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Can director be personally liable for company penalties and interest in misfeasance?

In the matter of Listowel Trading Ltd – in liquidation, judgment was given against the director Mr Patterson for £463,046 in favour of the liquidator.

The liquidator claimed:-
• Repayment of Mr Patterson’s Directors Loan account of £66,000;
• Repayment of sums paid towards Mr Patterson’s mortgage on a property from the Company bank account for £28,000;
• Repayment of £30,000 paid to a family member;
• Unidentified cheque payments for cash of over £140,000;
• Cash and cheque takings which were unaccounted for in the books/accounts of the Company of over £18,000;
• Unaccounted for petty cash surplus of over £140,000; and
• Penalties, surcharges and interest of £76,000.

The Deputy Registrar found that Mr Patterson failed to discharge his fiduciary duties as a director in respect of the keeping of accounts and ensuring that he had knowledge of the financial position of the Company. She further found that the books of the Company were in chaos and that there was a remarkably casual attitude towards the financial affairs of the Company.

The Deputy Registrar also found that:
“It is no defence for (Mr Patterson) to say that he relied on accountants or other third parties unless he had made enquiries and has satisfied himself that they were in fact doing what he had required them to do.”

The Deputy Registrar did comment that she had a lot of sympathy for Mr Patterson, but still found against him personally in favour of the Liquidator.

Our comment

This reported case emphasises that a director must discharge his duties properly and ensure that delegated tasks are actually carried out. There are also far reaching implications in the Director being found personally liable for causing the company to suffer penalties, surcharges and interest mainly for submitting paperwork late.

It appears that Mr Patterson ran the company similarly to many other Directors of small companies. Professional advisors should ensure that their clients are properly advised about the extent of their duties as Directors, and the penalties for failing to do so. Furthermore if any company is having difficulties and the Directors may be exposed for the items described above, then those Directors should take advice from us as insolvency practitioners as soon as possible.

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