Beware section 216 and undefended claims

Mr Langdon was a director of Discovery Yachts Group Limited. Prior to that, he had also been a director of Discovery Yachts Limited which had gone into insolvent liquidation in October 2017. This engaged section 216 IA which prohibited Mr Langdon from being a director of another company with a name similar to “Discovery Yacht”. 

In September 2017, Discovery Yachts Group Limited entered into an agreement with Andrew France and Elusive Yachting Limited which was then breached. Proceedings were issued against Discovery Yachts Group Limited which then also went into liquidation. The proceedings were not defended and the court found the contract had been breached in January 2018 and awarded damages. Those claims were assigned, and the assignee pursued Mr Langdon under section 217 IA which provides a director is jointly and severally liable for debts of that company incurred during the period s. 216 is breached.

Mr Langdon sought to escape liability by arguing he could dispute the debt was due on substantive grounds because he was not party to those proceedings and the company had not defended that claim. This was rejected by the Court of Appeal who held that section 217 was plain that a person caught by the section is jointly and severally liable for the debt and the company’s liability had already been determined. This was not a case of the earlier judgment “binding a stranger”.

The relevant question was whether the debt or liability had been incurred during the prohibited period. Here it had been as liability was incurred at the date of breach, which was held to have occurred in January 2018.

PSV 1982 v Langdon [2022] EWCA Civ 13