How Does The Liquidator Identify The Directors Of A Liquidated Company?

Once a company has been placed into liquidation, the first action of the liquidator is to investigate matters including that of the conduct of the directors. However, the appointed directors are not always the controlling minds of the company and the liquidator may need to scratch beneath the surface.

In the recent case of Re Sports Management Group Ltd (in Liquidation); Green (as liquidator of Sports Management Group Ltd) v Marston and another [2016] All ER (D) 208, the liquidator brought claims against individuals in respect of payments made by the company when it was insolvent, on the basis that they were either de jure directors, or if not they were de facto directors of the company.

Brief Summary

The company Sports Management Group Limited (SMG) was involved in providing sponsorship deals for individuals and large organisations. SMG went into liquidation and owed significant sums to a broad range of creditors.

The appointed liquidator examined the records of the company and noted that the first respondent was a de jure director of SMG. However, he also alleged that the second respondent was a de facto director.

The first respondent swiftly settled the claim against him. The case then proceeded against the second respondent. He was not listed as a director at Companies House so a key question in the case was whether or not he was a de facto director of SMG when looking at all of the circumstances of the case.

The liquidator looked at evidence such as the second respondent holding himself out as a director of the company on his business cards and in the media, and on various business/social media sites.

The second respondent denied he was a de facto director of SMG and argued he was only engaged as a contractor by the company. He stated that he was not involved in any of the key decisions made in the management of the company. After taking all the facts into account, it was found that the second respondent had a high enough level of involvement in the company to be deemed a de facto director.

The Effect of the Judgment

As this case was one that was very fact specific, it does not develop the settled law on the subject. However, what it does do is to provide a useful reminder to an appointed liquidator of the evidence which may be needed to prove an individual is a de facto director.

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In this case the court was persuaded by the fact that the second respondent had held himself out as a director of the company. Although this is not conclusive in determining if someone is a de facto director, it can be a very persuasive argument to suggest they are.

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