Directors breach of duty results in loss of pension

The recent case of Manolete Partners plc v White has seen the High Court make further inroads into the personal accountability of directors who have been in breach of their fiduciary duties, when the company of which they are a director subsequently goes into Liquidation.

In this case, W was a director of a company which went into Administration in November 2016, and thereafter a Creditors Voluntary Liquidation the following year.

A claim was subsequently brought against W, on behalf of the Creditors, alleging that in the period leading up to the Companies Insolvency he had misused company funds and was accordingly in breach of his fiduciary duties towards the Company. A claim was issued, and judgement was obtained against W for £996,014.22. W did not pay the debt.

A subsequent application was made to the court seeking an order that W be compelled to draw down his retirement pension in order to pay the judgement debt. The court upheld the application and ordered that W draw down his pension in order to pay the debt.

The case shows that, in appropriate circumstances, the courts are now willing to force an errant director to pay a judgement by forcing them to draw down their personal pension. Historically, the cases indicate that this was only likely to happen where there had been an element of fraud involved. That no longer seems to be the case. A breach of fiduciary duty could be sufficient.

However, a reading of the case shows that the director in the current case blatantly used company funds for his own personal use. Therefore, this is an extreme case which no doubt made it easier for the court to reach the decision that it did.

However, it should act as a warning that in certain circumstances, the directors pension provision may be at risk where a director does not act in accordance with his duties towards the company and causes the company loss.

This article has been prepared for information only. It is not and should not be interpreted as providing legal advice. In all cases appropriate legal advice should be obtained.