Glam and Tan Limited – in Liquidation v Mrs Danielle Litras
[2022] EWHC 855 (Ch)
On 8 April 2022 Chief ICC Judge Briggs handed down his judgment in the above case in which the liquidator brought proceedings against the sole de jure director, L, in a claim for misfeasance under section 212 IA ’86.
Background
The company had traded as a beauty salon from November 2014 but went into CVL in July 2017. The liquidator alleged that L had made payments to herself over and above her entitlement to salary and that she had made various payments to herself, other third parties including her husband and his relatives amounting to £143,358.47 in breach of her duties under section 172 CA ’06 to promote the success of the company and to exercise her powers in the interests of the members as a whole.
The company’s books and records were incomplete and the cash book was missing. It was eventually accepted by the liquidator that there had been a flood at the business premises which resulted in the loss of certain records. L had received a payment from the company’s insurers after the commencement of the liquidation amounting to £14,700 which she had failed forward to the liquidator.
The judge accepted that under cross examination L had responded truthfully making numerous admissions that she knew would expose her to liability. Crucially the judge accepted that she was a victim of domestic violence. L’s husband acted as a de facto director and he was described as controlling and violent. L gave evidence that she would act on his instructions to make payments as directed by him including payments to him and his relatives. The business took a significant proportion of its takings in cash and the husband would remove the cash at the end of the day. On the occasions when he did not do so, L’s evidence was that she was required to bring the cash home. If she did not act in accordance with her husband’s instructions she said that there would be “consequences”, which was a euphemism throughout her evidence for violence.
Although on the evidence the judge found that some of the payments had in fact been for the benefit of the company, the vast majority were of no commercial benefit to the company. He found that the evidence against L was overwhelming and that to the extent that payments were made to or for the benefit of L’s husband under threat of violence her position was untenable and her options were to resign, liquidate or dissolve the company. However, the judge accepted that in this case L was genuinely in fear of the “consequences” which might then follow.
Judgment
In reaching his decision the judge considered the decision in Paycheck Services 3 Ltd, Re, Holland v Revenue and Customs Commissioners [2010] 1 WLR 2793 which held that the word "may" in section 212(3) gave the court a discretion to limit the award in light of all the circumstances but did not allow the court to reduce the contribution to nil. He also considered the decision in Re Loquitur Ltd [2003] EWHC 999 which held that it would not be "just" in all the circumstances to make the directors liable for the whole sum claimed where the circumstances which gave rise to the breach of duty were beyond the control of the directors.
The judge held that it would not be just in this case for L to be personally liable to contribute an amount equal to all the sums wrongfully paid out when her free will had been subjugated to the will of her husband under threat of violence.
He therefore ordered that she should repay only those sums paid by the company for her direct benefit
together with cash payments received by her, unlawful dividends and the insurance money that should have been paid to the liquidator, amounting to a total of £70,705.82.
Comment
This case serves as a useful reminder that the court has a discretion with regard to the amount it can require a director to repay to the company even in circumstances where the evidence of breach of duty is overwhelming. Practitioners should therefore be alive to the fact that the circumstances surrounding the impugned payments may well be relevant and could lead to a reduction in the overall award. In cases where there are claims against two or more directors the background circumstances could lead to different awards being made against each of them.
