It is commonly known that Liquidators can cause directors to make personal contributions into the company post liquidation where there has been wrongful trading, fraudulent trading, misfeasance, and several other ‘wrongdoings’. In recent years the courts have been increasingly stripping away the veil of incorporation to make directors personally liable for their actions in running the company in an attempt to make directors more accountable, ‘moving the bar up’ in terms of the standard expected of directors.
Directors can often become quite desperate to keep their company alive, willing to sign almost anything to bring in that delivery of goods needed to continue trading. But could a promise that the company would pay for the goods, which agreement was signed by a director, cause that director to be personally liable if the company defaulted? You would have thought not, would you?
In the case Contex Drouzhba Limited v Wiseman, the director entered into an agreement with a supplier which contained a promise that his company would pay for certain goods 30 days after shipment. The director, Mr Wiseman, knew the company was insolvent when he signed the agreement, and knew there was no chance of any injection of cash from elsewhere.
The court decided that while not every contract signed by a company contained an implied representation from the director personally, here, where the director promised terms of payment he had made an ‘implied representation’ that the company would meet the payments. And the director knew that representation to be untrue, because the company was insolvent and unlikely to raise any further capital. The court decided that the director had made a fraudulent representation in writing as to the creditworthiness of the company, which under the laws regarding ‘deceit’ made him personally liable for the debt.
Another case of just because you have done something through a limited company does not mean that you are not personally liable!