Director liable for company debt after breaching Insolvency Act

The director of an insolvent company has been told he is personally liable for debt that was incurred when he acted in breach of the Insolvency Act.

Laura Murphy, Paralegal in our Dispute Resolution team reports on this recent case.

The case involved Mr Langdon, who was director of DYLG, which was in liquidation.

DYLG had entered into a contract with PSV 1982 Ltd in September 2017. It breached the contract in January 2018, leaving it in debt to PSV.

When DYGL went into insolvent liquidation in 2020, PSV sought to recover the debt it was owed from Langdon.

Its case was that Langdon was also director of an associated company called DYL, which went into insolvent liquidation in October 2017.

The Insolvency Act prohibits directors of companies in insolvent liquidation from being involved in the management of companies with a similar name.

Langdon argued that he was not in breach of the Act as DYL hadn’t entered insolvent liquidation when the contract between DYGL and PSV was signed.

He submitted that although liability had been established against DYGL, PSV had failed to prove that he was personally responsible for the debt.

The High Court ruled in favour of PSV.

The debt did not occur when DYGL entered into the contract but when the contract was breached. This was January 2018, around two months after Langdon’s other company went into insolvent liquidation.

Langdon became personally liable for debts incurred by DYGL as he was in breach of the Insolvency Act when the debt occurred.

The Court of Appeal upheld the ruling.

If you would like more information about the issues raised in this article or any aspect of company and insolvency law, please contact Laura on 01228 516666 or click here to send her an email.