Cavendish IP Solutions Ltd secured a High Court judgment against an individual who operated as the de facto controller of an insolvent property development company without holding a formal appointment as a director. The court determined that this person dishonestly transferred over £1 million from the business to his own accounts via a consultancy owned by his wife.
The ruling, delivered on 28 August 2016, involved a consolidated claim brought by an assignee of the liquidator. The defendants faced a complete bar on defending the case due to serious failures in disclosure, forcing the court to evaluate the claimant’s case solely through oral evidence provided by the company’s nominal director and former staff members.
The company was established in 2011 to manage residential property interests for an offshore entrepreneur. Its registered director held the shares as a nominee and, according to his testimony, performed little more than signing documents and managing construction. The second defendant managed the finance and business side, utilizing a consultancy nominally owned by his wife to extract payments. The nominal director declared an annual salary of £12,000, a figure the judge found to be nowhere near the going rate for the work performed, especially given a later redundancy claim citing £42,300.
The court applied guidance from Revenue and Customs Commissioners v Holland [2010] and principles from Smithton Ltd v Naggar [2014]. It found no board meetings occurred, no documented decisions were made, and the nominal director simply acted on instructions. The second defendant decided which creditors to pay, instructed solicitors, dealt with employment contracts and ultimately directed the company into liquidation. He was found to be both a shadow director, because the nominal director was accustomed to acting on his instructions, and a de facto director, having assumed responsibility for the company’s affairs and sitting at what Arden LJ termed the nerve centre of its activities.
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That finding carried statutory duties under sections 172 and 174 of the Companies Act 2006. It also made the consultancy an associate for the purposes of the connected person provisions in the Insolvency Act 1986, as the wife was found to have acted on her husband’s instructions in running it. Numerous payments to the consultancy and to businesses near the couple’s home, including building works and a substantial sum linked to a company incorporated using the second defendant’s own email address, were found to be transactions at an undervalue or preferences. The company received no or negligible consideration beyond a reasonable remuneration figure the judge fixed by reference to the redundancy claim.
Insolvent trading defeats limitation defence
The claim for breach of duty was issued outside the ordinary six-year limitation period. It depended on establishing fraud under section 21 of the Limitation Act 1980. The court distinguished a bare breach of the duty to promote the company’s success from dishonest conduct, applying Armitage v Nurse and the recent appellate guidance in Saxon Woods Investments Ltd v Costa.
The judge determined that the second defendant knew of the company’s insolvent trading position from mid-2012 onward, having overseen the earlier failure of its predecessor. He knowingly allowed the business to continue trading for the benefit of himself and the offshore principal while creditors went unpaid. This course of dishonesty defeated the limitation defence and exposed him to damages for the resulting increase in the deficit. The court assessed these damages at over £900,000.
While the judgment noted the admission of a confiscation order made against the second defendant some years earlier as background context under section 7(3) of the Rehabilitation of Offenders Act 1974, the court placed no reliance on the underlying spent conviction itself as evidence of any general propensity to dishonesty. Insolvency proceedings often involve complex financial maneuvers. Handling these legal waters requires expertise.
