Hill & Anor v Secretary of State for the Environment, Food and Rural Affairs

An agreement made by a company through the unlawful management of an undischarged bankrupt is not thereby unenforceable. The public policy underlying Company Directors Disqualification Act 1986, section 11, protects those dealing with and extending credit to companies, including their creditors. Denying the company a remedy would prejudice that policy. Whether a person is concerned in a company’s management depends on the substance of his role and its connection with central administration, solvency or probity, rather than on the particular transaction viewed in isolation. A transaction is not a sham merely because one party had an improper motive where the company itself was genuine and was the true contracting party.

The claimants sought payment from the defendant department for cleansing and disinfecting farm premises after the slaughter of livestock during the 2001 foot and mouth epidemic. The claims included contractual payment, a quantum meruit, compensation for destroyed items and damages for property damage.

The defendant alleged that the contracts were unenforceable because the first claimant, an undischarged bankrupt, had managed the second claimant company contrary to section 11(1) of the Company Directors Disqualification Act 1986. It also alleged lack of authority and that the agreements were shams designed to conceal claims belonging to the bankrupt’s estate. The court considered the enforceability of the agreements, the company’s title to sue, and the related contractual, restitutionary and property-damage claims.

1. Illegality. The public policy underlying section 11(1) of the Company Directors Disqualification Act 1986 was protection of persons who might extend credit to a company managed by an unfit person. That policy would be undermined, rather than advanced, by preventing the company from suing on its contracts. Section 15, which makes the bankrupt personally liable for the company’s debts, also assumes that the company’s contracts remain enforceable. The illegality defence therefore failed: paras [10]-[12].
2. Management. The first claimant had in practice run the company’s business and was concerned in its management. Whether conduct amounts to management is assessed in the context of the person’s overall role. The contracts concerned the company’s only immediate source of income after the destruction of its business and were important decisions involving labour and machinery. They were not merely isolated operational acts: paras [13]-[15].
3. Sham. The agreements were genuine agreements between the company and the defendant. Even if the claimant had an improper motive towards his trustee in bankruptcy, that motive did not transmute the company’s contractual entitlements into after-acquired property or make the agreements shams. The company had title to sue: paras [16]-[19].
4. Other claims. The defendant was liable for the signed-off timesheets and plant hire. The later work was recoverable on a quantum meruit, with the timesheets being the best evidence of the work and remuneration. The defendant was also liable in negligence for damage to the polytunnels and gates caused during slaughter and carcass removal. The claimant established title to sue for the polytunnel damage, while the fence-post and rail claim was not proved: paras [20]-[34].
5. The buried or destroyed animal feed was treated as seized and destroyed under article 2(1) of the Diseases of Animals (Seizure) Order 1993, giving rise to a compensation claim under section 36(1) of the Animal Health Act 1984, as stated in the judgment: para [35].