It has become very clear from a recent case that a sole director of a company cannot hide behind limited liability and that personal liability may be involved, particularly if the director behaves in a way that makes this appropriate.
The moral of this story is that a director will always be able to control what a company does and so will not then be able to "hide" behind the company and shrug his or her shoulders. Please also refer to our article on directors' personal liability for an analysis of similar issues and concerns.
The Chancery Division has heard an application by a liquidator for wrongful trading under the Insolvency Act 1986 s.214 against a director of a company which had £2 share capital and could not meet its obligations to make a proposed film. H was the director of the company which had been compulsorily wound up. Its sole creditor (O) had obtained judgment against it because the company had failed to honour its obligations under an agreement which committed it to pay certain sums to O for the provision of production facilities for the making of a film. H had entered into the agreement whilst the company had issued share capital of only £2 and no other assets.
Production of the film had quickly terminated because the company was unable to finance it and because the proposed main actor refused to agree to participate. He had no reasonable prospect of being satisfied that the lead actor would sign and no reasonable prospect of being satisfied that the company would secure the necessary finance to honour its obligations under the agreement. He had been prepared to sign because he perceived that he was not at risk and had been prepared to transfer the risks onto creditors. The requirements of wrongful trading were satisfied and the claim under s.214 was made out, subject to being reduced by any recovery by the company against others.
Singla v Hedman [2010] EWHC 902 (Ch).
Judgment delivered April 28. 2010.