The UK Supreme Court recently took a tough stance on errant directors. The fiduciary nature of directors’ duties meant that company property was entrusted in them and, as such, there could be no shelter of a limitation defence when company property was transferred for their benefit. Nor would corporate structuring insulate them from having “possession.”
The case, Burnden Holdings (UK) Limited v Fielding & Anor, concerned an action by the liquidators of Burnden against a number of the company’s former directors. It was alleged that a 2007 distribution by the directors of the company’s shareholding in a subsidiary, to another company in which they were majority shareholders and directors, was unlawful and in breach of their fiduciary duty.
As the distribution had occurred more than six years before the issue of the claim, the Defendants successfully applied for summary judgment on the basis that the claim was statute-barred. On appeal, it was held that time did not run against the company as the six year limitation period prescribed by the Limitation Act (s.21(3)) was not applicable to actions by a beneficiary to recover trust property, or the proceeds of trust property, from a trustee. The Court regarded company directors as trustees for these purposes who “are entrusted with the stewardship of the company’s property and owe fiduciary duties to the company in respect of that stewardship”.
Importantly, the fact that the assets remained legally and beneficially owned by various corporate vehicles throughout the misappropriation did not provide an escape route. The misappropriation of the company’s property amounted to conversion their own use because they stood to derive the economic benefit by being majority shareholders in the company to which the shares were transferred.
The decision treats individual directors as being in possession of company property by virtue of their office from the outset. Directors should take note that transactions to related entities will be heavily scrutinized by future liquidators who now have time on their side.
Counsel for the liquidators was David Chivers QC who is also currently acting as one of the Judges of the BVI Commercial Court.