Background
Lloyd Hinton, liquidator of St. Mark Lions Limited, brought proceedings under section 212 of the Insolvency Act 1986 against the company’s sole director and shareholder, Dr Marek Stobinski. The company, which principally provided services for Dr Stobinski’s medical work, entered creditors’ voluntary liquidation in October 2022. Its books and records were largely absent, while an unpaid corporation-tax liability had accumulated.
The liquidator sought £214,195.29, comprising a £112,506 overdrawn director’s loan account, £63,189.29 in allegedly unsupported payments, and £38,500 transferred directly to Dr Stobinski as “management charges.” He alleged that the company was insolvent or bordering on insolvency by 2 December 2019 and that Dr Stobinski breached duties under sections 171, 172, 174 and 175 of the Companies Act 2006 by using company assets for his own benefit rather than addressing creditors’ interests.
The Court’s Holding
Deputy ICC Judge Curl KC held that Dr Stobinski breached his duties in his treatment of the director’s loan account. Once the company was bordering on insolvency, a reasonable director would have stopped further drawings and taken steps to recover the account so that the corporation-tax liability could be addressed. Instead, Dr Stobinski continued to draw on it. The court awarded the full £112,506 balance as compensation for breaches of sections 172, 174 and 175.
The court also found that the unsupported payments were not made for the company’s benefit and breached sections 171, 172, 174 and 175. Because possible overlap with the loan-account balance could not be excluded, however, only £39,147.99 of the claimed £63,189.29 was awarded. The £38,500 in management-charge payments was recoverable in full: even if those payments represented lawfully declared dividends, the company’s financial position meant that a reasonable director giving proper weight to creditors’ interests would not have paid them. Judgment was therefore entered for £190,153.99, with interest and costs left for agreement or further submissions.
The court separately held that a simple contractual debt owed by a director does not fall within section 212 merely because nonpayment breaches a contractual duty. Such a liability is not a duty arising from the director’s office. Nevertheless, the liquidator’s use of the wrong procedure did not make the debt claim a nullity; if necessary, the court would have joined the company and regularised the claim under CPR 19.2 and 3.10. That step was unnecessary because the fiduciary-duty claim concerning the loan account succeeded.
Key Takeaways
- Section 212 does not provide a procedural gateway for recovering an ordinary contractual debt solely because the debtor is a company director; the relevant breach must concern a duty connected with the director’s office.
- A director of a company bordering on insolvency may breach statutory duties by continuing personal drawings and failing to recover an overdrawn loan account needed to meet creditor claims.
- Even a dividend that could lawfully be declared may be improper to pay when creditors’ interests require paramount or near-paramount weight.
Why It Matters
The judgment distinguishes an ordinary director’s debt, which normally must be pursued in the company’s name, from misconduct in the handling of that debt as a company asset, which may support a section 212 misfeasance application. It also confirms that proceedings are not necessarily a nullity merely because a liquidator used section 212 for a claim requiring the company and Part 7 procedure.
Substantively, the decision illustrates how courts assess director payments when insolvency is approaching. Where a director has not genuinely considered the company’s separate interests or its creditors, the court may apply an objective standard and require compensation for payments benefiting the director.