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Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd
Encyclopedia
Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd [2003] BCC 885 (also, Eaton Bray Ltd v Palmer) is a UK insolvency law
and company law case concerning directors' duties
. It recognised that directors owe fiduciary duties to creditors when a company is on the verge of insolvency.
, just near the Thames in London
. Colin Gwyer & Associates Ltd owned flat one on the ground floor. Mr Gwyer owned that company. Mr Palmer owned flat two and Eaton Bray Ltd owned flat three. Each had one share in the company, which held the head lease. They did not get along. Mr Gwyer had been carrying out building work. It disturbed them. He did it without their permission, in breach of covenant. It disturbed Eaton Bray Ltd in particular, which brought proceedings to make Mr Gwyer's company forfeit the lease. Meanwhile London Wharf (Limehouse) Ltd was teetering on the verge of insolvency. Then Mr Gwyer nominated his builder (Mr Howell) to the board of the company. Eaton Bray Ltd was even more upset, and its nominated director refused to attend a board meeting to resolve the dispute. Mr Palmer wanted it settled. Mr Palmer and Mr Howell resolved that Mr Gwyer's terms for settling the matter would be accepted. Eaton Bray Ltd sued, arguing the resolution was ineffective because it was breach of a fiduciary duty.
. Although London Wharf's articles of association
allowed Mr Howell to vote on a resolution in which he had an interest, the provision' existence did not relieve him of a general duty to act in good faith for the interests of London Wharf. When they passed the resolution, the two directors were in breach of fiduciary duty. Moreover, since insolvency was imminent, they also had a duty to act in the interests of company creditors. They did not properly consider creditors either. Therefore the resolution accepting the settlement was invalid.
US law
UK insolvency law
United Kingdom insolvency law deals with the insolvency of firms and individuals in the United Kingdom. The important statutes are the Insolvency Act 1986, as amended by the Enterprise Act 2002, as well as the Company Director Disqualification Act 1986 and the Companies Act 2006.Insolvency is a...
and company law case concerning directors' duties
Directors' duties
Directors' duties are a series of statutory, common law and equitable obligations owed primarily by members of the board of directors to the corporation that employs them. It is a central part of corporate law and corporate governance...
. It recognised that directors owe fiduciary duties to creditors when a company is on the verge of insolvency.
Facts
London Wharf (Limehouse) Ltd was a company set up to manage three flats at 28 Narrow StreetNarrow Street
Narrow Street is a narrow street running parallel to the River Thames through the Limehouse area of east London.- History :A combination of tides and currents made this point on the Thames a natural landfall for ships, the first wharf being completed in 1348...
, just near the Thames in London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
. Colin Gwyer & Associates Ltd owned flat one on the ground floor. Mr Gwyer owned that company. Mr Palmer owned flat two and Eaton Bray Ltd owned flat three. Each had one share in the company, which held the head lease. They did not get along. Mr Gwyer had been carrying out building work. It disturbed them. He did it without their permission, in breach of covenant. It disturbed Eaton Bray Ltd in particular, which brought proceedings to make Mr Gwyer's company forfeit the lease. Meanwhile London Wharf (Limehouse) Ltd was teetering on the verge of insolvency. Then Mr Gwyer nominated his builder (Mr Howell) to the board of the company. Eaton Bray Ltd was even more upset, and its nominated director refused to attend a board meeting to resolve the dispute. Mr Palmer wanted it settled. Mr Palmer and Mr Howell resolved that Mr Gwyer's terms for settling the matter would be accepted. Eaton Bray Ltd sued, arguing the resolution was ineffective because it was breach of a fiduciary duty.
Judgment
Leslie Kosmin QC held that the board meeting was validly convened and was quorateQuorum
A quorum is the minimum number of members of a deliberative assembly necessary to conduct the business of that group...
. Although London Wharf's articles of association
Articles of Association
The Continental Association, often known simply as the "Association", was a system created by the First Continental Congress in 1774 for implementing a trade boycott with Great Britain...
allowed Mr Howell to vote on a resolution in which he had an interest, the provision' existence did not relieve him of a general duty to act in good faith for the interests of London Wharf. When they passed the resolution, the two directors were in breach of fiduciary duty. Moreover, since insolvency was imminent, they also had a duty to act in the interests of company creditors. They did not properly consider creditors either. Therefore the resolution accepting the settlement was invalid.
See also
- West Mercia Safetywear Ltd v Dodd (1988) 4 BCC 30; [1988] BCLC 250
- Re Smith & Fawcett [1942] Ch 304
- Charterbridge Corp Ltd v Lloyd’s Bank Ltd [1970] Ch 62, ‘could an honest and intelligent man, in the position of the directors, in all the circumstances, reasonably have believed that the decision was for the benefit of the company’.
US law
- Geyer v. Ingersoll Publication Co., 621 A.2d 784 (Del. Ch. 1992);
- Credit Lyonnais Bank Netherland, N.V. v. Pathe Communication Corp., Civ. A. No. 12150, 1991 WL 277613, at 34 n.55 (Del. Ch. Dec. 30, 1991)
- North American Catholic Education Programming Foundation, Inc. v. Gheewalla, 930 A.2d 92 (Del. 2007) denying direct fiduciary claims against directors by creditors and limiting these duties to situations where the firm is already insolvent