The Court of Appeal has overturned a High Court order making Graham Sedgwick personally liable for €48,250 paid in advance for three cars that were never delivered after Appleyard Motors Ltd collapsed.
In a judgment delivered on 13 October 2016, the court allowed Mr Sedgwick’s appeal and refused the declaration sought under section 297A(2)(a) of the Companies Act 1963. It held that the statutory test required the court to be satisfied that a director ought to have known the conduct would cause a creditor loss. It was not enough that loss might occur; it had to be foreseeable to a high degree of certainty.
Toomey Leasing Group Ltd, a UK car leasing company, transferred €48,250 to Appleyard on 13 June 2012 for three Ford Fiesta cars. Appleyard had sourced them through another dealership. It could not complete the purchase after Ulster Bank withdrew support the next day, and it ceased trading on 15 June. The company entered creditors’ voluntary liquidation on 26 June 2012.
The High Court had found Mr Sedgwick and another director personally liable for the debt. It considered that the directors should, by the end of May 2012, have sought further professional advice, protected creditors or taken steps to wind up the company. Only Mr Sedgwick appealed; the other director was not a party to the appeal, having entered a personal insolvency arrangement. Two other respondents had earlier been released from the proceedings.
The Court of Appeal accepted that Appleyard was in a perilous financial position and that accepting advance payment created an increased risk for Toomey Leasing. But it found no sufficient basis to conclude that Mr Sedgwick ought to have known the payment would cause this creditor loss. The bank had not warned the company that its support was about to be withdrawn. That became clear only on 14 June, after the payment, and the directors then decided to stop trading and liquidate the company.
The court noted that an escrow account would have been a wiser way to protect the customer’s funds, but said that this did not by itself satisfy the statutory test. The appeal concerned personal liability under the specific deeming provision in section 297A(2)(a); the court refused the requested declaration on that basis.