RUSHBROOKE UK LTD v 4 DESIGNS CONCEPT LTD

A company with two directors cannot ordinarily commence proceedings on the authority of one director alone where there is no board resolution, delegation or special resolution authorising the step. A managing director may have implied powers in some circumstances, but that question does not arise where there is no managing director. An estoppel may prevent reliance on the absence of authority only where the necessary representation and reliance are established. A director who knows, or should know, that the company is or is likely to become insolvent must consider creditors’ interests. That duty does not itself authorise another director to litigate for the company.

The applicant company sought an injunction restraining the respondent creditor from presenting a winding-up petition after service of a statutory demand. The company had two directors and equal shareholders who were in dispute. One director instructed solicitors to issue the application without the agreement of the other director, a board resolution, or any established delegation.

The court considered the admissibility of late evidence and the authority to litigate. The applicant accepted that the statutory demand had been properly served. The central issue was whether one director could authorise proceedings in the company’s name where the other director opposed them and was said to have withdrawn from the company’s day-to-day business.

1. Application struck out. The application was issued without authority because the company’s two directors had not resolved to commence proceedings and there was no relevant delegation or special resolution.
2. Under the company’s articles, based on Table A, the company’s business was managed by the directors collectively. The powers to appoint an agent or delegate powers did not assist because no appointment or delegation had occurred. The principle in Mitchell & Hobbs (UK) Ltd v Mill [1996] 2 BCLC 102 applied to the present two-director dispute.
3. Smith v Butler [2012] EWCA Civ 314 qualified the wider reasoning in Mitchell & Hobbs by recognising that a managing director may in some cases have implied authority to commence or defend proceedings. That qualification did not affect this case, which had no managing director and involved two directors who would not agree to ratify the proceedings.
4. Fusion Interactive Communication Solutions Ltd v Venture Investment Placement Ltd [2005] EWHC 736 (Ch) was fact-specific. Its reasoning about directors preventing proceedings to address their own breach, or about an estoppel arising from representations concerning authority, did not apply. The respondent was a third-party creditor and had made no representation that the absence of authority would not be relied upon.
5. The other director’s withdrawal from hands-on employment did not end his office as director or make the applicant’s director the sole director. The court also accepted that the evidence established the trigger for the creditor-interest duty: the director knew or should have known that the company was or was likely to become insolvent. That explained his support for the creditor, but did not confer authority to litigate.
6. Late evidence was admitted. Even if relief from sanctions had been required, fairness and the absence of prejudice justified granting it.