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Overview Of Breach Of Fiduciary Duty Due To A Personal Dispute

A breach of fiduciary duty due to a personal dispute was sketched out in a handy little judgment that sprouted on 2 August 2023. It confirms in effect that the Director duty to Creditors Continues In Liquidation.

In Beake & Anor v Chapman & Anor (Re London South West SW Ltd and Insolvency Act 1986) [2023] EWHC 1986 (Ch), London South West SW Ltd (“the Company”) went into Administration and its sole Director was Mr Chapman. The Company had been selling leaseholds in a development at 11-13 Thames Street, Kingston Upon Thames.

Injunctive Relief: Ordered To Execute Documents

Jamie Chapman, was ordered to sign the lease of Flat 2 in his capacity as Director of the management company (Bodman House Management Limited) by Insolvency and Companies Court Judge Barber and to pay costs summarily assessed in the sum £20,000 plus VAT after it was held he was in:

… plain breach of the fiduciary duties owed by him to the Company and to Bodman

Directors’ duties encompass the need for a Director to avoid their personal interests conflicting with those of the masters (the companies) they serve. Section 175 of the Companies Act 2006 makes this position pellucidly clear with the rubric a duty to avoid conflicts of interest.

On 13 January 2023, the Company entered Administration after disembarking from the luxury of normal trading having been served with a winding up petition. The rationale for going into Administration was to enable the sale of the sole unsold flat (Flat 2) to be conceivably better progressed than if the Company was to continue its travels towards an alternative final destination of Compulsory Liquidation. An offer on Flat 2 had been accepted right back in November 2022 but had now not progressed. 

The Court reflected on the fact that Mr Chapman having arranged the sale of the other 25 flats was now refusing to sign the lease for the sale of Flat 2:

Mr Chapman refused to sign the Lease relating to Flat 2 on behalf of Bodman. He gave no good reason for this. He had signed all the other Leases on Bodman’s behalf. Prior to the Company entering administration, he had also found the buyers for Flat 2, agreed a price and instructed solicitors to draw up the relevant documentation for the purchase.

Personal Interest

It was recorded that the position culminated because Mr Chapman had a guarantee called in and had been served with a bankruptcy petition:

The reason for Mr Chapman’s refusal to execute the last Lease (of Flat 2) is clear from the evidence before me: he was attempting to use that Lease as a bargaining chip, for his own personal purposes. The administrators of the Secured Creditors had called in a personal guarantee executed by Mr Chapman and had served a bankruptcy petition upon him. Mr Chapman considered that his role as sole director and sole shareholder of Bodman gave him leverage in that context. In this regard I was taken to an email dated 21 April 2023 from Ben Richards of FRP Advisory to Laura Upshall and others, reporting the outcome of a telephone conversation with Mr Chapman that day, which stated as follows:

‘Jamie returned one of my calls today and frustratingly is not agreeing to sign off on behalf of the management company. He was quite clear that he is looking to use signing the lease as a leverage for the wider position, in which we understand claims are being pursued against him personally by our secured creditor, Accumulate.’

The Court said that notwithstanding that the Company’s  Administrators and the Flat 2 purchasers had been ready to sign on the dotted line since March 2023 but:

Mr Chapman has deliberately stalled, for no legitimate reason…in April 2023 he made clear that his refusal was a conscious tactical decision, taken for his own purposes.

On the evidence as a whole, it is clear that Mr Chapman has been attempting to use execution of the final Lease as leverage in a personal dispute between him and the administrators of a connected company who have served a bankruptcy petition on him. This is a plain breach of the fiduciary duties owed by him to the Company and to Bodman.

 

Oliver Elliot Comment

Oliver Elliot Comment !

So long as Limited liability companies exist in the form envisaged by the House of Lords in 1896 in Salomon v Salomon & Co Ltd [1896] UKHL 1 to stand up and be counted as independent persons, we can anticipate Directors have to act selflessly with single minded loyalty to the company for whom they are operational servants, not the masters.

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Author: Elliot Green
Last Updated: June 12, 2024

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Disclaimer: Breach Of Fiduciary Duty Due To A Personal Dispute

This page is not legal advice and is not to be relied upon as such. This article Breach Of Fiduciary Duty Due To A Personal Dispute is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.

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