment) due from Micra to Interiors with

Related Articles:
Latest Articles:

Access this article and thousands of others like it free by subscribing to our blog.

Read full article

Already a subscriber? Login

About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.