Ultraframe (UK) Ltd v Gary Fielding & Ors (2005)
Transactions between a company and a shadow director were voidable unless the requisite formalities had been observed. Where a person became a shadow director by virtue of the fact that the board of directors became accustomed to acting on his instructions, transactions entered into between the parties before that point in time were not retrospectively invalidated.
The original claimant (U) and its associated companies claimed that the original defendant (F) and his companies had stolen the business and assets of U's associated companies (N and S), and that F's claim to ownership of the companies was based on documents which had been fabricated. The court was required to determine various issues in joined proceedings concerning a dispute about the ownership of businesses in the area of conservatory and roof design. The issues before the court were: (1) whether F became a shadow or de facto director of N and S and, if so, when; (2) the duties owed to a company by a shadow director; (3) whether the grant of debentures by N and S constituted breaches of fiduciary duty by the directors of N and S; (4) which of the transactions that took place ought to have complied with the Companies Act 1985 s.320; (5) whether F had misappropriated the businesses or assets of N and S; (6) whether two other parties were liable for dishonest assistance in a breach of fiduciary duty; (7) whether any party was liable for knowing receipt of property which had been transferred in breach of fiduciary duty; (8) whether and to what extent such property could be traced into the businesses of companies associated with F and assets owned by those companies; (9) the appropriate remedies for such breaches of fiduciary duty as were found, if any; and (10) how much F was owed by N and S, and whether those debts were secured or unsecured.
(1) F became a de facto director of N and S in January 1999. He did not become a shadow director of either company. (2) A shadow director would not usually owe fiduciary duties to a company. The indirect influence exerted by a shadow director who did not deal directly with the company's assets would not usually be enough to impose fiduciary duties upon him, Paragon Finance Plc v Thakerar & Co (1999) 1 All ER 400 and Dubai Aluminium Co Ltd v Salaam (2002) UKHL 48 , (2003) 2 AC 366 applied. Transactions between a company and a shadow director were voidable unless the requisite formalities had been observed. Where a person became a shadow director by virtue of the fact that the board of directors became accustomed to acting on his instructions, then transactions entered into between the parties before that point in time were not retrospectively invalidated. (3) The grant of debentures by N and S were genuine transactions and not part of any conspiracy. Accordingly they did not amount to breaches of fiduciary duty by the directors. (4) None of the transactions that had taken place, such as the sale of stock, the granting of a lease and the granting of an intellectual property rights licence, could be impugned under s.320 of the Act, In re MC Bacon Ltd (No2) (1990) 3 WLR 646 considered and Demite Ltd v Protec Health Ltd (1998) BCC 638 applied. Section 320 could potentially apply to a sale of property by a receiver. It was the company's equity of redemption in the property sold, rather than its unencumbered value, which had to exceed the requisite value. (5) There was no such thing as "appropriation of a business" in the abstract. If a claim was brought under the common law, a specific tort would have to be identified, and the appropriation of a business was not itself a tort. (6) The claims for dishonest assistance in a breach of fiduciary duty failed. It could not be concluded that a dishonest assistant was liable for the whole profit of a scheme where the assistant had not profited personally. (7) The mere fact that a fiduciary had a substantial interest in a company which knowingly received trust property did not make the fiduciary personally accountable for the receipt. However, the company would itself be liable to any remedies available against a knowing recipient, Cook v Deeks (1916) 1 AC 554 considered and Regal (Hastings) Ltd v Gulliver (1967) 2 AC 134 applied. (8) N and S were not entitled to trace profits made by companies associated with F. (9) Proprietary remedies depended upon receipt. A defendant had to have received the claimant's property, or some substitute for it, in order for a proprietary remedy to lie against him. A proprietary remedy was not available in the case of an alleged misappropriation of a business, as opposed to a proprietary claim to shares in a company or to a specific business asset. Proprietary claims did not apply to profits. (10) Subject to any question of set off, N owed F £108,600.11 and S owed F £290,360. Both debts were secured debts.
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