Key Issue: Director's Misfeasance and Breach of Fiduciary Duties in Lion House Portfolio Ltd Case

Citation: [2024] EWHC 610 (Ch)
Judgment on

Introduction

The High Court of Justice in Gary Paul Shankland & Ors v Iain Urquhart McKeand (Re Lion House Portfolio Ltd (in liquidation)) ([2024] EWHC 610 (Ch)) addressed issues arising out of the alleged misfeasances by a director under s.212 Insolvency Act 1986 (IA86). The case stipulates challenges related to the misapplication or retention of company property and the breach of fiduciary duties by a director, dissecting principles relating to company solvency, the consideration of creditors’ interests, directorial duties, as well as concerns over due accounting and the execution of trust. The court considered a multitude of transactions, examining their legitimacy and the correct application of funds in the context of directorial responsibilities and the company’s insolvent status.

Key Facts

The facts surround Lion House Portfolio Ltd, represented by its liquidators, claiming against Mr. McKeand for misapplication or retention of its property and the breach of duty. Claims were made against Mr. McKeand for payments made to his personal account in error, misfeasance in allowing advances to business entities he controlled, and misappropriation of the Fruehauf shares.

The following legal principles were central to the case:

  1. Fiduciary Duty under Companies Act 2006: This mainly pertains to s.172, the duty to promote the success of the company, considering the interests of creditors when insolvency surfaces, as envisaged by case law referenced such as BTI 2014 LLC v Sequana SA and BNY Corporate Trustee Services Ltd v Eurosail-UK.

  2. Misfeasance under s.212 IA86: The gateway for liquidators to pursue breaches of duty and obligations for directors to account for the company’s assets misapplied or retained falsy.

  3. Director’s Liability to Account: Established by cases such as Re Idessa (UK) Ltd, when company property is misapplied, the director has to account for its use.

  4. Duomatic Principle: The consent of all shareholders can validate acts done on behalf of the company which would otherwise be invalid; however, not applied due to company’s insolvency.

  5. Relief Under s.1157 Companies Act 2006: Consideration whether a director might be relieved from liability if he acted honestly and reasonably; although in this case, it was found insufficient for relief.

Outcomes

The outcomes for the key areas of contention are:

  • The Fruehauf Shares: No claim could be made against Mr. McKeand as the shares had been beneficially his under a trust deed; thus, they could not be considered assets of Lion House.

  • CorpAcq Payment: Mr. McKeand was found liable to account for the sum received in his personal account, and compensation was to be assessed through further inquiry.

  • Advances to Connected Companies: Mr. McKeand was responsible for the net balances loaned post 28 November 2013 to Mac Capital, Mac1 Sports, Country Park, and Accrued Equities. Losses associated with these advances were to be determined.

  • Now Technologies Shares: Mr. McKeand was liable for the full amount used to purchase shares in Now Technologies.

Conclusion

ICC Judge Prentis’ judgement in Shankland & Ors v McKeand establishes firm guidance on the complexities surrounding directors’ duties and misfeasances under the IA86. The case uniquely highlights the importance of due financial process, the distinction between a director’s personal interests versus those of the company, and the fiduciary responsibilities owed, especially in insolvency. It reiterates that entitlements under apparent trust deeds will not supersede creditor interests and affirms limits on relief provisions under company law. Given the intricacies noted, this case will serve as a significant reference point in the conduct of company directors and their dealings with company assets.