Bramston & Anor v Pye & Anor

A de facto director is identified objectively by what the person actually did, viewed in context and in the round. There is no single decisive test. Administrative or managerial work, consultation on directorial decisions, equal pay, or being described as helping to run a company will not alone establish de facto directorship.

For a director’s abdication or failure to supervise to constitute misfeasance causing loss, the officeholder must identify what the director ought to have known, the steps the director should have taken, and demonstrate that the loss would have been avoided if those duties had been performed. A director must acquire sufficient knowledge of legislation governing the company’s business and maintain appropriate oversight of its finances.

The joint liquidators of IT Protect Ltd brought a misfeasance application under section 212 of the Insolvency Act 1986 against the company’s de jure director, Warren Pye, and Dawn Montague, whose alleged de facto directorship was disputed. They sought compensation for an Information Commissioner penalty, payments to connected persons, non-business expenditure, alleged void dispositions and unexplained transactions.

The central issues were whether Ms Montague acted as a de facto director; whether Mr Pye caused or knowingly allowed the company’s regulatory breaches and payments; and whether his failure to discharge or supervise his directorial functions caused the losses claimed.

1. Second Respondent. The application against Dawn Montague was dismissed. The court accepted that she performed administrative tasks, including dealing with staff, wages, filing, stationery and petty cash, but found no proof that she undertook functions properly dischargeable only by a director or was held out as one. The assessment was objective and concerned what she actually did. The absence of company records did not justify adverse inferences because the liquidators had not shown that she was responsible for their non-production.
2. Primary case against the First Respondent. A case that a director caused or allowed company misconduct requires proof of activity or conscious, knowing inactivity. Mr Pye did not know of the company’s PECR breaches or the disputed misapplications, so the primary case failed except in relation to payments he himself requested or knowingly permitted.
3. Regulatory penalty. As sole director, Mr Pye ought to have informed himself of the PECR requirements before trading, or at the latest when complaints were received. He should have ensured that data was screened against the Telephone Preference Service or subjected third-party opt-in data to reasonable due diligence. His failure breached section 174 of the Companies Act 2006 and caused the £40,000 penalty.
4. Three-stage causation analysis. For an abdication or failure-to-supervise case, the liquidators had to establish what Mr Pye knew or ought to have known, what steps he should have taken, and what would have happened if he had complied, including that the loss would not have occurred. From February 2017 he should have reviewed the company’s cashflow and banking transactions weekly, investigated unexplained payments, taken control of the bank account and preserved assets for creditors. His failure caused £63,908.50 of loss.
5. Payments to Mr Pye. The £10,000 loan repayment was improper because, by 20 March 2017, the company was or was likely to become insolvent and a reasonable and honest director could not have regarded repayment as beneficial to creditors as a whole. The £600 payment was also repayable because Mr Pye failed to prove that it was proper.
6. Final orders. Mr Pye was ordered under section 212 of the Insolvency Act 1986 to pay £40,000 for the penalty loss, £10,000 for the improper loan repayment, £600 for the unsupported payment, and £63,908.50 for losses caused by failure to monitor and supervise the company’s finances. The court reserved interest and costs.

First-instance decision. No earlier appellate decision is stated in the judgment.