Directors’ duties and obligations

The High Court recently considered directors’ duties and obligations when it comes to dealing with company assets post-liquidation. Although the case in question (Mitchell V Al Jaber 2023 EWHC 364) concerned the British Virgin Islands law, the decision was determined by reference to English case law.

There are a number of directors’ duties to be complied with during the course of ones stewardship of a company, these are laid out throughout chapter 2 of part 10 of the Companies Act 2006. It was held that such duties post-liquidation are limited, although fiduciary duties (the obligation for directors to act in the best interest of the company, rather than serving their own interests) may arise and liabilities as a constructive trustee (a position that arises by operation of law where it would be unconscionable for the director holding an asset to deny the beneficial interest of another person in that asset) might be capable of being enforceable.

The court began by considering the following points:

• Is it clear whether the director had obtained custody and control over the assets during the course of their stewardship?
• Has the custody and control then continued following liquidation?

The court acknowledged that directors’ duties over the assets will be case dependant. In deciding whether a director is liable as a constructive trustee or is subject to fiduciary duties post-liquidation, the court will want to establish if there was a duty owed and if this duty was breached. The main questions therefore are:

• Was the director in possession and control of company assets?
• Has the director created any beneficial rights in those assets adverse to that of the company?

In this particular case it was held that the duties and obligations the director was under as a fiduciary remained. The court’s reasons were as follows:

• If a director was entrusted during their stewardship with custody and/or control over company assets then they owed fiduciary duties over these assets. As a result a director could be considered liable if they misapplied that property.
• As a director and a fiduciary of company property, these obligations post-liquidation are capable of being enforced.
• If a director is still in custody of the assets post-liquidation, which they hold in the capacity of a fiduciary, if the assets are misapplied or the directors do not hold authority to hold these, their fiduciary duty would be breached.

If you need any assistance in understanding what your duties might be as a director, or as a fiduciary, or you have any queries on company liquidation please do not hesitate to contact either Kirsty Simmonds or Paul Currie at DFA Law who will be happy to assist.