Contex Drouzhba Ltd V Wiseman

Court of Appeal reaffirms decision making Director personally liable



In a victory for Creditors which may have potentially wide ranging effect, the Court of Appeal has made it clear in the case of Contex Drouzhba Ltd v Wiseman that a Director can be personally liable if he orders goods or services in writing himself when he knows the company cannot afford to pay.

The key to this case is the fact that the Director had signed a document at the time the order was placed promising payment. By doing so, the Court said, he acted fraudulently.

Normally actions for fraudulent misrepresentation fall foul of the Statute of Frauds which effectively prevents action against a Director unless the representation is made in writing.

The Court made it clear that the Director in this case was not liable simply because he was a Director but because he himself had committed a fraud on the Creditor. In signing the document which promised payment, he was making a personal representation (as well as one on behalf of his company).

In cases where Creditors have concerns about a customer's solvency, it may be worth requiring (with the written order) a fax from the Director personally assuring the Creditor that payment will be made. This may at least give the Creditor the possibility of an alternative remedy if the company then goes into Administration or Liquidation.

Collier -v- P & M J Wright (Holdings) Ltd

The Problems of Negotiating Agreements with Partners for Settlement of the Debt

In the Collier case, it was alleged that an Agreement had been made by a Creditor with a joint Debtor under which the Creditor had allegedly agreed to limit the Debtor's liability to one-third of the joint debt.  The Court held that could not be a binding Agreement in law because the Debtor was only promising to pay what he was already obliged to pay.  However, the Court considered that there was a potential triable issue upon what the law calls promissory estoppel.  In effect the Debtor could argue he had acted in reliance upon the Agreement and that the Creditor was accordingly prevented from pursuing either of the Debtors for any further payment.

The lesson for Creditors here is to be careful when negotiating Settlement Agreements with Partners or Joint Guarantors or any Debtor who is jointly liable with another party.  If in doubt take legal advice before concluding any Agreement.  In the case referred to above, the Creditor had obtained a Judgment for the sum of £46,800.00 against three Partners and they had jointly agreed to pay the debt by monthly instalments of £600.00 by way of a Consent Order.  Two of the Partners became bankrupt before payment was received in full.  When the Creditor tried to pursue the third Partner, that Partner relied on an Agreement made allegedly between the Creditor and the Partners to the effect that his liability was limited to one-third share of the Judgment Debt.  He claimed that he had relied on that Agreement and was now in a position where he could not recover any contribution from the other Partners because of their bankruptcies. (The Creditor had allowed him to pay one-third of the montly instalment for a considerable period of time).

The solution from the Creditor's point of view would have been to indicate in writing to all 3 Partners that, while they were paying only one-third of the monthly instalment each, the Creditor continued to hold each of them liable individually for payment of the whole debt.