PSV 1982 Limited v Sean Anthony Edward Langdon

Under the Insolvency Act 1986, a person who contravenes section 216 by managing a company under a prohibited name becomes personally and jointly and severally liable under section 217 for the company’s relevant debts. A judgment or order against the company establishes the debt’s existence, date and legal effect for that purpose. The creditor need not re-prove the company’s liability in proceedings against the director, although the judgment does not make its factual findings binding on him as a stranger. For a contractual claim, the relevant liability to pay damages is incurred on breach, not when the contract is made. Clear statutory language is not displaced by general concerns about penalisation or the rule against binding strangers to judgments.

PSV, as assignee of claims against Discovery Yachts Group Ltd, sought to recover a judgment debt from Mr Langdon under sections 216 and 217 of the Insolvency Act 1986. Mr Langdon had admitted contravening section 216. The underlying liability had been established in Commercial Court proceedings against the company, in which he was not a party.

On preliminary issues, the Deputy High Court Judge held that section 217 automatically made the director responsible for a liability established against the company, and that a contractual liability was incurred on breach rather than contract formation: [2021] EWHC 2475 (Ch). The appeal concerned whether the company judgment was sufficient to establish the debt against the director and when the relevant contractual liability was incurred for section 217(3)(a).

1. Appeal dismissed. Lady Justice Asplin gave the leading judgment. Lord Justice Arnold and Lord Justice Lewison agreed, making the decision unanimous.
2. Section 217. The natural and ordinary meaning of section 217, read in the context and purpose of the Insolvency Act 1986, is that a person involved in management in contravention of section 216 becomes personally responsible for the company’s relevant debts and is jointly and severally liable with the company. The provisions address wrongful conduct associated with insolvent companies, including the phoenix-syndrome mischief, and protect creditors by widening the pool of persons from whom recovery may be sought.
3. A judgment or order binding on the company is sufficient to establish the company’s debt for section 217 purposes. The order is conclusive as to its own existence, date and legal effect. It is unnecessary to rely on, or re-prove, the underlying findings of fact or reasoning against the director. The director’s liability arises from the statute, rather than from treating him as bound by a judgment in proceedings to which he was a stranger. Accordingly, the rule in Hollington v Hewthorn, as discussed in Ward v Savill, had no application. The potential unfairness was outweighed by the creditor’s position and the director’s available safeguards, including an application under rule 40.9 of the Civil Procedure Rules 1998, possible procedural challenges, permission under the insolvency rules, or resignation.
4. Time when liability is incurred. For section 217(3)(a), a contractual debt or liability to pay money is incurred when the contract is breached. At contract formation the company’s primary obligation was to perform repairs; the secondary monetary obligation arose only on breach. The special definition of moratorium debt considered in Re Millwall Football Club and Athletic Co (1985) plc did not govern section 217. The judgment debt, costs and interest were in any event established by orders made while Mr Langdon was a director.
5. The appeal was dismissed on both grounds. No separate recourse to the factual findings in the underlying company proceedings was required in this judgment-debt case.

• Court of Appeal (Civil Division): The appeal from the preliminary-issue decision was dismissed unanimously on both grounds: [2022] EWCA Civ 1319 .
• High Court of Justice, Business and Property Courts, Business List (ChD): The Deputy Judge held that section 217 automatically imposed liability for a debt established against the company and that the relevant contractual liability was incurred on breach: [2021] EWHC 2475 (Ch).