West Mercia Safetywear Ltd v Dodd

Ratio Decidendi

তথ্য

West Mercia Safetywear was an insolvent subsidiary. Its parent company was also in financial difficulty and owed money to its bank, and the parent's overdraft was personally guaranteed by Mr Dodd, a director of both companies. Knowing the subsidiary was insolvent, Mr Dodd caused it to transfer £4,000 to the parent's bank account to reduce the parent's overdraft — and thereby his own guarantee liability — to the detriment of the subsidiary's other creditors. The subsidiary went into liquidation and the liquidator brought misfeasance proceedings against Mr Dodd.

রায়ের সারসংক্ষেপ

The Court of Appeal held Mr Dodd liable for misfeasance and ordered him to repay the £4,000 with interest. When a company is insolvent, or of doubtful solvency, the directors' duty to act in the interests of the company requires them to have regard to the interests of the company's creditors, whose money is effectively at stake, and not to prefer one creditor (or their own interests) over the general body of creditors. In causing the insolvent subsidiary to pay off the parent's bank — and so reduce his own personal guarantee liability — at the expense of the other creditors, Mr Dodd had breached that duty and misapplied the company's assets. Dillon LJ adopted the statement that, where a company is insolvent, the interests of the company are in reality the interests of its existing creditors. The case is a leading authority on the directors' duty to consider creditors' interests on insolvency, a duty now reflected in s.172(3) of the Companies Act 2006 and explored further by the Supreme Court in BTI v Sequana.

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