Charities and internal investigations
In the case of KOZA LTD and HAMDI IPEK –v- KOZA ALTIN IŞLETMELERI AS  EWHC 786 (Ch), Mr Justice Trower awarded an injunction restraining Mr Ipek, Koza Ltd (“KL”)’s sole director, from causing KL to use its funds to pay legal costs in the litigation, which was in reality a shareholder dispute between Mr Ipek and Koza Altin Işletmeleri AS (“KAI”). The decision upholds the ‘legal costs principle’ in company disputes, which provides that a company’s money should not be spent on disputes between shareholders.
In the recent case of TMG Brokers Ltd (In Liquidation) (also known as: Baker v Staines) the High Court held a director of a company to be jointly and severally liable for payments made by his co-director out of the company’s bank account which were made without proper authority and amounted to disguised distributions of capital. The fact that he had placed trust in the other director for the company's financial affairs did not excuse him from performing his duties.
What happens when a director commits fraud by misappropriating company assets? Or what of the director who continues trading knowing that the company has no realistic prospect of paying its debts as and when they fall due? To whom does a director owe duties at that point and what recourse is there against that director? This article explores these questions.
Disputes between directors often arise because of, and/or result in, disputes about company money. Directors need to be alert to how they are required to act, particularly in times of conflict.
It is well known that directors owe duties to the company of which they are a director and, in certain circumstances, its shareholders, creditors and employees. Many people believe that if you have not been formally appointed as a director, i.e. you do not appear on Companies House records as a director, you will not owe the usual directors’ duties and, therefore, cannot be in breach of such duties or subject to sanctions for breach.
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