When can company directors be personally liable?

1st May 2019

Andrew OberholzerThe recent High Court case of Antzuzis & Others v DJ Houghton Catching Services & Others [2019] EWHC 843 (QB) is a stark reminder of how company directors can be personally liable for their acts. DAS Law Solicitor Andrew Oberholzer explains.

The claimants in the case were chicken farmers who worked for DJ Houghton Catching Services Ltd (D1). They were Lithuanian nationals and claimed that they had been required to work in an exploitative manner by D1.

The claimants had been expected to work excessive hours, did not receive the minimum wage, were paid less than the amount stated on their payslips, did not receive holiday pay, and were not allowed to take time off for bereavement. These serious breaches of their employment rights were caused by the director and secretary of the company, and the High Court went on to find that not only was D1 culpable, but that the named individuals were also liable for the wrongdoings.

Here the High Court revisited the law concerning the question of when officers of a company can be held personally liable for torts committed ostensibly through a company. The court clarified the test to be adopted, namely: directors will not be liable for the acts of their company, if in their capacity as directors, they are not in themselves in breach of any fiduciary or other personal legal duties owed to the company.

Courts and tribunals will therefore need to examine whether a director is acting within, or outside the remit of their contract, and also if acting in that manner is aligned with, or contrary to the interests of the company. If it finds the latter in response to these questions, a director will fall foul of the test. That director’s action will not be considered to be bona fide, which will invite personal liability – allowing a third party to sue them as well as the company for a loss.

But not all contractual breaches by a director will have this result. The High Court identified the duties in sections 172 and 174 Companies Act 2006 as being a suitable guide to assess if a director’s breach is sufficiently serious.

It then drew an analogy between a director who deliberately breached the terms of a contract with a supplier by failing to pay a bill on time, to protect his company’s cash flow (no personal liability), and a director who uses horse meat instead of beef in burgers because it is cheaper (personally liable).

The latter breach opened the company to a degree of reputational loss which it may never recover, and would have also breached a number of statutory provisions; as such, the conduct was sufficiently seriously to mean the director failed to act bona fide to the company.

In this case the defendants had failed to comply with the National Minimum Wage, and did so with intent, and this factored into the court’s decision; however, the court ultimately found it was more the fact the Directors had wrecked the reputation of the company in the eyes of the community which rendered their conduct as falling outside the scope of their authority, and contrary to the interests of their company.

The court concluded the desire to maximise the profits of the company in the manner in which they did, were neither in the interests of the company nor its employees.

The case highlights an important consideration for both claimants and respondents – that of determining the most appropriate party in a case. It may be thought of as preferable for a claimant to issue against both an individual and their employer as the liability may then be shared jointly between the two.

The thinking here is that if one cannot pay the debt the other will have to, in terms of enforcing a judgment – particularly useful if the company is insolvent. However in tactical terms this is a delicate question to address, because naming directors when they are clearly not liable will open a litigant to costs.

Nevertheless, this should serve as an important reminder to directors of companies that ‘limited’ is not a blanket protection, and they will not be able to hide behind the name of their company to escape liability if it can be argued that they have acted without authority, and/or against the interests of the company.

Disclaimer: This information is for general guidance regarding rights and responsibilities and is not formal legal advice as no lawyer-client relationship has been created.

The Big Gig Rejig – what employers should know about the gig economy

DAS Law Solicitor John Griffiths explains what the ‘gig economy’ means and how businesses can help themselves today when it comes to clearly defining the status of their people.

March 2019 Learn more
Cancellation: “Hi, Domino’s? Yeah, I’ve changed my mind, keep it.”

Can we cancel when buyer’s remorse occurs? The answer is often yes, but it can turn on some surprisingly arbitrary points.

March 2018 Learn more
Is suspension from work a neutral act?

A decision in a recent case determined that suspension was not a ‘neutral act’ and can amount to a breach of trust and confidence.

January 2018 Learn more

Read more from the DAS Law blog

Employment disputes How to deal with mental health discrimination at work

There are legal protections in place to support those with a mental health condition. Here’s what you need to know if you are being treated unfairly at work because of your mental health.

October 2020
Protecting your business Farms and trespassing: know your rights

Mark Woodman, solicitor at DAS Law, looks at what farmers need to know about trespassing.

August 2020
Protecting your business Fly tipping: what you need to know

Just 3.6% of fly-tipping and other environmental damage complaints led to penalties in 2019. Mark Woodman looks at the law on fly tipping.

August 2020
Employment disputes , Growing your business , Protecting your business , Setting up a business Farming tenancies: what you need to know

Mark Woodman, Solicitor at DAS Law, looks at what farmers need to know regarding a Farm Business Tenancy.

August 2020
Employment disputes Employing farm workers: what you need to know

Finding employees who will be a long-term asset for your business can be an arduous and stressful process. Here are the myriad rules and regulations that you need to be aware of from the outset.

August 2020
Employment disputes , Protecting your business What businesses need to do when coming out of Covid-19 lockdown

The government recently announced the easing of lockdown restrictions for many businesses across the country. Nevertheless, health & safety and social distancing measures still apply.

July 2020
Employment disputes , Protecting your business 6 tips for giving your business a “spring clean”

As we slowly exit lockdown, this is the ideal opportunity to spend some time giving your business a ‘spring clean’. Hayley Marles has six tips for a clean and tidy SME.

July 2020
Employment disputes Can employees refuse to return to work if they feel unsafe?

Can an employee refuse to return to work due to fears of contracting Covid-19? Where does the law stand if employees decide to ‘take a stand’?

July 2020
Employment disputes Flexible furlough: what you need to know

Employers are left trying to understand how the recently ‘flexible’ CJRS can be used as we come out of lockdown and more businesses reopen and bring back their workforces.

June 2020
Employment disputes Redundancy: an employer’s guide

Hayley Marles and Simon Roberts – both Senior Associates at DAS Law – look at what an employer needs to know about redundancy.

June 2020
Employment disputes Redundancy: an employee’s guide

Hayley Marles and Simon Roberts – both Senior Associates at DAS Law – look at what an employee needs to know about redundancy.

June 2020
Employment disputes , Protecting your business The return to work: a guide for employers

Lucy Kenyon looks at what employers need to consider when returning employees to work.

May 2020
Growing your business , Protecting your business , Setting up a business How to make business decisions ‘virtually’

The Covid-19 pandemic and social distancing bought into sharp focus the need for all organisations to consider their decision making processes.

May 2020