A director’s personal liability – a chilling reminder
25 July 2024
Ex-British Home Stores director, Dominic Chappell has been ordered by the High Court to pay £50 million to cover losses incurred before its collapse.
The collapse of British Home Stores
British Home Stores (BHS), a once prominent UK high street retailer founded in 1928, collapsed in 2016 after Dominic Chappell, who lacked any form of retail experience, acquired it for £1 from Sir Phillip Green in March 2015.
Its collapse marked one of the most significant failures in UK retail history, with the downfall leaving 11,000 employees without jobs and a pension deficit of £571 million.
Dominic Chappell’s tenure was marred by financial mismanagement and questionable decisions. Mr Chappell and his team extracted £1,789,250 from BHS within the first three months of his ownership, and by the time of the collapse in 2016, had extracted £2,627,643 through fees, loans and other payments. Ultimately, this led to its administration in April 2016, 13 months after the acquisition.
Consequences for Mr Chappell
Following the collapse, Mr Chappell faced numerous claims and actions.
In 2019 he was banned from company directorships for ten years by the UK Insolvency Service.
In 2018 he was found guilty of three charges brought by The Pensions Regulator for neglecting or refusing to provide information and documents. He was ordered to pay a fine of £50,000 as well as £37,000 in legal fees.
On 5 November 2020, Mr Chappell was found guilty of tax evasion for failing to pay around £548,000 in taxes and was sentenced to six years in prison.
The recent £50m judgment included £21.5 million in relation to wrongful trading and £17.5 million in relation to breach of fiduciary duty plus other additional costs.
Mr Chappell is liable to pay further money for a misfeasance or wrongful trading claim. The amount he will have to pay is still to be determined.
Consequences for others involved.
Mr Chappell wasn’t solely responsible for the collapse – others involved also faced consequences.
Sir Phillip Green, privately settled a cash payment of £363 million with the Pensions Regulator, while Lennart Henningson and Dominic Chandler (two former BHS directors) were ordered to pay at least £18 million to creditors.
A director’s duties
Directors in England and Wales are bound by stringent duties that are outlined in the Companies Act 2006. These are placed upon them to ensure they act in the best interest of the company. Where it is found that duties have been breached, the director or directors in question may be ordered by the Court to personally pay money.
These duties include:
- Duty to act within powers
- Duty to promote the success of the company
- Duty to exercise independent judgment
- Duty to exercise reasonable care, skill and diligence
- Duty to avoid conflicts of interest
- Duty not to accept benefits from third parties
- Duty to declare interest in proposed transactions
Final thoughts
The recent decisions against ex-directors of BHS serve as a stark reminder of the stringent duties imposed on directors. There is a common misconception that a director does not have any personal liability. Whilst the BHS fallout and sums ordered to be paid by the ex-directors may be seen as extreme examples, the risk of personal claims against directors is ever present and can be costly to defend.
If you or your business would like advice concerning directors’ duties, general business issues or any potential claims, please contact our specialist bespoke commercial dispute resolution team who will be happy to help. Email Steven Koukos at steven.koukos@redkitelaw.co.uk or Rhian Davies at rhian.davies@redkitelaw.co.uk. We look forward to hearing from you.
This article was written by Redkite Solicitors, Rebecca Hall.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.