Litigation – Insolvency: De facto director – a practical example

28th November, 2018

Mark Baldwin of our Insolvency Service team considers the recent decision in Ingram v Singh [2018] EWHC 1325 (Ch) which dealt with the question of de facto directorship.

In this case, His Honour Judge Hodge QC had to adjudicate on claims made by a liquidator for a breach of director’s duties. To be successful against Surjit Singh (SS) the liquidator had to prove that SS had acted as a de facto director of MSD Cash & Carry plc (MSD) on 5 November 2011 when credit notes of £996,495 were raised by MSD. MSD’s appointed directors were: -

Mohinder Singh, who was SS’ father, between February 2001 and 6 June 2011
Kuldip Basi, between 15 January 1997 and 9 March 2011 – the judge found that she took no active part in the affairs of MSD
Barjit Kuman, SS’ sister, between 23 November 2011 and 6 December. She was appointed simply to place MSD into liquidation.

Considering the authorities the Judge was unable to say that SS had acted on an equal footing with the directors of MSD because there were no directors at the material time. He therefore chose to adopt the wording of Lord Justice Arden in Re Mumtaz Properties Ltd [2011] EWCA Civ 610 who considered a de facto director to be a “nerve centre” from which “the activities of the company radiated”.

The facts in relation to SS’ role were: -

He was the principal witness for the respondents and spent nine and half hours in the witness box. HHJ Hodge QC found him to be an unreliable witness;
MSD’s bookkeeper had taken instructions from SS;
SS hired and fired MSD’s staff;
SS and his wife decided who was paid by MSD;
SS dealt with suppliers and customers;
SS drove a Bentley with a cherished plate owned by MSD; and
HMRC raided SS’ home in connection with its investigation into MSD’s affairs.

Accordingly, the Judge found that “In my judgment, Surjit had assumed a role in the company, MSD, sufficient to impose upon him a fiduciary duty to MSD and to make him responsible for the misuse of its assets. I am satisfied that Surjit would act on his own authority in relation to MSD and its continuing business and that he was one of the nerve centres from which the activities of MSD radiated. I have no doubt that Surjit was acting on a superior footing to Mrs Kuman, and it was Surjit, rather than she or Mohinder, who was conducting MSD's business. At the very least, he was on an equal footing, and not subordinate, to Mrs Kuman; but I find that, in fact, he was the person running the business”.

The liquidator was therefore successful in his applications against SS.

This is an interesting illustration of the factors that will lead to a finding of de facto directorship as set out in my previous article on the topic - https://www.howespercival.com/articles/insolvency-de-facto-directorship-top-ten-tips-on-how-to-evidence-it/ - with five of the badges of de facto directorship outlined being present here.

Please contact [javascript protected email address] for more information on this subject, or to ask a question.

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Litigation – Insolvency: De facto director – a practical example

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