Is a Director personally liable?

For the majority of law-abiding Directors the issue of personal liability for their actions and decisions taken on behalf of a company rarely crops up. However, in the recent case of Antuzis & Ors v DJ   Houghton Catching Services Limited & ORS [2019] [EWHC 843] [QB] this general rule has been shown to change significantly when the conduct of the Directors is deemed unlawful.

This particular case involved a group of Lithuanian nationals who travelled to the UK having been promised work.  Whilst the work materialised, they were subjected to appalling employment conditions.

They worked excessive hours, they did not receive the minimum wage, they did not receive holiday pay, and they were required to sleep in the back of a minibus whilst being transported between farms where they worked as chicken pickers. Visiting inspectors reviewing the gang master licences of their employer were provided with doctored timesheets, which dramatically understated the number of hours worked and the entire operation typified the reason why gang master licences were brought into effect to protect labourers from what the High Court found to be “gruelling and exploitative” conditions.

What duties must Directors comply with?

Under the Companies Act 2006, Directors must comply with a number of duties.  Two specific duties were identified in this case as follows:-

• The duty to promote the success of the company [section 172]:

“a Director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company…  And in doing so have regard to: [a] the likely consequences of any decision in the long term; [b] the interests of the company’s employees… [d] the impact of the Companies operations on the community and the environment; and [e] the desirability of the company maintaining a reputation for high standards of business conduct”

• The duty to exercise reasonable care, skill and diligence [section 174]:

“a Director of a company must exercise reasonable care, skill and diligence…”

The focus of the legislation is upon a Director’s conduct and approach to fulfilling his duties in association with the company as opposed to a third party.  In this particular case, the Judge considered the facts presented to him and specifically the credibility of the Directors involved when giving evidence.

Make sure you understand what your personally liability as a Director

The High Court found that the Director and Company Secretary, who was bound by similar duties to act in the company’s best interests, failed to act in accordance with their duties towards the company in compliance with the above Act because they did not honestly believe that they were paying the minimum wage, overtime and holiday pay and further that they were entitled to make deductions and withhold payments for accommodation costs and work finding fees. 

As a result, it was held that they had induced the company to commit statutory breaches of employment law which led to the ruin of the reputation of the company as well as the loss of the gang masters licence which was required to employ workers and run the business.

By the time this matter had reached Court, the company had reduced size from one of the biggest chicken catching operations in the South of England to effectively a one man band. As a result of this dramatic downsizing, the claimants faced the prospect of little chance of recovering anything from the company itself making the recover from the Director and Officers of the company personally vital. These were not your average Directors trying to go about business on behalf of a company in good faith. The judgement is littered with dismissive references to their credibility with the Judge calling their evidence “totally bizarre”, “obvious untruths”, “hopeless and devoid of merit” and “nonsense”.

In his Judgment, the Judge stated: “I am in no doubt whatsoever, having heard the evidence, that both of them actually realised that what they were doing involved causing [the company] to breach its contractual obligations towards the claimants.  What they did was the means to an end.  There is no iota of credible evidence that either [of the] defendants possessed an honest belief that what they were doing would not involve such a breach.” 

With such damning findings, the officers of this company were found to be personally liable for inducing the company to breach the employment contracts of the claimants. 

Whilst not imposing personal liability for every breach of an employment contract by an officer of a company, this case applies a common sense approach to a situation in which there has been an unlawful and deliberate attempt to exploit third parties with the obvious consequence of being detrimental to the company itself.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk