Director Misfeasance: there’s no “might” about it

Director Liability for Misfeasance

Fail 100% as a Director to protect the company from the loss suffered, then you ‘might’ well find yourself ordered to pay 100% of that loss, even if you did not personally benefit from any of it.

In the case of the appeal by Liquidators in Dumville v Rich [2019] EWHC 2086 (Ch) Mr Justice Mann overturned certain features of an earlier judgment by Deputy ICC Judge Schaffer.

The fact that a Director “might” have prevented the loss, as opposed to something more certain did not suggest on facts of this case that the Director, Mr Rich, was entitled to a 25% reduction on his liability.

In essence the court of first instance made a number of findings that Mr Rich had failed to protect property of the company. Mr Justice Mann appears to have suggested that the court of first instance had erred in an exercise of discretion in view of the findings it had made: “I consider that in this case his decision can and should be impeached because he reached a decision which depended on erroneous reasoning or which was not really open to him on the basis of all the serious breaches that he said had occurred.

Mr Rich was said to have been responsible as a Director for a number of breaches which were deemed unreasonable and therefore Mr Justice Mann said that if indeed such findings have been made then the court of first instance perhaps ought not to have relied upon Section 1157 of the Companies Act 2006 to afford Mr Rich a credit of 25%. He said “Accordingly, the judge exercised his discretion by taking irrelevant factors into account, which means that his decision cannot stand. I can and should make the decision afresh myself, and I have little hesitation in saying that Mr Rich does not qualify for relief under section 1157. “.

From the judgment the following extracts were notable:

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