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Misfeasance - the end of limitation?

4 Apr 2018

 

When faced with a claim for misfeasance, a common defence of directors is in limitation.

 

Misfeasance claims generally refer to cases where a director has breached his duties, and a successful claim will result in an order that such directors repay, restore or account for company money or property.

 

These claims are generally subject a six year limitation period, which runs not from the date of winding up, but rather from the date that the damage was suffered by the company.  This can cause problems for such claims, as often the liquidation of a company does not happen for many years after the misfeasance.

 

This point arose recently in Burnden Holdings (UK) Limited v Fielding and another [2018] UKSC 14, which concerned the directors allowing an unlawful distribution of the company’s shareholding for their own benefit.  This transaction had taken place more than six years before the Liquidator issued the claim and as such on the face of it was time barred.  The directors applied for summary judgment.

 

The Supreme Court was tasked with determining the Liquidator’s argument that he was able to rely on section 21(1)(b) Limitation Act 1980.  This section provides that the limitation period does not apply where:

 

  1. the claimant is a beneficiary; and

  2. the claim is in fraud or for fraudulent breach of trust against a trustee, and

  3. the claim is to recover trust property or the proceeds of trust property against the trustee.

 

The Liquidator argued that the directors were trustees, and in agreeing with the Liquidator, the Supreme Court held that whilst this section of the Limitation Act was primarily aimed at express trustees, it can also apply to company directors.

 

As such, it is now good law that claims by Liquidators in relation to breaches of trust concerning the conversion of company property are potentially not subject to a limitation period.

 

This is a welcome decision for Liquidators, and will hopefully allow many more misfeasance claims to be brought for the benefit of creditors.

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Tel: +44 (0)191 232 0283  ·  Email: info@srflegal.co.uk

 

Short Richardson and Forth Solicitors Limited is a private limited company registered in England and Wales under company number 10572065, authorised and regulated by the Solicitors Regulation Authority No 637150.

Short Richardson and Forth Solicitors Limited is a private limited company constituted and run in accordance with the provisions of the Companies Act 2006. The term “partner” has been used to denote individual senior solicitors employed by Short Richardson and Forth Solicitors Limited.