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Another possible way of holding a company director liable

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It is established law that a limited company is a separate legal entity to an individual shareholder or director even if she or he owns the majority of the shares in the company and runs the company on a day to day basis.

However section 6 of the Statute of Frauds (Amendment) Act 1828 in effect provides that a claim may be made:

  1. Against a person who has made a written representation
  2. Fraudulently
  3. As to the ability of any other person, which includes a company
  4. To pay for goods supplied or credit granted to that other person i.e. the company

In the 2003 House of Lords decision in Standard Chartered Bank v Pakistan National Shipping Corporation it was held that a director of a company can be held personally liable for his own fraud and rejected the director’s assertion that he was acting on behalf of the company.

In 2007 the Court of Appeal held in Contex Drouzhba Limited v Wiseman that where a director signed a document on behalf of his company which contained a promise that the company would pay for goods to be ordered in the future, and it was shown that the company did not have the financial resources to pay, then the director was personally liable.

Practical advice

If dealing with a limited company and there is concern whether the company has the resources to pay consider asking the directors of the company to confirm in writing that the company has the ability to pay for what is ordered. Then should the company fail to pay, a claim may be made against the individual directors who signed the letter.

If possible check to see which director has the financial resources to pay.