Directors’ personal liability for tax breaches
Under s212 of the Insolvency Act 1986, Liquidators have the power to pursue compensation from directors who breach their fiduciary duties to the Company.
In the recent case of E D Games Limited  EWHC 223 (Ch), the liquidators brought such a claim against the director. It resulted from his failure to submit VAT returns or pay VAT or any tax for a period of 22 months before the company went into liquidation. The liquidators claimed that the funds that should have been paid to HMRC in respect of VAT were used to fund the continued trading of the company beyond the point it would have otherwise ceased to trade. The continued trading generated a further loss to the company.
The director tried to claim that any losses were not the company's but the creditors' and he could not be held personally liable. The High Court held, however, that the liquidators' claim did support a basis from which, at least in principle, it could be shown that the director's breach of duty caused loss to the company and was, therefore, recoverable under s212.
The scope of this case is not limited to HMRC and the principle could apply to any creditor. It further supports the necessity of directors seeking advice as soon as possible from a licensed insolvency practitioner if they believe their company is in financial difficulty, in order to limit the risk of personal liability.
Caroline Stark is a senior manager at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this blog with Caroline you can call her on 01727 869141.
Date: 29th October, 2009
Articles from this Author
28th November, 2016
Buying a Business - Due diligence and identifying potential risks and exposures
8th December, 2014
Labour’s warning on higher tax penalties
24th March, 2014
RTI Teething Problems
5th October, 2011
Incomplete records will not avoid repayment of Directors’ debts
Contact a Partner
Lisa Spearman, Private Client Partner advises on 'Tales of the unexpected : UK tax where you didn’t think you would… twitter.com/i/web/status/1…
Observations on the government consultation response of 26 August 2018 by Chris Laughton, a corporate advisory part… twitter.com/i/web/status/1…
For the latest Mercer & Hole news, visit our LinkedIn page mercer-&-hole