Ousted director still liable despite settlement agreement
The High Court has held that an ousted director is still liable despite having a settlement agreement with the company for which he worked.
Removing a director from office is usually contentious, particularly where they are also employees. A valid settlement agreement between the director and company is therefore highly recommended. The price of the director agreeing not to bring claims against the company may be mutual promises not to claim against each other. Such agreements can be complex enough, however in the case of an insolvent company, another layer of complexity is added.
Section 127 of the Insolvency Act 1986 (section 127) provides that any disposition of the company’s property made after the commencement of the winding up is void, unless the court orders otherwise.
In the recent case of Officeserve Technologies Limited (in liquidation) and another v Anthony-Mike  EWHC 1920 (Ch) a director was removed from office and a settlement agreement concluded after the winding up petition was presented.
The liquidator’s argument
The liquidators of the company applied to the court for a declaration that the director had misapplied monies belonging to the company, that the payments to the director were void under section 127 and that the director should repay the sum of £535,477.31 he allegedly misapplied.
The director’s argument
The director argued that:
- The agreement prevents the company from bringing any claims against him; and
- The settlement agreement should be validated (under the court’s discretion under section 127) as it is in the interests of the company’s creditors
The High Court held that the wording of the settlement agreement was not such that the company was prevented from bringing a claim against the director and he was therefore liable.
Whilst this decision did mean that the second part of the director’s argument did not need to be considered, the Court did continue on, saying that even if the agreement had prevented the company from bringing such a claim, s127 would void the agreement and the Court would not validate it on policy grounds.
Whether you are a director, a company or a liquidator, it is imperative that you seek expert advice which we can offer.
Rebecca McCarthy is a trainee solicitor at Barker Gotelee.