Burnden Holdings (UK) Limited v Fielding

June 17, 2016

Corporate insolvency – unlawful distributions – ss. 21 and 31 Limitation Act 1980, conversion to own use

Burnden, by its liquidators, brought claims against the defendants, its former directors, for breach of fiduciary and other duties arising from an unlawful distribution of the company’s assets to its member prior to its entry into liquidation and at a time when the directors knew or ought to have known Burden was insolvent. The ultimate recipient of the distribution, was a company owned and controlled by Burden’s directors.

The directors applied for summary judgment on the basis that the Limitation Act 1980 barred the claim, having been issued six years after the distribution. HHJ Hodge QC granted summary judgment. Burden appealed.

The court held there was no doubt Burden’s cause of action accrued on the date of the distribution. All things being equal, section 21(3) of the Limitation Act 1980 barred the claim after six years. Nevertheless, the court held that a distribution to a company controlled by the directors could amount to receipt or conversion to the director’s own use for the purpose of the exception to section 21(3) in section 21(1)(b) of the 1980 Act: Miller v Bain [2002] 1 BCLC 266 applied. Any other interpretation of that provision would mean that it would be easy for directors to avoid liability.

The court also allowed the appeal on a subsidiary ground. The liquidators relied on section 32(1)(b) of the 1980 Act (deliberate concealment of a cause of action) to defeat the limitation plea. The Judge had rejected that on the basis that there was no prospect of establishing deliberate concealment. The Court of Appeal held that was a question of fact that could only be determined at trial, there was a sufficient prima facie in this case to refuse summary judgment.

This case highlights the court’s unwillingness to allow directors to use complex structures to avoid their liabilities coupled with a readiness to look through such structures at the real underlying ownership and control.