An agreement signed by a director on behalf of his company containing a promise by the company to pay for goods to be ordered in the future, rendered the director personally liable where he knew at the time of signing that the company was insolvent and had no prospects of becoming solvent.

The Court of Appeal held in Contex Drouzhba Ltd v Wiseman and Anor that the director had impliedly represented that the company could meet its obligations to pay for goods. He knew that it could not and so the representation was fraudulent. As a result the director was held liable for damages for deceit.

The fact that the defendant signed as a director of the company, rather than in his personal capacity, provided no defence under s6 Statute of Frauds Act 1828. That Act is concerned with proving the existence of representations by evidence, not differentiating between capacities in which a person put his name to a document. The defendant was liable not because he was a director but because he committed a fraud.

Things to consider

Creditors may therefore have a direct remedy against a director in deceit enabling all the recovery to be retained. This contrasts with a claim under ss 213 and 214 of the Insolvency Act where any recovery would be distributed on a pari passu basis. This is something to bear in mind if the director has assets which a creditor can enforce against.