Directors who mislead creditors become personally liable

I had this legal update on email yesterday from a law firm based in Sheffield called HLW. It struck me as important so I wanted to share it. The important element jumping off the page is be careful what you say when you are under pressure.

When a supplier to a marquee company was not paid for goods it had supplied, one of the Directors told the supplier that the company was waiting for an insurance claim to be settled, after which payments would be made as usual.

In reality, there was no insurance claim pending. Another Director of the marquee company then claimed that it was being sold and that when the sale went through, the creditors would be paid.

When the supplier remained unpaid, it not only claimed against the marquee company but also sought damages from the two Directors.

The supplier argued that both the representations made to it were false and that it relied on them to its detriment, because it had, as a result, not issued proceedings earlier. In particular, it had not exercised its rights under a Retention of Title Clause.

The Judge rules that the first representation was made falsely and the second was made recklessly because it was made without regard to whether the company could or could not pay its creditors. The supplier had suffered as a result because it had relied on the representations as the actions of the Directors had dissuaded the supplier from repossessing its goods or suing for the outstanding sums due to it.

Accordingly, the Directors had committed a deceit on the supplier and were personally liable to it for the sum it would have been able to recover under its Retention of Title Clause.

Directors should take note that your responsibilities as an officer of the Company can mean business debts can become your personal liability. For more information or to discuss how Directors and Shareholders can be protected when a Company is facing creditor pressure or indeed business bankruptcy please contact Phillip Evans

Useful Resources and Further Reading:

Fast application,
fast funding,
friendly service.

Applying won’t hurt your personal credit.