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Directors of corporate directors See CLM ¶2210, ¶2213 Re Paycheck Services 3 Ltd, Revenue and Customs Commissioners v Holland and another [2009] EWCA Civ 625 A director of a company (A Ltd), which is itself a director of another company (B Ltd), will not be a de facto director or shadow director of B Ltd merely because he is a director of A Ltd. It is not enough for the individual director to actively participate in A Ltd's board decisions in relation to the actions of B Ltd. However, the individual director of A Ltd could become a de facto director of B Ltd if he steps outside the confines of his role as a member of the board of A Ltd and acts directly in relation to the affairs of B Ltd. The scope of a company’s business and directors’ fiduciary duties See CLM ¶2392 Re Allied Business and Financial Consultants Ltd, O’Donnell v Shanahan & Others [2009] EWCA Civ 751 The Court of Appeal has overturned the decision of Re Allied Business and Financial Consultants Ltd, O’Donnell v Shanahan & Others [2009] EWHC 1973 (Ch) in relation to directors’ duties to avoid conflicts of interest and to account for profits (now the statutory duty not to accept benefits from third parties) (see CLM 2008 Newsletter Issue 5). The Court held that the question of whether an opportunity pursued by directors for their own benefit is within the scope of the company's business (actual or contemplated) is irrelevant when deciding whether directors have breached these duties by taking advantage of the opportunity themselves. Mr S, Mr L and Ms O were all shareholders and directors of AB&FC Ltd. The company was operated on the basis of a quasi-partnership and they each received an equal share of its profits. AB&FC Ltd’s business was that of providing financial advice and assistance (including arranging commercial loans, residential mortgages and insurance). Mr S and Mr L had acquired an interest in a property for investment purposes in their own right rather than through AB&FC Ltd. Ms O contended that this amounted to breaches of Mr S and Mr L’s fiduciary duties. At first instance the High Court found that the acquisition of properties for investment was not in fact within the scope of AB&FC Ltd’s business and that, although its objects were wide enough to allow the directors to diversify into such activity, there was no suggestion that it was ever contemplated by the directors that it might do so. Accordingly, there was no real sensible possibility of breach of duty. The Court of Appeal disagreed. It held that the fact that Mr S and Mr L had personally taken advantage of an opportunity and information they had acquired in their capacity as directors of AB&FC Ltd gave rise to a duty to inform AB&FC Ltd of (and offer to it) that opportunity. They should have obtained AB&FC Ltd’s consent before proceeding with the acquisition personally, even though there was no realistic prospect of AB&FC Ltd taking advantage of it itself, which they did not do. In addition, when Mr S and Mr L became personally involved in the transaction, they had preferred their own interests over those of AB&FC Ltd (in sacrificing the commission payable to the company for negotiating the sale). Accordingly, Mr S and Mr L were in breach of their fiduciary duties. Administration and foreign proceedings See CLM ¶8818, ¶8904 Harms Offshore AHT "Taurus" GmbH & Co. KG v Bloom & Others [2009] EWCA Civ 632 The moratorium on legal proceedings taken against a company in administration is confined to legal processes brought within the jurisdiction. Likewise, the term “legal proceedings” does not include foreign proceedings brought by a creditor who is not subject to the jurisdiction. However, despite the strong presumption that the court will not interfere with the proceedings of a foreign court, administrators can apply to court for injunctive relief preventing a creditor pursuing or continuing with foreign proceedings in relation to the company's assets. Whether or not the court will grant such an injunction will depend on the facts of each case. ONS Ltd carried on the business of offshore oil and gas exploration in the North Sea. It fell into financial difficulties and entered administration. Two of its creditors brought proceedings in a New York court in respect of amounts owed to them by ONS Ltd under charter agreements. Under its admiralty and maritime jurisdiction the New York district court granted the attachment orders sought by the creditors over ONS Ltd's tangible and intangible assets. The administrators subsequently obtained an injunction from the court (in the UK) requiring the creditors to procure the release of the attachment orders and the release of attachments which had occurred under those orders. The creditors appealed. The Court of Appeal confirmed that it is normally inappropriate for the court to interfere with foreign proceedings. However, the exceptional circumstances in this case meant that the grant of the injunction was justified because of the creditors' improper and oppressive conduct in: » misleading the New York district court by failing to inform it of the fact that ONS Ltd was in administration; » failing to inform the administrators of the attachment orders they had obtained until after they had succeeded in attaching funds (which were paid by the administrators into a supplier's bank account in New York in respect of post-administration liabilities) sufficient to meet their claims; and » effectively setting a trap for the administrators. Removal of administrators after pre-pack sale See CLM ¶9038+ Clydesdale Financial Services Ltd and others v Smailes and others [2009] EWHC 1745 (Ch) Administrators were removed by the court following a pre-pack sale where the terms of sale and the circumstances which led up to it gave rise to a legitimate concern warranting an independent investigation by an another administrator. A creditor of AS LLP applied for the removal of the joint administrators, and the appointment of a replacement administrator, after a pre-pack sale of AS LLP’s work in progress had been implemented. The administrators had advised AS LLP about its future when it fell into financial difficulties and had actively participated in negotiating the terms of the pre-pack sale. The creditor complained that the administrators had failed to comply with SIP 16, had facilitated the sale at an undervalue (by failing to obtain a proper valuation of the work in progress) and had failed to consult AS LLP’s creditors before the sale was agreed. The court exercised its power to remove the administrators. It rejected all allegations of impropriety against the administrators, but found that the terms and circumstances of the sale were a legitimate matter for consideration and investigation by an officeholder acting in the interests of AS LLP’s creditors. As the joint administrators were so closely involved in the negotiations leading up to the pre-pack sale the court found that they would not be able to carry out such an independent review. The court stressed, however, that the removal of the administrators did not suggest any imputation against their integrity and that such independent investigation may discover that there was nothing untoward in relation to the sale.
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