Director ordered to compensate creditors for cut price deal

A director has been ordered to compensate creditors after purchasing a property from his insolvent company in a cut-price deal.

The case provided a landmark ruling on the extent to which a director’s duties remain in place after their business is placed in administration.

The issue arose after System Building Services Group Ltd went into liquidation. While still a director, Brian Michie, bought from the company a property at what he knew to be a substantial undervalue without regard to the interests of the creditors.

The company and its liquidator took legal action, claiming that Michie had acted in breach of duties owed to creditors and the company as its director under the Companies Act 2006.

Michie argued that once a company entered into administration or creditors’ voluntary liquidation (CVL), the “general duties” of a director only survived in respect of the requirements of the Insolvency Act 1986.

The High Court rejected that argument. It held that the general duties of a director survived a company’s entry into administration or CVL.

In procuring the sale of the company’s property to himself at a significant undervalue when he knew the company to be insolvent, Michie had acted entirely out of self-interest and failed to have regard to the interests of the creditors.

He was ordered to repay the company £19,000 and a further £65,513.28 for unreasonable salary and dividend payments to himself.

If you would like more information about the issues raised in this article or any aspect of company law please contact Mark on 01228 516666.

By Mark Aspin Director and Head of Dispute Resolution