Directors fail to make company liable for their wrongdoing

The Supreme Court has rejected the idea that directors can avoid responsibility for offences like fraud by trying to make their company responsible for their wrongdoing.

The case, involving Bilta UK Ltd and Swiss company Jetivia SA, helps to clear up some uncertainty over the extent to which directors, as opposed to the company itself, should be held accountable when something goes wrong.

The court heard that two directors at Bilta took part in a VAT fraud which they knew would be damaging to the company. They were helped by Jetivia.

Bilta then went into liquidation and the liquidators took legal action seeking payments from the two directors and from Jetivia.

The case centred on whether the directors were directly responsible for their actions or whether liability rested solely with the company itself.

Giving judgment, Lord Mance said: “It is certainly unjust and absurd to suggest that the answer to a claim for breach of a director’s (or any employee’s) duty could lie in attributing to the company the very misconduct by which the director or employee has damaged it.

“A company has its own separate legal personality and interests. Duties are owed to it by those officers who constitute its directing mind and will, similarly to the way in which they are owed by other more ordinary employees or agents. There is no basis for regarding the various statutory remedies available to a liquidator against defaulting officers as making this duty or its enforcement redundant.”

The Supreme Court ruled that the directors were liable and the liquidators were entitled to seek payments from them. The court also ruled that the Insolvency Act could apply extra-territorially and so the liquidators could pursue payments from Jetivia, even though it was based in Switzerland.

Please contact Simon Porter if you would like more information about the issues raised in this article or any aspect of company law.