Company and its directors have no leg to stand on in latest Privy Council ruling concerning claims against a company receiver
In a recent Privy Council decision in Arjoon v Daniel [2023] UKPC 42, on appeal from the Court of Appeal in the Republic of Trinidad and Tobago, the Privy Council considered a challenge to actions taken by a receiver appointed over a company. In particular the Privy Council considered whether directors had standing to bring a claim against the receiver for breaches of duty and whether the failure by the company to provide an indemnity against costs would cause its claim to be struck out.
The directors successfully sought an interim injunction to restrain the receiver from exercising her power of sale over the company’s assets. However, the High Court discharged the injunction and struck out the claims - the company’s for failing to provide an indemnity and the directors’ for lack of standing. This decision was later overturned by the Court of Appeal.
The receiver appealed to the Privy Council. It held:
- Although the requirement for an indemnity is not a necessary pre-condition for a company to bring proceedings, it becomes essential when proceedings are brought in the name of the company against a secured creditor or a receiver. Based on the facts of the present case, the absence of an indemnity or a stay of proceedings pending an indemnity led the Privy Council to restore the order striking out the company as a claimant.
- In circumstances where the loss suffered as a result of the alleged breaches of duty by the receiver is to the company and not the directors personally, the directors have no standing to bring proceedings in their own name to seek relief for the company. Consequently, the directors’ claim was struck out and the interim injunction against the receiver was discharged.
The Privy Council’s decision underscores the necessity for directors to indemnify company assets against potential litigation costs when they bring proceedings against a receiver for alleged misconduct. It also serves as a critical reminder for directors of a company in a statutory receivership context. They must properly assess the nature of any damages and ensure that proceedings are brought in the appropriate name when seeking relief on behalf of the company.
This ruling reinforces the legal responsibilities and strategic considerations directors must navigate in company receiverships, emphasising the nuanced interplay of legal standing, indemnity provisions and corporate governance.
