The Supreme Court has handed down an important decision on the proper construction of Section 21(1) (b) of the Limitation Act 1980 (“the Act”), which waives the six-year limitation for claims brought in respect of any claim for trust property.
The case
Burnden Holdings (UK) Limited (Respondent) v Fielding and another (Appellants) [2018] UKSC 14
The facts
Mr and Mrs Fielding (“the Appellants”) were the directors of Burnden Holding Limited (In Liquidation) and the controlling shareholders of its parent company, BHU Holdings Limited (“BHUH”). Burnden Holdings Limited (In Liquidation), acting through its liquidators (“Burnden”), issued claims against the Appellants for breaches of fiduciary duties as a result of a distribution in specie of Burnden’s shareholding in Vital Energi Utilities Limited (“Vital”) to BHUH. Burnden claimed that the distribution was made at a time when the Appellants knew, or ought to have known that Burnden was insolvent. The ultimate recipients of the distribution were the Appellants. After issue of the claim by Burnden, the Appellants applied for summary judgment on the basis that the claim was outside the limitation period (the claim having been issued more than six years after the distribution on 12 October 2007). The Court at first instance awarded summary judgment to the Appellants which Burnden appealed.
Decision
The Court of Appeal found that the cause of action accrued on the date of the distribution and, therefore, Section 21(3) of the Act barred the claim after six years. However, as the distribution was made to a company controlled by the Appellants it would amount to receipt or conversion of trust property for the purpose of the exception to the limitation rule (Section 21(1) (b)). Today the Supreme Court upheld this decision and so this is an established principle protecting companies and all stakeholders from limitation problems historically associated to director/company dealings.
Our comments
The most important aspect of this decision is that the lower Court had initially provided an opportunity for any director, while holding a company’s assets, to be protected from future claims brought more than six years later. Such claims are more likely to arise much later (usually in insolvency, as here) because of the lack of transparency of the director/company relationship and the ability of directors to delay the opportunity to bring such statutory claims. The lower Court’s decision was reversed upon appeal to the Court of Appeal and, as a result, such claims will now no longer be prejudiced by such delays. Further, the Supreme Court unanimously upheld the decision – finding that section 21(1) (b) of the Limitation Act 1980 applies to trustees who are company directors and who are to be treated as being in possession of the trust property from the outset. This judgment, in the Highest Court, now provides considerable protection for stakeholders in companies, who are keen to ensure that their rights are maintained and the remedies against directors are preserved. At Francis Wilks & Jones we provide advice to insolvency practitioners, accountants and directors in relation to all claims against directors or which arise from the insolvency of a company.
