This article is reposted here courtesy of MinterEllisonRuddWatts.
The Court of Appeal has delivered its eagerly anticipated judgment in proceedings brought by the liquidators of Mainzeal Property and Construction Ltd against its former directors, including Richard Yan and Dame Jenny Shipley. In those proceedings, the liquidators sought compensation for breach of certain statutory duties of directors engaged on a company’s insolvency: sections 135 (reckless trading) and 136 (incurring obligations) of the Companies Act 1993.
Although differing from the High Court’s judgment in several respects, the Court of Appeal concluded “[t]he liquidators were the successful party in relation to liability, and have established that they are entitled to an award of compensation in respect of the directors’ breaches”.
The Court agreed with the High Court that the directors had traded recklessly (in breach of s 135). It disagreed with the High Court’s approach to compensation arising from their doing so, finding that no loss was attributable to this breach of duty. However, unlike the High Court, the Court of Appeal found that the directors had also caused Mainzeal to commit to obligations without reasonable grounds for thinking that it would be able to fulfil those obligations (in breach of s 136). It considered there was loss attributable to these actions and referred the case back to the High Court to determine the amount of compensation to award to reflect this.
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