Director misfeasance: burden of proof

In Mullarkey & Ors v Broad & Anor, the High Court has decided that in a claim by a creditor of an insolvent company against a director of the company for fraudulent misfeasance, the burden is on the claimant to prove the fraud.
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Background. The general rule of proof in English civil law is that it is for the party asserting a fact to prove it. The application of this general rule to cases of misfeasance by company directors was perhaps cast into doubt in Re Barton Manufacturing Limited (1999) 1 BCLC 740, where a company made certain gifts and Harman J held that it was for the directors to explain why the making of the gifts had been in the best interests of the company.

Facts. The claimants were creditors of SFL, a company that had gone into creditors' voluntary liquidation in January 1995, and brought an application for relief under section 212 of the Insolvency Act 1986, alleging fraudulent breach of trust by B, a director of SFL. The claimants, citing Re Barton Manufacturing, suggested that, where the misfeasance of a company director was concerned, the burden was on the director to justify his conduct rather than for the claimants to prove their case.

Decision. The High Court dismissing the application, held that:

  • The burden of proof was on the claimants to establish the alleged fraudulent misfeasance. The Barton case did not reverse the burden of proof in all misfeasance cases, still less in cases of fraudulent misfeasance.

  • On the evidence, the claimants had not discharged the burden of proving a fraudulent breach of trust on the part of B.

Comment. The case provides useful confirmation that the burden of proof is very much on the claimant to establish fraudulent misfeasance, and the fact that a company director is involved does not change this.

Source: Mullarkey & Ors v Broad & Anor, High Court (Ch) Bristol District Registry, Case No: 38 C 05, 3 July 2007, Lewison J.

 
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