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In Re Systems Building Services Group Ltd (in liquidation), the liquidator of a company successfully sued the company’s former director and a company to whom the director had permitted payments to be made after the company had entered administration. The High Court held among other things that: (1) the director’s fiduciary duties to the company survived the company’s entry into administration or creditors' voluntary liquidation (CVL)—and (2) in knowingly purchasing from the company in administration a freehold property which had not been placed on the open market and at a substantial undervalue, the director had acted entirely out of self-interest and failed to have regard to the interest of creditors. He had acted in breach of his fiduciary duties and held the property on constructive trust for the company.
The decision provides a welcome clarification, if needed, that a director’s fiduciary duties extend into administration or CVL. Those duties are independent of and run parallel to the duties owed by an administrator or liquidator. Written by Raj Arumugam, barrister at 9 Stone Buildings, who appeared for the liquidator.
Re Systems Building Services Group Ltd (in liquidation)  EWHC 54 (Ch)
Prior to this decision—and as noted in the judgment—there was limited caselaw and textbook commentary expressly addressing the question of whether a director’s duties continued beyond the company’s entry into a formal insolvency process.
Following this judgment, it is now clear that directors’ duties do indeed continue into the company’s entry into administration or CVL.
Aside from being a significant authority for liquidators considering the probity of directors’ post-insolvency conduct, the case has potential practical implications for directors thinking of buying back assets from an insolvent company. The decision underlines the need for directors to consider whether the sale of those assets by the company at the price negotiated by the director is in the interests of the company’s creditors as a whole. This will be of particular of relevance to directors and insolvency practitioners in the context of ‘pre-pack’ administrations.
The company entered into administration on 12 July 2013, at which time Mr Michie was its sole director and shareholder. The administration was converted into a CVL on 3 July 2013 and the company was dissolved on 24 February 2016.
The company was subsequently restored, and Mr Hunt was appointed liquidator on 3 May 2017.
Mr Hunt applied to the court for relief in relation to four heads:
Second, payments of £19,000 were made by the company to CB Solutions UK Limited days after the company entered into administration. Mr Hunt alleged that Mr Michie had caused or allowed these payments to be made, without any good reason, and was guilty of misfeasance under section 212 of the Insolvency Act 1986 (IA 1986) and liable to repay those sums to the company
Generally, the liquidator argued that Mr Michie had acted in breach of duties owed to the company under sections 171 to 175 of the Companies Act 2006, including his fiduciary duty to act in the best interests of the company's creditors from the time at which the company became insolvent. The director argued that once a company entered into administration or CVL, the general duties of a director only survived in respect of any exercise by that director of powers qua director in accordance with the IA 1986.
The court decided that:
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Zahra started working as a paralegal at LexisNexis in the Lexis®PSL Banking & Finance and Restructuring & Insolvency teams in April 2019 and moved to the Corporate team in June 2020, where she currently works as a Market Tracker Analyst. Zahra graduated with 2.1 honours in BA French and Spanish and completed the GDL at BPP University. She has undertaken voluntary work for law firms in London, Argentina and Colombia.
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