Lauren Hartigan-Pritchard, Legal Director and Head of Restructuring & Insolvency at Higgs LLP, spotlights a significant case involving a misfeasance claim brought against the directors of a liquidated company.
The High Court has refused an attempt by the directors of a liquidated company to strike out a misfeasance claim brought against them.
In Re Mobigo Ltd (In Liquidation) [2022] EWHC 1349 (Ch), the directors set out five reasons why they believed the claim should be dealt with by summary judgement.
One of the key arguments made by the directors of Mobigo Ltd was that the company’s decisions had been ratified under the Duomatic Principle, a principle derived from English case law whereby a company's shareholders can informally give approval through unanimous consent, rather than abiding by the strict formalities.
However, the court refused to strike out the claim and the matter will go to full trial for determination.
Background
In 2015, Mobigo Ltd was fined £250,000 by the Phone-paid Service Authority (“PSA”) for automatic subscriptions to the company’s online services. The company failed to pay the PSA fine and subsequently went into liquidation.
The liquidator of Mobigo Ltd brought a misfeasance claim against the de jure and de facto directors who, the liquidator alleged, had acted in breach of their fiduciary duties. At a prior hearing the Judge ordered the liquidator to revise the particulars of claim to make clear which duties under the Companies Act 2006 the directors were said to have breached.
Following the revision of the liquidator’s evidence the directors attempted to strike out the application on the following grounds:
- The PSA’s claim was an abuse of process as it was brought against the directors personally and not the company;
- Even if that was not the case the directors’ actions were ratified by the shareholders under the Duomatic Principle so there was no breach;
- The funds the liquidator claimed had been misappropriated related to legitimate transactions which pre-dated the PSA’s fine;
- If the claims were not struck out in full, they should be stuck out in part; and
- Some of the allegations made by the liquidator did not cause loss to the company.
The Judge rejected the directors’ argument that there was an abuse of process as the PSA’s claims against the company were separate from those brought by the liquidator against the company.
As to the Duomatic Principle, the Judge was clear that this was not a mini-trial and so most of the issues could not be determined at the hearing of an application for strike-out; they demanded a full trial. Importantly, the Duomatic Principle does not apply where the company is insolvent and there were unresolved questions as to whether the company was solvent at the time of the decision by directors.
Further, the Judge noted that, whilst “proper particulars need to be given of the breach…”, he was not willing to exclude or strike out any part of the claim on this basis as any amendments to the evidence submitted by the liquidator in support of the misfeasance claim was merely “peripheral questions of drafting” and was not material to the success of the claim.
In view of this the Judge ruled that the liquidator’s application would not be struck-out and should go to trial for determination.
Conclusion
The Judgement serves as a stark reminder to insolvency practitioners to properly itemise their particulars of claim. It also demonstrates the high bar applicable to strike out applications, with the evidential burden on those applying being of great significance.
