Insolvency Act 1986, section 217

Personal liability for debts, following contravention of s. 216

Part IV Winding Up of Companies Registered under the Companies Acts

(1)A person is personally responsible for all the relevant debts of a company if at any time—

(a)in contravention of section 216, he is involved in the management of the company, or

(b)as a person who is involved in the management of the company, he acts or is willing to act on instructions given (without the leave of the court) by a person whom he knows at that time to be in contravention in relation to the company of section 216.

(2)Where a person is personally responsible under this section for the relevant debts of a company, he is jointly and severally liable in respect of those debts with the company and any other person who, whether under this section or otherwise, is so liable.

(3)For the purposes of this section the relevant debts of a company are—

(a)in relation to a person who is personally responsible under paragraph (a) of subsection (1), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company, and

(b)in relation to a person who is personally responsible under paragraph (b) of that subsection, such debts and other liabilities of the company as are incurred at a time when that person was acting or was willing to act on instructions given as mentioned in that paragraph.

(4)For the purposes of this section, a person is involved in the management of a company if he is a director of the company or if he is concerned, whether directly or indirectly, or takes part, in the management of the company.

(5)For the purposes of this section a person who, as a person involved in the management of a company, has at any time acted on instructions given (without the leave of the court) by a person whom he knew at that time to be in contravention in relation to the company of section 216 is presumed, unless the contrary is shown, to have been willing at any time thereafter to act on any instructions given by that person.

(6) In this section “company” includes a company which may be wound up under Part V.

Definitions used in section 217 1

the company

2 Section 233B does not apply in relation to a contract for the supply of goods or services to a company (“the company”) where any of paragraphs 3 to 11 applies.

Defined in Sch.4ZZA para.2 · see it in the full Act

Cases considering section 217 14

PSV 1982 Limited v Sean Anthony Edward Langdon

[2022] EWCA Civ 1319 · 12 October 2022Interprets

The court construed section 217 as imposing personal responsibility on a director who satisfies its conditions, without requiring a separate determination of the company’s debt against him (see paras [37]-[47]). Section 217(1) was read as making the person personally responsible for relevant company debts once its conditions were met. The liability operates by force of the statute (see paras [37]; [41]-[42]). The court applied the condition that personal responsibility follows where the person is involved in management in contravention of section 216 (see paras [37]; [44]-[45]). The court confirmed that the statutory liability is joint and several with the company and any other person liable for the debt. This supported reading section 217(3) as concerning liabilities enforceable against the company (see paras [37]; [56]). The court construed the definition of relevant debts as controlling which company liabilities fall within the personal liability, by reference to when they were incurred (see paras [44]; [48]-[57]). For a contractual claim, the relevant debt or liability is incurred when the contract is breached, because the monetary obligation to pay damages arises then, not when the contract is formed. The provision therefore covered the breach occurring during the section 216 contravention (see paras [48]; [52]; [55]). The court applied the management criterion on the accepted basis that a director involved in management falls within the provision (see paras [20]; [26]).

Churchill & Anor v First Independent Factors & Finance Ltd

[2006] EWCA Civ 1623 · 30 November 2006

Provides the statutory civil consequence of contravening section 216. The court applied that regime in holding that a later notice could not retrospectively remove liability for debts incurred during the prior contravention (see paras [3]-[5]; [46]). Makes a person who contravenes section 216 personally responsible for the company’s debts and liabilities incurred while acting in contravention. A later rule 4.228 notice could not retrospectively remove that liability (see para [46]).

ESS Production Ltd (In Administration) v Sully

[2005] EWCA Civ 554 · 11 May 2005Limits

The section imposes strict personal liability upon a director involved in managing a company in contravention of section 216, subject to leave and the prescribed exceptions. (see paras [19]-[20]; [61]) Personal responsibility arises where a person is involved in management in contravention of section 216 or knowingly acts on the instructions of a person in contravention. (see paras [74]-[78]) Personal liability is restricted to debts incurred while the company was known by a prohibited name and, where it used multiple names, to debts incurred in the course of business under the prohibited name. (see paras [74]-[81]) The subsection must be read as applying only while there is a contravention of section 216. Liability does not extend to all debts incurred throughout a directorship irrespective of whether the company was then known by a prohibited name. (see paras [75]-[78]) Liability for acting on instructions must likewise be confined so that it does not exceed the debts incurred under the prohibited name. (see paras [75]; [78])

What each judgment says about section 217 is in the case-law panel in the full Act.

Amendments and notes

2 notes from legislation.gov.uk

Modifications

  1. C686S. 217 applied (with modifications) (17.2.2009 for certain purposes, otherwise 21.2.2009) by Banking Act 2009 (c. 1), ss. 103, 263(1)(2) (with s. 247); S.I. 2009/296, arts. 2, 3, Sch. para. 2
  2. C687S. 217 applied (with modifications) (8.7.2021) by The Payment and Electronic Money Institution Insolvency Regulations 2021 (S.I. 2021/716), regs. 2, 37 (with reg. 5) (as amended (4.1.2024) by S.I. 2023/1399, regs. 1(2), 4, 11)