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Personal liability for a company's debt
Roder UK Ltd v A.J West and D.M. Phillips (2011) EWCA Civ 1126
This is an important case looks at whether directors of a company can be held personally liable for debts of a company, where they have made deceitful declarations to creditors of the company regarding the settlement of debts.
A company agreed a repayment schedule with a creditor but failed to keep up the repayments. The directors made two false claims to the creditor company:
- That they were expecting a pay-out from their insureres that would enable them to settle their debts, and
- That the company was selling its business and that all creditors would be paid in full.
As a consequence of these statements, the creditor held off from taking any legal action to recover the outstanding debt.
The statements made by the directors both turned out to be false and the company ceased trading, leaving the creditor unpaid. Consequently, the creditor company brought a court action against the directors of the debtor company for deceit.
The tort of deceit means dishonest or false conduct or false statements made knowingly which are expected to be believed and have reliance placed upon them. The person liable for the deceit is personally liable for all losses directly caused by the deceit, even if those losses cannot be foreseen.
HELD: It was held by the Court of Appeal that the directors had been guilty of deceit and were therefore personally liable for the company's debt to the creditor.