Summary

In an action brought by the liquidators of a company against a director pursuant to the Insolvency Act 1986 s.212, it was sufficiently clear from the points of claim that what was being alleged was that losses were suffered by the company during a period when it traded using money that should have been paid to the Crown. Whilst the liquidators could face difficulties in proving causation and in identifying and quantifying the precise losses that flowed from the director's alleged breach of duty, it could not be said that the liquidator's claim had no reasonable prospects of succeeding.

Facts

The appellant (C) appealed against an order refusing to strike out certain paragraphs of a points of claim or to grant summary judgment against the respondent liquidators (L) of a company in respect of that part of the claim referred to as the VAT claim. The company had gone into creditor's voluntary liquidation with an estimated deficiency of some £900,000. L sought an order under the Insolvency Act 1986 s.212 that C, who had been a director of the company, contribute such sum to the company's assets by way of compensation for alleged misfeasance or breach of fiduciary duty or other duty as the court thought just. C claimed that the paragraphs in question disclosed no reasonable ground for bringing a claim pursuant to s.212 as a result of the failure of the company to file VAT returns and make certain payments in respect of VAT, save in so far as the claim related to penalty charges and interest.

Held

It was clear that proof of loss to the company was a necessary ingredient of a cause of action for breach of fiduciary duty or negligence under s.212, Cohen v Selby (2002) BCC 82 CA (Civ Div) and Eurocruit Europe Ltd (In Liquidation), Re (2007) EWHC 1433 (Ch), (2008) Bus LR 146 applied. It was not accepted that the section justified a laxer approach to pleading than would be called for in a writ action. C was entitled to know what case was being made against him and it was necessary that L should allege loss to the company and at least make clear the type of loss that were alleged to been caused by the breaches of duty or negligence in question. Also a failure to pay tax did not of itself result in the loss of a sum equivalent to the unpaid tax, Galoo Ltd v Bright Grahame Murray (1994) 1 WLR 1360 CA (Civ Div) considered. However, it was sufficiently clear from a paragraph of the points of claim that what was being alleged by L was that losses were suffered by the company during a period when it traded using the money that should have paid to the Crown. L faced difficulties both in proving causation and in identifying and quantifying the precise losses which flowed from the breach alleged, Regalway Care Ltd (In Liquidation) v Shillingford (2005) EWHC 261 (Ch) and Centralcrest Engineering Ltd, Re (2000) BCC 727 Ch D (Companies Ct) distinguished on the basis that in those cases the alleged breach of duty was not the failure to account for VAT, and Loquitor Ltd, Re (2002) EWHC 430 (Ch) distinguished on the basis that it was not authority for the suggestion that unpaid tax was recoverable in the absence of loss flowing from the breach of duty. However, it could not be said that there were no reasonable prospects of L's claim succeeding.

Appeal dismissed