General duties of a director survive a company’s entry into administration or creditors' voluntary liquidation (Re Systems Building Services Group Ltd (in liquidation))

General duties of a director survive a company’s entry into administration or creditors' voluntary liquidation (Re Systems Building Services Group Ltd (in liquidation))  

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) [2020] EWHC 54 (Ch)

What are the practical implications of this case?

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 potentia

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About the author:

Zahra started working as a paralegal at Lexis Nexis in Banking and Insolvency teams in April 2019. Zahra graduated with a 2.1 honours in a BA French and Spanish, completed the GDL at BPP University and is seeking some experience before commencing the LPC. She has undertaken voluntary work for law firms in London, Argentina and Colombia.