The Defendant (‘D’) was a director of the Claimant, (‘RHIL’) and its subsidiary, (‘BTSC’), which provided training courses. In 2010 D appointed MG as administrator of BTSC and MG arranged a pre-pack sale of the business. The purchaser paid nothing for the business but assumed responsibility for the training, thereby limiting BTSC’s liability for course fee refunds.

MG and BTSC brought misfeasance proceedings against D to recover £1.013m paid by BTSC to RHIL (‘the BTSC Action’). MG and BTSC alleged that RHIL had used c £850k of the money belonging to BTSC to make three payments for D’s benefit. D settled the BTSC Action with payment of £350k.

As liquidator of RHIL, MG subsequently caused RHIL to bring the present claim against D to recover the same £850k that was the subject of the BTSC Action. D’s defence alleged that: (i) it was an abuse of process to make a second claim in relation to the £850k following the settlement of the BTSC Action; (ii) as the £850k belonged to BTSC, RHIL had suffered no loss; and (iii) D ought to be excused under s 1157 of the Companies Act 2006 (CA 2006) because the money had been spent on refurbishments to facilitate the pre-pack in accordance with MG’s advice (which MG disputed).  

Held 

RHIL was not a party to the BTSC Action and was not bound by the settlement, even though MG, the person giving instructions on behalf of RHIL, was a party to the BTSC Action. Although MG had asserted that the £850k belonged to BTSC in the BTSC Action, he was entitled to change his position. However, RHIL could not claim to recover money belonging to BTSC, and applying rules of tracing into a mixed fund, RHIL’s claim was limited to £290,486.32.

D was not entitled to be excused under s 1157, CA 2006. Although he had acted honestly, he had not acted reasonably. On the facts, the limited professional advice given by MG was not an excuse and the payments could not be objectively justified without evidence of specific expenditure