| COMPANY — Unfair prejudice — Conduct of affairs — Director of liquidated company appointing wife as proxy director of second company known by prohibited name — Both companies sharing similar names — Director using wife’s name to conceal de facto directorship of second company — Director directly or indirectly concerned with management of second company — Co-director’s petition for order on ground of unfair prejudice — Whether court having jurisdiction to grant declarations — Whether petitioner able to rely on provisions relating to restriction on re-use of company names as cause of unfair prejudice — Companies Act 1985, s 459 (as amended by Companies Act 1989, s 145, Sch 19, para 11(a)) — Insolvency Act 1986, ss 216, 217
Hawkes v Cuddy and others [2007] EWHC 1935 (Ch)
Ch D: Judge Havelock-Allan QC, sitting as a High Court judge: 31 July 2007
The court had jurisdiction to grant a declaration on a petition brought under s 459 of the Companies Act 1985 where the unfair prejudice relied on was caused by the alleged contravention of s 216 of the Insolvency Act 1986 by a director of a company in liquidation who had become the director of another company that was known by a prohibited name.
Judge Havelock-Allan QC, sitting as a High Court judge in the Bristol District Registry of the Chancery Division, so held when: (i) allowing the application of the petitioner, Frederick Geraint Hawkes, for summary judgment against the respondents, Simone Francesca Cuddy, Michael Cuddy and Neath Rugby Ltd, on a petition brought under s 459 of the 1985 Act; (ii) dismissing the first respondent’s application to strike out the petition; and (iii) allowing the petitioner’s application to strike out parts of the cross-petition presented by the respondents.
The second respondent, Mr Cuddy, was a director of a company, Gowerpark Ltd, which managed Neath RFC, a local Welsh rugby club. Subsequently, Mr Cuddy and the petitioner together bought Neath RFC under the terms of an agreement which provided, inter alia, that: (i) they would establish as joint co-owners a new company to own and manage the local club; and (ii) the petitioner would be one director, holding one of the two shares in the company, and Mr Cuddy would nominate Mrs Cuddy as the other director, holding his share as trustee. The third respondent company, Neath Rugby Ltd, was created according to the agreement. Since Mr Cuddy was a prior director of Gowerpark Ltd, which subsequently went into liquidation, Mrs Cuddy was appointed as proxy director for him in order to avoid a potential contravention of s 216 of the 1986 Act, which restricted the re-use of a company’s name. S 216(3) provided that a company director could not, (a), be a director of any other company that was known by a prohibited name, or (b), be directly or indirectly concerned with the management of such a company. Pursuant to s 217 of the 1986 Act, any person who had contravened s 216 could be personally responsible for the relevant debts of the company. Subsequently, the petitioner presented the s 459 petition on the ground, inter alia, that the conduct of Mr Cuddy, by entering into a quasi-partnership with the petitioner which was unlawful after the date that Gowerpark Ltd went into liquidation was unfairly prejudicial to him. The petitioner applied for summary judgment on part of the relief claimed in the petition, seeking various declarations. Mr and Mrs Cuddy applied to strike out the petition in whole or in part and Mrs Cuddy presented a cross-petition against the petitioner and the company, which they applied to strike out.
JUDGE HAVELOCK-ALLAN QC said that although s 217 of the 1986 Act was primarily invoked by creditors, the section was not so limited; it simply imposed a personal liability on a director or manager who was formerly a director of a company in liquidation. Despite the lack of authority, s 217 created a liability which, in appropriate circumstances, could be enforced at the suit of a shareholder as well as a creditor of the company. S 216 created a freestanding criminal offence which concerned the management of companies and was designed to protect anyone who was interested in or had dealings with companies from those who acted as directors of companies in liquidation and then sought to carry on business through another corporate vehicle bearing the same or a similar name. S 216 was not confined to phoenix companies and could apply to pre-existing companies as well. There was no reason in principle why the prohibition under s 216 was not protective of shareholders and available to be raised, in appropriate circumstances, on a petition brought under s 459 of the 1985 Act. The decision of the Privy Council in Bermuda Cablevision Ltd v Colica Trust Co Ltd [1998] AC 198 supported that conclusion, although it concerned the Bermudan equivalent of s 459. There was no warrant for imposing a jurisdictional restriction into s 459 which deprived a petitioner from being able to raise an allegation that the company was carrying on business unlawfully whether by virtue of a provision of the 1986 Act or any other statutory provision. It followed that the petition would not be struck out in whole or in part. Accordingly, since the similarity in name between Neath RFC, trading as Gowerpark Ltd, and Neath Rugby Ltd was patent and de facto directors were included within the definition of directors in the 1986 Act, declarations would be granted that Mr Cuddy had acted in contravention of s 216(3)(a) and (b) by performing the acts of a director of Neath Rugby Ltd in the name of Mrs Cuddy and using her name as a means of concealing that he had been a de facto director.
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