Invenio Business Solutions Limited & Anor v Manish Goyal & Anor

A director’s duty under Companies Act 2006, section 172 is fundamentally subjective. The court may nevertheless reject a claimed belief where the surrounding evidence shows that it was not honestly held. Section 174 imposes the statutory standard of reasonable care, skill and diligence. A conflict under section 175 is assessed objectively. Gross misconduct need not involve fraud or dishonesty, but must be assessed in the context of the employment relationship and its effect on trust and confidence. A bad-leaver clause is construed according to its natural and ordinary meaning. Where the clause refers to the circumstances relied upon as the reason for termination, undiscovered misconduct cannot retrospectively become that reason. A director must disclose his own wrongdoing where the duty of loyalty requires it, and equitable relief may prevent him benefiting from concealment.

The claimants, Invenio Business Solutions Limited and Invenio Business Solutions Holdings Limited, sought declarations and injunctive relief concerning the defendants’ classification as bad leavers under IBSHL’s articles of association. The claimants alleged breaches of directors’ duties, improper expenses, failures concerning company loans and improper accounting treatment.

The first defendant was a founder, director and finance director. The second defendant was his wife, a shareholder and junior part-time employee. The court considered whether the alleged conduct justified summary dismissal, whether it fell within the bad-leaver definition, whether the first defendant breached a duty to disclose his wrongdoing, and whether the second defendant’s shares were within the relevant transfer provisions as shares held by a privileged relation.

1. Directors’ duties. The duty under section 172 of the Companies Act 2006 is subjective, but the court may reject a director’s professed belief where substantial detriment, unreasonable conduct or other evidence shows that the belief was not honestly held. Section 174 contains an objective minimum standard, raised where the director has greater knowledge, skill or experience. The section 175 conflict test is objective and asks whether a reasonable person would see a sensible possibility of conflict.
2. Findings against Mr Goyal. The undocumented routing of employee-loan repayments into the finance director’s personal account was a clear breach of duty. It was conduct inconsistent with the employment relationship and sufficiently grave to justify summary dismissal. The unapproved family travel expenses also established breaches in relation to several India trips. The claims concerning relocation expenses, the FRCS accounting treatment and Apple products were not proved.
3. Bad-leaver construction. The articles referred to the reason for the cessation of employment and to circumstances which would entitle the company to summarily dismiss the employee. The relevant reason was the reason relied on by the company when employment ended. Although Mr Goyal’s conduct would have justified summary dismissal, those matters were not the grounds relied on at the time and therefore did not satisfy the primary bad-leaver limb.
4. Concealment and relief. A director’s fiduciary duty includes disclosure of his own wrongdoing. The failure to disclose the loan and credit-card misconduct had a sufficient connection with the financial benefit that Mr Goyal would obtain by avoiding the bad-leaver provisions. Had the matters been disclosed, they would inevitably have been grounds for dismissal and the bad-leaver provisions would have applied. A permanent injunction was therefore granted to prevent Mr Goyal asserting that he was not a bad leaver.
5. Mrs Goyal and the shares. The claims did not establish conduct justifying Mrs Goyal’s summary dismissal, so she was not herself a bad leaver. However, she was a privileged relation under the articles. Her shares were therefore included within the leaver’s shares subject to the transfer notice arising from Mr Goyal’s bad-leaver status.

Declarations and injunctive relief were granted. An account would be ordered if still required. Costs followed the event, subject to existing costs orders and detailed assessment.