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Directors’ liability: how far does it go?

24 Aug 2017

In the recent case of Housemaker Services Limited v Cole & Another, the Court considered the Limitation Act 1980 and non-party costs orders.

 

Facts

 

The claimant company was a limited company acting by its director, W.  W entered into an oral agreement to provide building services to the Defendants.

 

The claimant company issued invoices to the Defendants on a number of occasions during 2008, 2010 and 2011. The invoices were not paid and the claimant company considered bringing a claim against the Defendants in respect of the unpaid invoices.

 

The claimant company were struck off the register on 18 November 2014 after the Registrar of Companies issued a notice pursuant to s 1000 Companies Act 2006.  W was unaware of the notice of striking off.  Although service of the notice was technically sufficient as it went to the registered office of the claimant company and to W’s known home address, W no longer resided at that address and was not forwarded the letter.

 

Upon W finding out that the claimant company had been struck off, W made an application on 6 July 2016 to the court for administrative restoration to the register and as such the claimant company was restored to the register on 18 July 2016.

 

W and his solicitors were aware of the limitation deadline of six years and as such particulars of claim were drafted and finalised by 12 July 2016.  Despite their knowledge, a claim was not filed until 12 December 2016 and was not sufficiently served upon the Defendants nor their solicitors until the New Year.

 

This meant that the claimant company’s claim was outside of the relevant limitation period under the Limitation Act 1980.

 

Submissions

 

The claimant company submitted that the court should discount the limitation period for the 608 days that the claimant company had been struck off.  The application was unsuccessful and the judge held that the dissolution had not been the cause of the failure to issue proceedings prior to the limitation period expending.

 

The Defendants’ made an application, only one business day prior to the hearing, for the sole director of the company to be joined as a second claimant in order for a costs order to be made against him personally.

 

The Defendants submitted that the claimant company had been “merely a legal construct” for W’s business and that they were one in the same.  The Defendants submitted that the W’s actions had led to the claimant company being dissolved in the first place and that he would benefit from any successful claims.  The Defendants also submitted that the claimant company had no assets and would be unable to satisfy any order for costs.

 

Decision

 

The order as to costs was not made against W.  The court held that it was not a case in which W’s actions were focused on controlling, funding and benefiting from the claim being made by the claimant company beyond that of an ordinary shareholder or director.  The court also highlighted that the claim had been brought in good faith although out of time.

 

The court therefore ordered that the claimant company pay the Defendants’ costs.

 

Comment

 

This case highlights that there is a high threshold in relation to costs orders being made against third party directors unless it is evidenced that the director is controlling, funding and benefiting from a claim made outside the ordinary realms of a shareholders and/or directors duty and/or it was brought in bad faith.

 

The decision reiterates that there is a separation of a company as a legal entity and the directors that may fund and benefit from the success of the company which protects the position of security for directors in relation to the company’s liabilities. Without this protection, directors would be made a defendant in any and all claims to provide security for successful parties should the company itself have no assets.

 

For more information please contact Alexandra Withers.

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