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Directors Beware

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In the case of Lindsay v O’Loughnane [2010] EWHC 529 (QB) the director of a company who deliberately lied to a company’s customer about the financial position of the company was held personally liable to the customer for the tort of deceit.

Stop signThe company provided foreign exchange services. The customer had instructed the company in relation to three transactions to convert pounds sterling into Euros and to pay the amounts to his bank account in Corfu. The transactions took place in June 2008. The payments were received late and the director told the customer that it was the fault of the bank. The real reason was that at the time the transactions took place the company was hopelessly insolvent.

On 3 September 2008 the customer asked the company to convert £315,000 into Euros and on 9 September a further £250,000. The transactions were not completed by the company and on 18 September the company went into administration. The customer brought a claim against the director personally for his losses of £565,000 on the basis of the tort of deceit.

The customer’s claim was successful as the court found that the director had made an implied representation in an e mail to the customer and that the representation was dishonest and decided that the director should pay to the customer the amount lost less anything the customer received in the liquidation.

The director tried to defend the claim on the basis of section 6 of the Statute of Frauds (Amendment) Act 1828, which provides that no action may be brought on any representation or assurance relating to the character or creditworthiness of another person, unless the representation or assurance is in writing and signed by the defendant. However the court decided that the director’s e mails complied with this section as they either included an electronic signature or concluded with words such as “regards” accompanied by the typed name of the sender of the e mail.

If nothing had been put in writing by the director, the claimant’s action for deceit would have failed. It follows therefore that it is important for directors to review any written representations they have made to creditors in the period leading up to a company’s formal insolvency.

If you have any questions about these or any other issues please do not hesitate to contact one the following members of the Insolvency and Business Recovery Team:

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