Aston Risk Management Ltd v Lee Jones & Ors.

A person may be a de facto director where, viewed objectively, he forms part of the company’s corporate governance structure and assumes the status and functions of a director. The court examines what the person actually did, the company’s governance structure, and the cumulative effect of the conduct.

Where a director or associate receives company money or another benefit, the recipient must explain the transaction, although the absence of an explanation does not automatically establish liability. The duty to promote the company’s success may require an objective assessment where the director is conflicted or creditor interests must be considered. Once insolvency is imminent or an insolvent liquidation or administration is probable, directors must give appropriate weight to creditors’ interests.

Aston Risk Management Ltd, as assignee of claims belonging to Audiological Support Services Ltd and its liquidators, sued Lee Jones and Neutrino Network Ltd after claims against the other defendants were compromised.

The issues were whether Mr Jones was a de facto director of ASS; whether he breached his duties by causing payments to Neutrino and Cumulo Accountancy and Taxation Ltd; whether he caused ASS’s business and undertaking to be transferred to Audiological Measurement and Reporting plc shortly before administration; and whether Neutrino was liable for knowing receipt.

The claim also pleaded transactions at an undervalue, but that alternative case was not pursued at trial.

1. De facto directorship. Mr Jones was a de facto director of ASS. He played a central role in its governance and day-to-day affairs, led dealings with QHS and made decisions which could properly be discharged only by a director. His conduct was not merely the exercise of shareholder oversight through ASG. The court distinguished Holland because ASG was not a director of ASS and Mr Jones’s conduct was capable of being treated as his own directorial conduct.
2. Payments to Neutrino. The MSA incorporated its Addendum. The Addendum required additional or future development work to be provided without additional consideration. The MSA also required a complete and workable reporting system. Reasonably necessary rerunning of reports could attract the contractual per-report charge, but the software development, coding and consultancy invoices fell within Neutrino’s contractual obligations and were unsupported by consideration. Mr Jones was conflicted through Neutrino and ASS was likely unable to pay its debts when later payments were made. The payments therefore required an objective assessment under Companies Act 2006, s 172, with appropriate regard to creditors’ interests. Mr Jones breached at least ss 172 and 175. Subject to duplication and quantum submissions, he was liable to account for £130,418.95 plus interest.
3. Payments to Cumulo. The three monthly £12,500 retainer payments were not justified by additional consideration. They were made when creditor interests required consideration, but there was no evidence that those interests had been weighed. Mr Jones therefore breached his duties in causing those payments. Credit was allowed for two unpaid monthly sums, producing a provisional liability of £33,900.
4. ASS business and undertaking. Mr Jones arranged a Phoenix company and used opportunities, connections and assets obtained through his de facto directorship, particularly the QHS/Quindell relationship, for AMR’s benefit. This hindered the administration and could not objectively be justified as promoting ASS’s success having regard to creditors. It breached ss 172 and 175. Equitable damages were to be assessed by reference to the value lost to ASS’s estate.
5. Neutrino. The payments received by Neutrino were made in breach of Mr Jones’s fiduciary duties. Because Mr Jones controlled Neutrino and knew the relevant facts, Neutrino was liable to account as constructive trustee for the impugned sum, provisionally £130,418.95. The transaction-at-an-undervalue claim was not determined.
6. The parties were to make further submissions on quantum, duplication, remedy, interest and other consequential matters.