Duties of Directors, Limitations and Insolvency Litigation Solicitors

Burnden v Fielding: Duties of Directors and Limitation

‘Nowhere to run to, nowhere to hide for Directors?’ There is however hope for Directors… read on

As insolvency litigation solicitors, specialising in director disqualification, insolvency claims and misfeasance, the duties of directors, and whether they have been carried out correctly and lawfully, sits at the centre of the work we do. This article looks at an important case, Burnden v. Fielding, in which the outcome of the judgement was that Company Directors cannot now use the normal 6 year Limitation period as a defence to a Liquidator’s claim under certain circumstances. The judgement is not good news for Company Directors. However, there is still hope for directors, as we point out.

Background to this Duties of Directors and Limitation Case: Burnden v Fielding

Prior to 4 October 2007, Mr and Mrs Fielding, (“the Defendants”) were directors and controlling shareholders of Burnden Holdings (UK) Limited (“the Claimant”). The Claimant was the holding company of a number of trading subsidiaries, including Vital Energi Utilities Ltd (“Vital”).

On 4 October 2007, the shareholders of the Claimant exchanged their shares for shares in a new holding company for the group, BHU Holdings Ltd (“BHUH”). On 12 October 2007, in an approved transaction, the Claimant effected a distribution in specie of its shareholding in Vital to BHUH. Subsequently, the shareholding in Vital was transferred to another new holding company (“VHL”). Mrs Fielding later sold her shareholding in VHL, and the Claimant went into liquidation on 03 January 2013.

The Claimant Issues Proceedings Against the Defendant More Than 6 years After the Distribution

On 15 October 2013, more than six years after the 12 October 2007 distribution, the Claimant, by its liquidator, issued proceedings against the Defendants for the unlawful distribution in specie of the Claimant’s shareholding in Vital. This was outside of the six-year limitation period set out in section 21(3) of the Limitation Act 1980 in respect of an action by a beneficiary for breach of trust. The Defendants applied to the High Court for summary judgment on the basis that the Liquidators claim was time barred.

The High Court granted summary judgment in favour of the Defendants on the ground that the Liquidators claim was time-barred.

The Liquidator appealed that judgement to the Court of Appeal. The Court of Appeal set aside the judge’s order for summary judgement on the basis that the limitation period did not run against the Claimant, because section 21(1)(b) of the Limitation Act 1980 (“section 21(1)(b)”) provides that no limitation period applies to an action by a beneficiary under a trust to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use.

The Court of Appeal further held that, in any event, there was a ‘triable issue’ as to whether section 32 of the Limitation Act 1980 (“section 32”) applied. Section 32 provides that where any relevant fact has been deliberately concealed by the Defendant, the period of limitation does not begin to run until the plaintiff has, or could have, discovered the concealment.

The Defendants Appeal to the Supreme Court

The Defendants appealed to the Supreme Court on the proper construction of section 21(1)(b) asking the Supreme Court to resolve the question of whether ‘company directors are in possession of or have previously received trust property’ within the meaning of that section, and on section 32.2.

The Judgment of the Supreme Court

The Supreme Court unanimously dismissed the Defendants appeal, finding that section 21(1)(b) applies to trustees who are company directors, who are to be treated as being in possession of the trust property from the outset. In other words, Company directors who deal with Company money and Company property are Trustees of those assets for the Company.

Our Comments on the Judgement – Bad News for Directors

The decision is great news for Liquidators and Administrators, and bad news for Directors. The uncertainty that existed as to whether the 6 years rule applied to office holders pursuing Directors, who have misappropriated Company assets, has gone.

The decision acts as a welcome explanation as to when section 21(1)(b) of the Limitation Act 1980 applies. Company Directors cannot now use Limitation as a defence to a Liquidator’s claim in such circumstances.

As insolvency litigation solicitors specialising in the law of the duties of directors and corporate responsibility, we are well used to dealing with the tactics and strategy of prosecuting and defending such cases.

Other Routes for Directors – There is still hope

Despite this decision, Directors still have in their armoury a number of other legal arguments, practical and strategic approaches that can be deployed on their behalf, on the particular facts of the particular case.

They can be and are regularly deployed by Directors to achieve the best possible settlements in cases, where resolution might otherwise seem totally unattainable or unachievable.

Our insolvency litigation solicitors here at Neil Davies and Partners regularly advise on and achieve such solutions in such duties of directors cases. Please contact us or call us on 0121 200 7040 for a free initial discussion. The sooner you get in touch, the more we can make a difference

‘No hole too deep to help!’

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