Discovery Yachts Ltd, re [2021] EWHC 2475 (Ch)

PSV sought to recover debts from Mr Langdon personally under sections 216 and 217 Insolvency Act 1986. Langdon was a director of Discovery Yachts Limited which went into insolvent liquidation, and subsequently became involved in managing Discovery Yachts Group Limited. The court held that liabilities established against the company in prior proceedings automatically bind a defaulting director under section 217.

Facts

Mr Langdon was a director of Discovery Yachts Limited (DYL) until April 2017. DYL entered insolvent liquidation in October 2017. At that time, Langdon was a director of Discovery Yachts Group Limited (DYGL), a company with a similar name. Mr France and Elusive Yachting Limited successfully sued DYGL in the Commercial Court for breach of contract regarding yacht repairs. DYGL did not defend the trial and judgment was entered against it. PSV 1982 Limited, as assignee of the judgment debt, sought to recover the sum of £1,125,824.67 from Langdon personally under sections 216 and 217 Insolvency Act 1986.

Issues

First Issue

Whether the judgment and orders from the Commercial Court proceedings were sufficient to establish DYGL’s liabilities for the purposes of section 217 Insolvency Act 1986, despite Langdon not being a party to those proceedings.

Second Issue

Whether Langdon was a privy of DYGL or otherwise estopped from denying the liabilities.

Third Issue

Whether the liabilities were ‘incurred’ when the contract was made (September 2017, before the section 216 breach) or when the contract was breached (January 2018, during the contravention).

Judgment

Deputy Judge Robin Vos held in favour of PSV on the key issues.

Effect of Section 217

The court concluded that once a liability is established against a company, a defaulting director automatically becomes personally responsible under section 217 without needing separate proceedings against the director:

“In my judgment, the effect of Section 217 Insolvency Act 1986 is that, as Mr Grantham suggests, once a liability is established in proceedings against the company, the defaulting director automatically becomes responsible for that liability. It is not necessary for the liability to be established in separate proceedings against the director.”

The court reasoned that requiring creditors to prove liability twice would frustrate the protective purpose of the legislation:

“Given the wording of the section, the underlying purpose of the legislation, the fact that a director will have a close connection with the company and that they will only be liable if they have committed a criminal offence by acting in breach of the prohibition in Section 216… I have no hesitation in concluding that Parliament intended any risk to lie with the director rather than the creditor.”

Privity and Estoppel

The court found Langdon was not a privy of DYGL, noting he was one of several directors, was a minority shareholder by the time of trial, and his interests diverged from the company’s when it entered administration.

When Liability Incurred

The liability was incurred when the contract was breached in January 2018, not when it was entered into in September 2017:

“The liability is incurred when the breach takes place giving rise to a cause of action for breach of contract.”

Implications

This judgment clarifies that under section 217 Insolvency Act 1986, creditors who have obtained judgment against a company need not relitigate their claim against a director who contravened section 216. The judgment is automatically binding for section 217 purposes. The case also confirms that contractual liabilities arise when breached, not when contracted, for determining the temporal scope of section 217 liability. This strengthens creditor protection against phoenix company arrangements whilst placing the burden of seeking court permission or joining proceedings on directors who may face personal liability.

Verdict: Preliminary issues decided in favour of the Claimant PSV 1982 Limited. The Commercial Court judgment and orders were sufficient to establish DYGL’s liabilities for section 217 purposes, and the liabilities were incurred when the contract was breached in January 2018, during Langdon’s contravention of section 216.

Source: Discovery Yachts Ltd, re [2021] EWHC 2475 (Ch)