DIRECTORS – FIDUCIARY DUTY – DISHONEST DIVERSION OF ASSETS TO OFFSHORE COMPANY

D was the managing director of the ACP group of companies. Following its take over, the group’s new owners alleged that D had dishonestly diverted assets and business opportunities to himself and B, a foreign company under his direct control. ACP submitted that D had arranged the sale of second hand machinery while travelling on ACP’s business, with the commission being paid to B. On other occasions, sales of second hand equipment were made to ACP’s customers using ACP letterheads and installed by its staff, with the commission again paid directly to B. Further, D’s son was employed by ACP on a salary of £24,000 a year even though he was still at school. D maintained that he was entitled to profit from such sales as ACP did not deal in second hand equipment. ACP sought summary judgment on the grounds that its assets had been dishonestly diverted.

Held, giving summary judgment for ACT, that D had no defence based on the argument that ACP would not have exploited a particular business opportunity and could only escape liability if he had obtained the consent of ACP’s shareholders for his actions. Both D and B were liable to account to ACP for the profits and commissions made on new or second hand plant sales that ACP could have supplied. Further, it was appropriate to lift the corporate veil on B as it was directly controlled by D and in reality functioned as his offshore bank account. The payment to D’s son was invalid both because it had operated as an unauthorised salary increase for D and had been made to reduce his tax liability.

GENCOR ACP LTD v. DALBY [2000] 2 B.C.L.C. 734, Rimer, J., Ch D.

“Current Law” March 2001