The defendant was the director of two companies with similar names. When the first company went into insolvent liquidation in October 2017, the defendant was in breach of section 216 of the Insolvency Act 1986, which prohibited a person who had been a director of a company that had gone into insolvent liquidation from being involved in the management of a company with a similar name. In a claim brought against the second company, the court held that in January 2018 it had breached an agreement entered into in September 2017. The judgment debt was assigned to P Ltd, who sought to recover the sum from the defendant on the basis that, having been in contravention of section 216 of the 1986 Act, he was, under section 217(1), personally responsible for the second company’s “relevant debts”, defined in section 217(3) as such debts and other liabilities as were “incurred” at a time when the director was involved in the management of the company. Determining preliminary issues, the judge held: (i) that under section 217 the defendant was automatically personally responsible for the judgment debt which had been established against the second company, notwithstanding that he had not been a party to the proceedings; and (ii) that, for the purposes of section 217(3), liability was “incurred” only once there was a cause of action which could be enforced in a court, which in the present case had been in January 2018 when the contract was breached.
On appeal by the defendant—
Held, appeal dismissed. (1) According to the natural and ordinary meaning of the language in section 217(1) of the Insolvency Act 1986, a person was personally responsible for the relevant debts of a company if the remainder of the requirements in section 217 were met and the person was jointly and severally liable for those debts with the company and any other person who was liable for them. That meaning was consistent with the context in which sections 216 and 217 arose, being in that part of the 1986 Act concerned with wrongful conduct on the part of directors and officers of insolvent companies, as well as with the mischief they were intended to address and their purpose, which was to protect creditors and to widen the pool of people from whom the creditor might recover its debt. Accordingly, a director who contravened section 216, in addition to the criminal penalty contained in that section, became personally responsible for the company’s debts and liabilities if they were incurred whilst there was a contravention of section 216 (paras 37–41, 47, 59, 60).
(2) For the purposes of section 217(3)(a) of the 1986 Act, in the case of a breach of contract, the relevant debt or liability was “incurred” when the contract was breached rather than when it was entered into. Although the contract was the source of the secondary obligation on the part of a contract breaker to pay monetary compensation for the loss sustained as a consequence of the breach, the obligation to pay compensation arose on the breach. Accordingly, in the present case a liability to pay money had only arisen on the alleged breach in January 2018 and it had been incurred at that stage (paras 48, 52, 58, 59, 60).
Adam Chichester-Clark and Mark Baldock (instructed by Clarke Willmott LLP) for the defendant.
Andrew Grantham KC (instructed by MFB Solicitors) for the claimant.