Being a company director comes with various responsibilites and duties including, but not limited to the duties outlined in the Insolvency Act, the Companies Act and in the Articles of Association of any particular company. A failure to adhere to these rules and regulations can have serious ramifications for directors including dismissal from their position, disqualification and imprisonment.
A recent High Court judgment reminds directors that not only do they need to remember their duties to the company and abide by the Companies Act but they must also adhere to court orders or face the wrath of the courts.
The case of Templeton Insurance Limited v Motorcare Warranties Limited (2012) EWHC 795 concerned the misrepresentation of insurance contracts. The Claimants, Templeton Insurance Limited (“TIL”) succesfully applied for a freezing injunction against the Defendants, Motorcare Warranties Limited (MWL). This prohibited the company from dealing with its assets outside of the normal course of its business.
Such an injunction is not awarded lightly and is ordered to preserve the assets of a Defendant so that any damages award maybe properly satisfied.
Soon after the award of the freezing injunction the officers of the Defendant incorporated, what Counsel for the Claimants described as a “phoenix company” and begun the same business as before transferring the goodwill and assets across. TIL won the claim and at the same time, issued applications for contempt of court against the officers of MWL, on the basis they had bereached the terms of the freezing injunction. The officers of MWL explained to the court the reason for setting up the second company was because the freezing injunction had virtually crippled their business. Counsel for the Managing Director of the business put forward the argument that the injunction was made against the company and therefore the Managing Director could not be held liable for the actions of the company.
The Judge held that the Respondents had taken steps to transfer the entire business to the new company. They had further known that these steps were in breach of the injunction and the steps were taken with the intention of interfering with it.
Despite the fact the injunction was made against the company, the Managing Director had been served with the Order and in incorporating a seperate business in which to transfer assets he had willingly interfered with the administration of justice. Such an action constitutesd contempt.
The Judge outlined that he would determine sentencing at a later stage but left the door open for a prison sentence.
This decision emphasises the manner in which courts will enforce freezing injunctions. The decision also emphasises the point that being a director of a company does not mean you cannot be held liable for the actions of your company in whatever guise you appear to take. The notion of limited liability gives a false impression of invinsibility in that regard. However if you can maintain your duties to your company and not fall foul of any regulations the notion of limited liability will allow your business to thrive.
If you are served with a freezing injunction don’t transfer your assets, do as you are instructed and contact Griffin Law without delay.