misfeasance in insolvency

Not Misfeasance but a Breach of Duty – in the first instance decision

Not Misfeasance but a Breach of Duty – in the first instance decision

Not Misfeasance but Breach of Duty in the first instance decision: Flatman v Wiles [2019] EWHC 3338 (Ch) – the incurious mind might arguably yet be puzzled by this appeal case. District Judge successfully appealed on breach of duty finding having said certain transactions were not misfeasance on the one hand but a breach of duty on the other. The transactions in question were deemed to be Preferences. https://lnkd.in/eTWc5Z6

DJ Judgment: “50 The conclusion to which I am drawn, therefore, is that the application succeeds by reference to preferences and section 239. Further, that by authorising or allowing such payments to be made, Mr Flatman acted in breach of his duty as a director of [the Company] to consider, given the circumstances of the relevant time, the interest of the body of [the Company’s] creditors as a whole, rather than just himself trading as [Flatman v Wiles & Anor Trading], even in circumstances where he had received a certain degree of what appears to be comparatively non-specific advice on related points. 51 However, given what I understand Mr Flatman thought he might be receiving by way of advice from Mr Wiles on the issue of a going concern, I found that he should have made further inquiries about that advice before the payments were made. I am not prepared in these circumstances to make a finding of misfeasance against Mr Flatman. In summary, therefore, the application succeeds in relation to the declaration sought regarding the preferences. The application succeeds in the alternative in relation to a finding in breach of duty. I have not made a substantive decision on the issue of a transaction at an undervalue because it is not actively [pursued][42] before me and I confirm that I have specifically declined to make a finding of misfeasance on the part of Mr Flatman in the particular circumstances of this case.”

Appeal Judgment: “The fact that it is a struggle to identify the basis for the District Judge’s conclusion that there was a breach of duty on the part of Mr Flatman inevitably leads to the conclusion that Ground 5 is well-founded, and must be allowed. Whilst it may be that there was evidence before the District Judge to justify a finding of breach of duty, the findings of fact necessary to justify such a conclusion do not appear on the face of the Judgment. The fact is that the District Judge did not identify what breach of duty he considered Mr Flatman to have committed; and he never made the findings of fact necessary to justify a finding of breach of duty.”

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