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The application was brought against Ms Stanbury as a director of CSB 123 Ltd (“SC1”) under s.212 of the Insolvency Act 1986 (the “misfeasance” provision). It was wrongly alleged by Mr Reynolds that she transferred the business and assets of SC1 for no consideration in breach of her duties under ss171 to 175 of the Companies Act 2006 and that the alleged transfer constituted an unlawful distribution of capital.
The burden was on Mr Reynolds to prove his case. Only had he been able to show, on a balance of probabilities, a transfer of business and assets from SC1 would the evidential burden then have shifted to Ms Stanbury to show the transfer was proper. He did not reach this second stage.
The decision deals comprehensively with personal goodwill, a concept not dealt with at great length in many authorities. Ms Stanbury is a well-known personal stylist who has styled a select group of extremely high net worth individuals. The court held that these clients came to Ms Stanbury because of her personal talent, her reputation and her connections. SC1, through which she styled, had no goodwill of its own and may as well have been called “Bugs Bunny”. The personal goodwill which vested in Ms Stanbury was never assigned to SC1 expressly or impliedly.
It was held that when Ms Stanbury started to style through another company (“SC2”), she was free to do so, the personal goodwill being hers to do with as she liked. She was not contractually obligated to continue to style for SC1 for any period, nor was she in breach of any statutory or fiduciary duties in styling through SC2, including the “no profit” and “no conflict” rules. Ms Stanbury had not acquired her skill set, knowledge, clients or contacts through her directorship of SC1. SC1 had no business and clients of its own; the business and clients were Ms Stanbury’s. The purpose of SC1 had come to an end and it was to sit as a dormant subsidiary of Gift Library (Ms Stanbury’s luxury gifts business), on the advice of professionals. It was further held that even if the “no profit” and “no conflict” rules had been engaged, Ms Stanbury would still have been vindicated as she traded through SC2 with the informed consent of her SC1 co-director and that of the parent company, following the comparable approach taken in Sharma v Sharma  BCC 73.
It was further held that even had liability been prima face established, this would have been a plain case for relief under s.1157 of the Companies Act 2006 (pursuant to which the court can relieve a director from liability for any breaches). Ms Stanbury followed the advice of her solicitors (a leading City law firm) and her accountants; at no time did they advise her that she was doing anything which might constitute misfeasance or breach of duty. Ms Stanbury was a fashion stylist, not a lawyer or accountant. She also acted with the informed consent of all relevant parties.
The court further found that Ms Stanbury had been seriously prejudiced by the delay, loss of documentation and the liquidator’s obstructive approach to the disclosure of documents, with Ms Stanbury having to seek third party disclosure from several sources herself in order to piece together the evidence, many years after the events in question, and with memories having faded.
Finally, the application was, in any event, also time barred, having been issued more than 6 years since the alleged loss occurred, applying Re Eurocruit Europe Ltd  BCC 916. The case did not come within Burnden Holdings v Fielding  UKSC 14 which applied to the disposal of pre-existing corporate assets in limited circumstances and not to other breaches of duties; accordingly, following Davies v Ford  EWHC 686 (Ch), the 6-year time bar would not be disapplied.
The decision is a lengthy one at 129 pages and 593 paragraphs, but it is well worth a read. It covers so many of the key issues that are likely to be encountered in misfeasance claims against directors.
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News 28 Sep, 2021