|
|
|
|
|
Use of prohibited company name after insolvency – directors liable for company’s debts See CLM: ¶264+ |
|
The directors of a company have been held personally liable for its debts because its name was similar to the name of an insolvent company of which they had also been directors. The company had in fact bought its business from the insolvent company’s liquidator. The men had been directors of both companies at the time of the sale. The directors argued that they were exempted from liability because, within 28 days of the sale, the successor company had given notice of their directorships to the creditors of the insolvent company. However, the court held that this exemption is not available when the directors are already involved in the management of the successor company at the time they give their notice to the creditors. A person who is a director of a company in the 12 months before it goes into insolvent liquidation needs the consent of the court to be involved in the management of a company with a name so similar to the insolvent company as to suggest an association with it (s 216 IA 1986). Failure to obtain court consent will result in the director being personally liable for the debts of the new company. One exception to the rule is when the insolvent company’s liquidator sells its business to a successor company which uses a similar name. The directors can become directors of the successor company without requiring court consent or incurring personal liability if the successor company gives notice of this to the insolvent company’s creditors (r 4.228 IR 1986). |
|
Churchill v First Independent Factors and Finance Ltd [2006] EWCA Civ 1623 |
|
No Christmas cheer for Farepak customers See CLM: ¶9013, ¶9015 |
|
Re Farepak Food and Gifts Ltd (in administration), Dubey and Thompson v HM Revenue and Customs and Hall [2006] EWHC 3272 (Ch) |
|
The joint administrators applied to the court for directions as to whether they could distribute certain funds held by them to Farepak’s customers. The application was accelerated so that any directions to make distributions to the customers could be followed as close to Christmas as possible, given the circumstances of the case. Therefore, the arguments and evidence before the judge were not as well developed as they would otherwise have been. The question arose as to whether customer money paid to Farepak (via agents, in the vast majority of cases) after it had ceased to trade could be said to be held on trust for the customers and therefore could be distributed to them straight away. A number of arguments were put forward, which can be summarised as follows: » It was asserted that the money was held on a resulting trust because it had been paid over for a specific purpose which had not been fulfilled. However, given that neither Farepak nor the agents collecting the money from the customers were required to keep it separate, this argument failed. » Alternatively, the argument that the money was held on a constructive trust because it would be unconscionable for Farepak to keep money received after the decision to cease trading and to stop receiving customers’ money was put forward. Unfortunately, it failed because the various ways in which the money was paid to Farepak (through agents, into different accounts, by different methods, etc) meant that identifying “payment” and “receipt” of the money was too uncertain to conclude that the money was held on a constructive trust. » A stronger argument was that the money in one particular account was held on an express trust, as a result of a trust deed executed by the directors of Farepak. This trust deed was problematic in that it specified the wrong bank account details and referred to “payors” (which were usually the agents, and which could include other payments into the account, e.g. from suppliers) rather than the customers. Despite these issues, the judge decided that the deed could be rectified as the directors’ intentions were sufficiently certain. However, the express trust would create a preference in favour of the customers who had paid money to the company via the agents. The judge indicated that a preference would not be created in favour of any customers who had paid their money to Farepak directly, since they would not have been creditors at the moment the trust was created over their money. However, it was not feasible to identify those customers and their relevant payments. » Under the rule in Ex parte James, it was asserted that it would be unconscionable for the administrators to rely on Farepak’s interest in the money or any preference created, as against returning the money to creditors. However, the judge ruled that this case did not fall within the rule and it could not be seen as being “dishonourable” for the administrators to retain the money, for the reasons set out above. The judge was, reluctantly, unable to make the directions sought by the administrators because the legal arguments and evidence were not strong enough. However, he did not rule out any of these issues being raised again in the future if appropriate. |
|
RECENT CASES |