James Kaye & Ors v Vision Payroll Limited & Ors

A de facto director owes the same fiduciary and statutory duties as a de jure director. Delegation, absence, ignorance of the company’s affairs, or reliance on an external administrator does not remove the duty to supervise or responsibility for authorised acts.

Under sections 172 and 174 of the Companies Act 2006, a transaction must be assessed by reference to the director’s good-faith consideration of the company’s interests and, where necessary, by the objective standard of a reasonably diligent director. Where insolvency is present or imminent, creditor interests must also be considered.

Equitable compensation for diversion of company assets is ordinarily measured by the amount required to restore the company’s position, subject to causation and properly evidenced credits.

The claim was brought by the joint liquidators and the company against the company’s de jure director and a conceded de facto director. The defendants had caused payroll receipts from two major agency relationships to be paid into another company’s bank account.

The defendants relied on an alleged agreement transferring the relevant business and argued that the transaction benefited the company. The court considered whether the agreement was authentic and effective, whether the workers and agency contracts had been transferred, whether the defendants breached their duties under sections 172 and 174 of the Companies Act 2006, and the appropriate measure of equitable compensation.

1. Liability. The court found that the second defendant was a de facto director and the third defendant was a de jure director. Both owed the same fiduciary and statutory duties. Both acted in breach of section 172 and, at least negligently, in breach of section 174 of the Companies Act 2006.
2. The alleged agreement was not proved authentic. In any event, it did not transfer the agency contracts or the relevant workers. The agencies were not told of, and had not consented to, the transfer. The company therefore remained liable for the relevant PAYE, NIC and VAT liabilities.
3. The diversion of a substantial and profitable business in return for a small and unpaid share of profits could not objectively promote the company’s success. The court was not satisfied that the directors had actually considered the company’s interests. The company was insolvent, or likely to become insolvent, and the duty to consider creditors was engaged.
4. Delegating administration to ADL did not alter the directors’ duties. They remained responsible for supervision, record keeping and acts authorised through the delegate. Ill health, inactivity, lack of understanding and reliance on another director were not defences.
5. Equitable compensation was assessed by the sum required to restore the company to the position it would have occupied absent the breaches. The relevant starting point was the total diverted payments, less appropriate credits for payments made to workers. The Liquid credits were sufficiently evidenced. The Sanctuary pre-liquidation credits required further evidence and were adjourned to the consequentials hearing. The post-liquidation Sanctuary payments were not recoverable.
6. The section 423 claim under the Insolvency Act 1986 was not considered further because it added nothing once the breach of duty claim succeeded. Relief under section 1157 of the Companies Act 2006 was refused.

First-instance decision. The judgment records no prior appellate decision.