Personal liability of directors

Antuzis v DJ Houghton Catching Services Ltd & Ors

Directors of a limited company can, in certain circumstances, be personally liable for inducing a company to breach an employment contract.

As a general principle, a director will not be personally liable for inducing a breach of contract by their company if they act bona fide within the scope of their authority. The example given by the judge in this case was, on the one hand, a company director that instructs that a supplier is not paid on time because of cash flow problems and, on the other, the director of a restaurant instructing its employees to serve horse meat rather than beef, in breach of food licensing regulations and which damages the reputation of the company. To determine whether a director’s actions are bona fide, the focus is on the director’s conduct and intention in relation to his or her duties towards the company - not towards a third party. Also, if there is a breach of a statutory duty, this will point more towards personal liability.

Company law also imposes certain duties on directors, among them a duty to promote the success of the company and to exercise reasonable care, skill and diligence (s. 172 and 174 of the Companies Act 2006).

Background

Mr Antuzis and other Lithuanian men worked for DJ Houghton as chicken catchers. They worked in gruelling and dreadful conditions, received less than the minimum wage, worked extremely long hours, had payments withheld as a form of punishment, did not receive holiday pay and were subject to other unlawful deductions. They brought various claims in the High Court, including compensation for unpaid wages, distress, personal injuries and consequential losses as a result of DJ Houghton’s unlawful actions.

High Court decision

The issue was whether DJ Houghton’s sole shareholder and director, and the company secretary, could be personally liable for inducing the company to breach the claimants’ employment contracts.

The High Court held that they could. The director and company secretary were not acting bona fides vis-à-vis the company because they did not honestly believe that they were paying the minimum wage, overtime and holiday pay nor that they were entitled to withhold payments. By inducing the company to commit statutory breaches of employment law, the director and company secretary had ruined the reputation of the company, as well as causing it to lose the gangmasters’ licence it needed to employ the workers. They were therefore personally liable for the breaches of contract that they had induced.

Link to judgment: https://www.bailii.org/ew/cases/EWHC/QB/2019/843.html

Comment

The takeaway from this decision is that if you are a company director, you can be personally liable for such claims – provided the breach of contract was also a failure to perform your duties to the company and especially if this involved breach of a statutory obligation.See also Timis v Osipov for the liability of company directors for a whistleblowing dismissal.