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01st March 2018

Company directors are stewards of their company’s property

A Supreme Court decision on 28 February 2018 has helpfully highlighted an important aspect of being a company director – stewardship of the company’s property.

In the case of Burnden Holdings (UK) Limited v Fielding & Another [2018] UKSC 14, the Supreme Court has made clear that a director who participates in the misappropriation of company property cannot expect to be able to hide behind any time limit prescribed by law for bringing claims so as to defeat an action against him to recover the property or the proceeds of the conversion of the property concerned.  The claim in this case involved a distribution of the claimant company’s shareholding in another company, which distribution had been unanimously approved by the company’s directors. Ultimately, on the assumed facts, the proceeds of sale of the shareholding were applied to the purchase of a property benefiting the directors concerned. The claim was brought by a subsequently appointed liquidator of the company.

At the heart of the decision is the fiduciary character of the office of director of a company.  The Court emphasised that a director is entrusted with the stewardship of the company’s property and owes indefeasible fiduciary duties to the company in respect of that stewardship. He is to be regarded in that context as a trustee, the company being the beneficiary of the trust.

Whilst a director may have the benefit of a six year limitation period as an answer to a claim of breach of duty, the Supreme Court has said that the section of the Limitation Act 1980 that applies to claims to recover from a trustee trust property or the proceeds of trust property will apply by direct analogy to claims of that kind against company directors. That section providesthat no limitation period in the Act will apply to such claims.

On the assumed facts in the Burnden Holdings case, the Defendant directors ‘converted’ (a legal wrong) the relevant shareholding when they procured or participated in the unlawful distribution by the company and (as the Supreme Court put it), this amounted to  a “…taking of the company’s property in defiance of the company’s rights of ownership of it…” . 

Significantly, it mattered not that the property in question had been held by corporate entities and had not vested directly in the relevant directors at any point, the directors were individually to be treated as having been in possession of the property by dint of their stewardship of it.
 

Dominic Hopkins is head of Disputes and Litigation at Hewitsons. For more information please contact Dominic on 01604 233233 or click here to email Dominic.

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