| COMPANY — Director — Misfeasance — Evidence that company director misapplying company funds — Wife of director having no knowledge of payments Whether wife constituting de facto director — Meaning of “de facto director” — Insolvency Act 1986, s 212
Gemma Ltd (in liquidation) v Davies and another; In re Gemma Ltd (in liquidation); [2008] EWHC 546 (Ch); [2008] WLR (D) 89
Ch D: Jonathan Gaunt QC, sitting as a deputy High Court judge: 17 March 2008
In order to establish that a person was a de facto director of a company it was necessary, inter alia, to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director.
Jonathan Gaunt QC, sitting as a deputy Chancery Division judge, so held when, inter alia: (i) making an order under s 212 of the Insolvency Act 1986 that Mr Garry Davies, the former director of Gemma Ltd, a company in liquidation, repay various sums of money to the company after finding that he had been guilty of misfeasance in the management of the affairs of the company; and (ii) declining to make an order under s 212 in relation to Mrs Donna Davies on the ground that she was not a de facto director of the company.
During the course of the company’s trading, a payment of £160,114 was made to Mr Davies which ought to have been paid to the company and the company made a payment of £118,400 which ought to have been made by Mr Davies. Mrs Davies did not direct or know about the payments made or due and had a very limited role in the running of the company. The company went into voluntary liquidation and brought proceedings against both Mr and Mrs Davies under s 212 of the 1986 Act for repayment of the sums on the ground that Mr Davies was a director of the company, and Mrs Davies a de facto director.
MR GAUNT QC said that the claim against Mrs Davies was based on the fact that although she had no knowledge of the payments, she was to be treated as a de facto director or a person concerned in the management of the company who was in breach of her duty by allowing the moneys to be disbursed pursuant to s 212. A number of propositions could be derived from various authorities in which the question of what was meant by a de facto director was considered. Firstly, it was necessary to plead and prove that the person in question undertook functions in relation to the company which could properly be discharged only by a director: see In re Hydrodam (Corby) Ltd [1994] 2 BCLC 180. Secondly, it was not a necessary characteristic of a de facto director that he was held out as a director; such “holding out” could, however, be important evidence in support of the conclusion that a person acted as a director in fact: see Secretary of State for Trade and Industry v Hollier [2007] BusLR 352. Thirdly, holding out was not a sufficient condition either; what mattered was not what he called himself but what he did: see In re Mea Corpn Ltd [2007] BCC 288. Fourthly, it was necessary for the person to have participated in directing the affairs of the company on an equal footing with the other director(s) and not in a subordinate role: see Hollier’s case. Fifthly, it had to be shown that the person assumed the status and functions of a company director and had exercised “real influence” in the corporate governance of the company: see In re Kaytech International plc [1999] 2 BCLC 351. Lastly, if it was unclear whether the acts of the person were referable to an assumed directorship or to some other capacity, the person was entitled to the benefit of the doubt, but the court had to be careful not to strain the facts in deference to that observation: see In re Richborough Furniture Ltd [1996] 1 BCLC 507 and the Kaytech case. In the instant case, although some of the claims against Mr Davies were made out, there was insufficient evidence to show that Mrs Davies was a de facto director of Gemma Ltd, or that she was concerned in the promotion, formation or management of the company.
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