PSV 1982 Limited v Sean Anthony Edward Langdon

The Court of Appeal construed sections 216 and 217 of the Insolvency Act 1986 as creating an automatic civil liability on a person who, in contravention of section 216, is involved in the management of a company: once the company's liability is established (for example by judgment), that debt is a "relevant debt" for the purposes of section 217 and the defaulting director becomes personally responsible for it without separate proceedings against him. The court also held that, for contractual claims, a company's liability to pay damages is "incurred" when the contract is breached rather than when the contract was entered into, so that section 217(3)(a) looks to the date of breach. The appeal against the deputy High Court judge's ruling was dismissed.

Background and parties: PSV 1982 Limited (assignee of claims made by Andrew France and Elusive Yachting Ltd) sued Mr Sean Langdon seeking to recover sums recovered against Discovery Yachts Group Limited ("DYGL") on the basis that Mr Langdon was personally responsible under sections 216 and 217 Insolvency Act 1986. DYGL had been ordered to pay judgment in the Commercial Court (Teare J) on 19 December 2019 and consequential orders followed. Mr Langdon was not a party to the Commercial Court proceedings but had been a director of related companies and accepted he had contravened section 216 from October 2017.

Nature of the claim (i): PSV sought to recover £1,125,824 from Mr Langdon as jointly and severally liable under section 217 IA 1986 in respect of debts and liabilities established against DYGL.

Issues framed by the court (ii):

• whether a judgment or consequential orders establishing a company's liability in earlier proceedings (to which a director was not a party) could be relied upon to establish the "relevant debts" for the purposes of sections 216 and 217; and
• whether a company's liability is "incurred" for section 217(3)(a) when the underlying contract is made or when the contract is breached (i.e. when a liability to pay money arises).

Court's reasoning and decision (iii): The Court of Appeal concluded that the ordinary meaning of section 217 is that a person contravening section 216 becomes personally responsible for the company's "relevant debts" once those debts are established and the statutory requirements are satisfied. That interpretation accords with the statutory context (Chapter X of the Insolvency Act) and the mischief targeted by the provisions (the "phoenix" problem and protection of creditors), and does not offend the rule that a stranger is not bound by a judgment because the statute itself creates the personal liability. The court further held that in contractual cases the liability to pay damages is a monetary obligation that arises on breach; accordingly a "relevant debt" for section 217(3)(a) is incurred on breach rather than on contract formation. The court dismissed the appeal and upheld the deputy High Court judge's conclusions.

Procedural posture: Appeal from Deputy Judge Robin Vos sitting in the Business and Property Courts (Chancery Division) whose judgment is reported at [2021] EWHC 2475 (Ch). The underlying Commercial Court judgment relied upon was [2019] EWHC 3552 (Comm).

Appeal dismissed. The Court of Appeal held that: (1) the natural and ordinary meaning of section 217 IA 1986 is that a person who contravenes section 216 and is involved in the management of a company becomes personally responsible for the company's "relevant debts" once those debts are established (for example by judgment) and there is no requirement for separate proceedings against the director; and (2) for contractual claims a company's liability to pay damages is "incurred" when the contract is breached, not when the contract was entered into. These constructions accord with the statutory context and the remedial purpose of the provisions in protecting creditors from phoenix-type abuses.

Appeal to the Court of Appeal (Civil Division) from the High Court of Justice, Business and Property Courts (Chancery Division), Deputy Judge Robin Vos [2021] EWHC 2475 (Ch). The underlying Commercial Court judgment on the substantive claim against DYGL was given by Teare J: [2019] EWHC 3552 (Comm). The Court of Appeal delivered its judgment [2022] EWCA Civ 1319 dismissing the appeal on 12 October 2022.