Liquidators reclaim money director wrongly paid to himself

posted by Developer

The director of an insolvent company has been ordered to return money he paid to himself at a time when he knew the business was struggling and likely to fail.

The case involved the director of a company specialising in waste management projects. The business got into financial difficulties and started to build up debts that it couldn’t afford to pay.

In spite of this, the director continued to make payments to himself and to a new company that he had set up. He also made payments to the bank that was helping to finance his new venture.

Shortly afterwards, the waste management company went into liquidation leaving substantial debts.

The liquidators took legal action to make the director repay the money on the basis that he had breached his duty to act in the best interests of the company and its creditors.

In giving its ruling, the High Court pointed out that directors were not free to take action which put their interests ahead of creditors’ prospects of being paid.

The director had breached his duties by making payments for his personal benefit and for the benefit of his new company.

He was ordered to repay the money in full.

Please contact us if you would like more information about the issues raised in this article or any aspect of directors’ duties and company law.

Case Featured

[2013] EWHC 2876 (Ch)
IN THE MATTER OF HLC ENVIRONMENTAL PROJECTS LTD (In Liquidation) sub nom (1) KEVIN HELLARD (2) DEVDUTT PATEL (Joint Liquidators of HLC ENVIRONMENTAL PROJECTS LTD) v HORACIO LUIS DE BRITO CARVALHO  (2013)
Ch D (Companies Ct) (John Randall QC) 25/09/2013