Chadwick Lawrence secures justice for home buyers
The insolvency team at Chadwick Lawrence have recently helped some of their clients to victory in a court case which may have consequences for those attempting to reclaim money from insolvent companies in the future.
Chadwick Lawrence represented a retired couple who had reserved, with a deposit, the right to buy a seaside flat at a set price from a property development company in Whitby. They had paid the deposit to the builders.
When the market rose their deposit was returned to them by the builders. They later found out the flat they had reserved had been sold to others at a higher price. They successfully obtained judgment in the Leeds County Court against the development company for the difference. However shortly before trial the director and sole shareholder and effective owner of the development company took all the assets out of it. The director said he did this on advice and for legitimate business reasons as part of a re-organisation.
The court gave judgment against the director in an important decision, which may help creditors of private companies. The judge examined the conduct of the director and found him to have been in breach of his duty as a director.
The judge said the director owed a duty to consider the position of the Claimants as contingent creditors and to take steps to enquire as to the effects on the company of moving all of the assets out of it in those circumstances – because the company would be insolvent if, as happened, the Claimants won their case. The director was found to be in breach of his duty to the company by removing all the assets from it at the time he did. Removing all the assets went beyond what was necessary or what he had been advised to do to achieve a re-organisation, and the director should have given thought to the effect on the company of the litigation that was nearing trial and whether the company was left with enough funds to pay any judgment against it.
The director was ordered to pay back to the company enough money to cover the Claimant’s unsatisfied judgment and their costs and the costs of the company’s liquidator.
It represents an interesting judgment being a victory for the retired couple against their developer, and an interesting case on the duties of directors to creditors of companies, as previously claims against limited companies were open to being stymied by assets being moved out of the company so that, even if a company lost a case, it couldn’t pay any amount awarded to claimant.
If you are having difficulty reclaiming money from a company which has become insolvent, contact our Corporate Recovery & Insolvency Solicitors today. Please call 01924 379078 or e-mail [email protected] or [email protected] and our specialist Insolvency Law Solicitors will provide you with expert legal advice and assistance.
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