In this Blog, our director defence expert Dan Tominey looks at dishonest asset transfers after liquidation and the courts' approach
Directors and personal exposure to claims
When a company enters liquidation, directors often assume that their personal exposure is limited to what happens next. A recent decision of the Supreme Court of the United Kingdom confirms that this assumption can be dangerously wrong. Where assets are transferred dishonestly after liquidation, liability can be fixed by reference to the value of those assets at the point of transfer, even if later steps deliberately strip them of value.
For directors already under pressure from insolvency, investigations, or liquidator scrutiny, this is a significant clarification of risk.
What did the Supreme Court decide about dishonest asset transfers after liquidation?
The Supreme Court confirmed that where a director dishonestly causes company assets to be transferred away after liquidation, the court can require them to account for the value of those assets at the time of the transfer. Crucially, the director cannot reduce that liability by relying on later actions which render the assets worthless.
- In practical terms, the court will look at the position at the moment the dishonest transfer occurs.
- If the assets had substantial value at that point, that value forms the basis of the director’s liability, regardless of what happens afterwards.
This closes off an argument sometimes run in misfeasance and breach of fiduciary duty claims that subsequent events should reduce or extinguish the amount payable.
Why does valuation at the date of transfer matter so much for directors?
Valuation timing is often decisive in insolvency litigation. Directors may believe that if an asset later fails, collapses, or is stripped of value, their exposure should be reduced accordingly. The Supreme Court has made clear that this approach will not succeed where dishonesty is established.
- The court’s reasoning is rooted in deterrence and fairness.
- A director should not be able to benefit from engineering later events to minimise the financial consequences of an earlier dishonest act.
- Once liability has crystallised, later manipulation does not rewrite history.
For directors, this means that a single transaction can lock in substantial personal exposure, even if the wider corporate position deteriorates rapidly afterwards.
Can directors limit liability by restructuring or removing value later?
No. That is the central warning from this decision.
Where a director has orchestrated a dishonest transfer, subsequent restructuring steps, further transfers, or actions that undermine the asset’s value will not limit the amount they are ordered to repay. In fact, such behaviour may worsen their position by reinforcing findings of dishonesty.
This is particularly relevant where directors remain involved behind the scenes after liquidation, influence third parties, or attempt to distance themselves formally while continuing to control outcomes. Courts will examine substance over form.
How does this decision strengthen liquidator misfeasance and fiduciary duty claims?
The judgment significantly strengthens the hand of liquidators bringing misfeasance and breach of fiduciary duty claims.
It reduces scope for arguments over downstream causation and loss, simplifies valuation disputes, and allows courts to focus on the director’s conduct at the point of transfer. For liquidators, this can make claims more straightforward to plead and prove.
For directors, it means that once dishonesty is established, the financial consequences are likely to be severe and difficult to mitigate.
What should directors do now if insolvency or investigation is likely?
The key lesson is that early decisions matter more than many directors realise.
If insolvency is approaching, directors should avoid informal asset movements, undocumented arrangements, or attempts to secure positions outside a transparent process. Actions taken under pressure are often judged with hindsight, and explanations that seemed reasonable at the time may not withstand scrutiny later.
Taking early, specialist legal advice can help directors understand where the lines are drawn, preserve evidence properly, and avoid steps that convert commercial difficulty into personal liability.
Our director defence team is here to help
Our expert Directors Services team defends many directors against claims by liquidators or administrators. If you are facing insolvency or have been contacted by a liquidator, call us today for a free consultation. We have been successfully defending directors for the past 23 years.
Or read our free guide on defending claims by liquidators for further help.
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