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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Archer Structures Ltd. v Griffiths [2003] EWHC 957 (Ch) (30 April 2003) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2003/957.html Cite as: [2003] EWHC 957 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY

		Case number BM 230305 BIRMINGHAM CIVIL JUSTICE CENTRE 33 BULL STREET BIRMINGHAM B4 6DS Date of hearing: 3 April 2003 Date of draft judgment: 24 April 2003
		Date Of Judgment: 30 April 2003

1. I refer to the claimant in those proceedings as Archer and the defendant as Mr Griffiths.
2. This is a trial of preliminary issues ordered by the court on 7 January 2003, namely:

1.1 Was Mr Griffiths subject to the restriction applied by Section 216(3) of the Insolvency Act 1986.

1.2. If Mr Griffiths was subject to that restriction, is he personally responsible for the relevant debts of MPJ Contractors Ltd, in particular for the sum of £80,315.67, accrued interest and costs the subject of the order of District Judge Gailey made on 15 May 2001 and drawn up on 25 May 2001 in the action between Archer and MPJ Contractors Ltd, case number TM100147.

1.3. If so liable, can Mr Griffiths defend the claim upon the grounds disclosed by paragraph[s] 11 [and 12] of the "Defence Statement of Case" bearing the date 31 July 2001.

1.4. In any event excluding the issues raised in paragraphs 8, 9 and 10 of the said Defence Statement of Case.

Reference in point 1.3 to paragraph 12 of the defence was, as I understand it, shown in parenthesis because Mr Griffiths indicated that he might not rely on the article 6 point pleaded in that paragraph. Miss Hitching, Counsel for Mr Griffiths, confirmed that Mr Griffiths no longer relies on the matters raised in paragraph 12.

3. It has been possible to deal with these issues without the need to call evidence. There are no relevant factual issues to decide.

Background

4. MPJ Construction Limited ("Construction") was a company of which Mr Griffiths was at all material times a director. A creditor's winding up petition of Construction was presented on 24 February 1999 and Construction was wound up by court order dated 28 April 1999.
5. Meanwhile, MPJ Contractors Limited ("Contractors") was incorporated on 19 February 1999. On 1 March 2000 Mr Griffiths was appointed a director of Contractors.
6. On 30 January 2001, Archer issued proceedings in the Tamworth County Court against Contractors, claiming £77,854. Contractors counterclaimed £69,585. On 27 April 2001, an unless order was made against Contractors. Contractors failed to comply with the order and on 15 May 2001 judgment was entered against Contractors in favour of Archer for £80,315.67. Meanwhile, on 22 March 2001, a creditor's winding up petition of Contractors had been presented. By letter dated 4 April 2001, Archer's solicitors wrote to Contractors warning of Archer's intention to make applications under Sections 216 and 217 of the Insolvency Act 1986. On 17 June 2001, a winding up order was made in respect of Contractors. The Official Receiver was appointed liquidator. His summary of Contractor's assets and liabilities, as at 13 June 2001, showed Contractor's assets as nil.
7. On 2 July 2001 Archer began this action against Mr Griffiths and Mr Cuffe. Archer have discontinued their claim against Mr Cuffe. On 24 April 2002 District Judge Rank dismissed Archer's application for summary judgment. In January 2003, the court ordered the trial of these preliminary issues.
8. Archer claim that the provisions of Section 216 of the Insolvency Act 1986 apply to Mr Griffiths, and that Mr Griffiths is in breach of that section. Accordingly, Archer claim from Mr Griffiths, pursuant to Section 217 of the 1986 Act, payment of the judgment debt of £80,315.67, on the ground that Mr Griffiths is a person jointly and severally liable for Contractors' debts. Sections 216 and 217 provide, in summary, that where a person is a director of a company that goes into liquidation he may not within a five-year period (without the leave of the court) be a director of a company that has a name so similar to a name by which the company that went into liquidation was known as to suggest an association with that company. If he does so, he will be personally liable for the debts of the second company.
9. Mr Griffiths defends the claim on the grounds (1) that the name MPJ Contractors Limited is not so similar to the name MPJ Construction Limited as to suggest an association with that company, and (2) that his liability under section 217 is to pay the debt due from Contractors to Archer; this debt is the balance due, if any, after the debts owed by Archer to Contractors have been set off against the judgment sum pursuant to the Insolvency Rules 1986 rule 4.90.

Section 216

10. Section 216 where relevant provides

"(1) This section applies to a person where a company ("the liquidating company") has gone into insolvent liquidation ….and he was a director or shadow director at any time in the period of 12 months ending with the day before it went into liquidation.

(2) For the purposes of this section, a name is a prohibited name in relation to such a person if

(a) it is a name by which the liquidating company was known at any time in that period of 12 months, or

(b) it is a name which is so similar to a name falling within paragraph (a) as to suggest an association with that company.

(3) Except with leave of the court or in such circumstances as may be prescribed, a person to whom this section applies shall not at any time in the period of five years beginning with the day on which the liquidating company went into liquidation -

(a) be a director of any other company that is known by a prohibited name.

…..

(6) References in this section, in relation to any time, to a name by which a company is known are to the name of the company at that time or to any name under which the company carries on business at that time."

11. It is common ground that the requirements of section 216(1) are met: Construction is a liquidating company and Mr Griffiths a director of that company within the scope of 216(1).
12. Mr Griffiths' case is that he is not in breach of Section 216 because the name of Contractors is not so similar to that of Construction as to suggest an association with the latter.
13. Miss Hitching for Mr Griffiths confirmed that he accepted that the test whether the names have such similarity is objective. Accordingly, Archer's state of knowledge as to the insolvency of Construction and formation of Contractors, and whether or not Archer knew that they were contracting with Contractors not Construction or were in any way confused, are irrelevant and the evidence as to these matters is to be ignored.
14. No application under section 216(3) has been made.
15. It is common ground that the question whether the names are so similar as to fall within Section 216 is one of fact for the court. That being so, there is little if any guidance to be found in decided cases. In Thorne v Silverleaf [1994] BC 109, Peter Gibson LJ said of Sections 216 and 217: "in the absence of an application under Section 216 (3) for leave, the court is left with no discretion on the application of the sections, and ... a creditor is entitled to take advantage of them, if they can be shown to be applicable". As is clear from that judgment, the aim of these sections is eradication of the "phoenix syndrome".
16. Miss Hitching submits that, to fall within Section 216, there must be both (a) similarity between the two names; and (b) similarity of a nature and degree which suggests an association between the two companies. She submits that the word "name" in the statute includes get-up. She relies on section 216(6) for her submission that the definition of "name" is wider than simply the registered name. As the legislation is concerned with how companies are held out to the public, a company's get-up is part of the face the company presents to the public. Indeed, Miss Hitching submits that it is central to the way a company is presented to the public.
17. There is scant evidence relevant to this point. I have not seen the originals, but only monochrome photocopies of a compliments slip of Construction and a letter heading and invoice of Contractors. Miss Hitching points to the differences between typeface and formatting on the two documents. She relies also on the differences in colour printing between the documents. Mr Din for Archer accepted that there were colour differences between the Construction and Contractors documents.
18. Applying the objective test, it is obvious to me that the name MPJ Contractors Limited is as nearly as similar to MPJ Construction Limited as it is possible to be. Indeed, in preparing for the hearing, I needed an aide-memoire to try to avoid being confused between the two.
19. I derive no assistance at all from a comparison of the compliments slip, invoice and letterhead. One is not comparing like with like, which creates a little difficulty, but that difficulty is not important. I accept that a company's get-up can be an important element in the public's awareness or perception of the company. However, in my judgment, the provisions of section 216(6) do not have the effect of allowing a company to rely on its get-up to avoid the thrust of the prohibition contained in section 216(2). As Mr Din put it, in this context, a name is a name however it appears. I accept Mr Din's submission that it would drive a coach and horses through the legislation if Miss Hitching's submission were right: a director could avoid the effects of sections 216 and 217 simply by adopting different style stationery. And, as Mr Din pointed out, get-up could have no relevance if a company communicated by telephone or by email.
20. I conclude that the requirements of section 216 are satisfied here: MPJ Contractors Limited is a name which is so similar to MPJ Construction Limited as to suggest an association between the two. That is so clear that it is not necessary additionally to have regard to the fact that the two companies have shared a registered office and had directors in common. Further, given the mischief at which the legislation is aimed, it is right to take a purposive approach to Section 216. Such approach leads one inevitably to the conclusion that the names are so similar as to suggest an association between the two companies.
21. Accordingly, I conclude that the name MPJ Contractors Limited was a prohibited name in relation to Mr Griffiths. The answer to issue 1.1 is therefore: Yes.
22. It is therefore necessary to determine the Section 217 issues.

Section 217

23. Section 217 of the Insolvency Act 1986 provides (where relevant) as follows:

"(1) A person is personally responsible for all the relevant debts of a company if at any time:

(a) in contravention of section 216, he is involved in the management of the company…

(2) Where a person is personally responsible under this section for the relevant debts of a company, he is jointly and severally liable in respect of those debts with the company and any other person who, whether under this section or otherwise, is so liable.

(3) For the purposes of this section the relevant debts of a company are -

(a) in relation to a person who is personally responsible under paragraph (a) of subsection (1), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company…."

24. Rule 4.90 of the Insolvency Rules 1986 provides:

"1. This rule applies where, before the company goes into liquidation there have been mutual credits, mutual debts or other mutual dealings between the company and any creditor of the company proving or claiming to prove for a debt in the liquidation.

2. An account shall be taken of what is due from each party to the other in respect of the mutual dealings and the sums due from one party shall be set off against the sums due from the other…..

4 Only the balance (if any) of the account is provable in the liquidation. Alternatively (as the case may be) the amount shall be paid to the liquidator as part of the assets."

25. In paragraph 11 of his defence, Mr Griffiths pleads that, because liability under section 217 would be based on a default judgment, i.e. without a trial on the merits, he would be exposed to liability for a substantial debt without issues relating to Archer's claim against Contractors or Contractors' counterclaim against Archers having been tried on the merits. However, Mr Griffiths does not rely on that argument. He in fact relies on an argument set out in paragraph 6.2 of Miss Hitching's skeleton argument, namely: "The liability of Mr Griffiths under Section 217 is to pay the debt due from Contractors to Archer. This debt is the balance due, if any, after the debts owed by Archer to Contractors have been set off against the judgment sum pursuant to the Insolvency Rules 1986, Rule 4.90". As I understand it, this argument emerged in connection with the application for summary judgment made in April last year. Miss Hitching confirmed that Mr Griffiths does not rely on arguments relating to common law or equitable set-off.
26. Mr Din, understandably, took the point that Mr Griffiths' actual defence to the section 217 claim should be pleaded in his defence. Indeed it is surprising that that pleading has not been clarified since the summary judgment application, when the thrust of Mr Griffiths' defence emerged. Mr Din was, however, aware of the true basis on which Mr Griffiths defends the application and indeed had prepared to meet the issues which Miss Hitching had identified in paragraph 6.2 of her skeleton. I ruled that the hearing of the preliminary issues should proceed on the basis that Mr Griffiths' defence would be as set out in Miss Hitching's skeleton argument on the understanding that the defence would be amended to reflect the content of that paragraph.
27. Mr Griffiths no longer relies on the article 6 point raised in paragraph 12 of his defence.
28. It is common ground that section 217(2) provides that Mr Griffiths is jointly and severally liable with Contractors. The issue is in respect of which debt is Mr Griffiths is so liable. Archer's case is that Mr Griffiths' responsibility for the debt arose as soon as the provisions of section 216 took effect, and that responsibility continues, so that he is liable for the whole of the judgment debt.
29. It is common ground that nothing turns on the fact that Archer obtained judgment after the making of the winding up order of Contractors.

Mr Griffiths' case

30. Mr Griffiths' case is as follows. Contractors' liability for the judgment debt arose on 15 May 2001. Contractors was wound up a month later. By rule 4.90, there was a mandatory set-off of debts existing at the date of the liquidation. Both the judgment debt owed by Contractors and Archer's contractual debts, the subject of the counterclaim, existed, or for the purposes of the trial of preliminary issues are to be taken to have existed, at the date of liquidation. Set-off between the two was therefore mandatory. In Stein v Blake 1996 AC 243 the House of Lords held that the nature of this statutory set-off is such that the claim and cross-claim are extinguished at the date of liquidation. From the date of the liquidation of Contractors, all prior claims were extinguished. The only remaining debt is that for the balance. That is the only debt for which Mr Griffiths is responsible. Prior to Contractors' liquidation, Mr Griffiths was jointly and severally responsible for the whole of Contractors' judgment debt. After the liquidation, Mr Griffiths is liable either (a) for nothing, because the debt has been extinguished or, more likely (b) for the balance between Archer and Contractors resulting from the operation of rule 4.90.
31. Mr Griffiths accepts that set off in law or equity does not extinguish the underlying claim. By contrast, the effect of the operation of rule 4.90 is that the underlying debt is extinguished. Operation of rule 4.90 thus introduces a novel form of set off, different from that in common law or equity.
32. Mr Griffiths accepts that a joint and several liability arose when the provisions of section 216 were triggered. Accordingly, prior to the liquidation there was a joint and several liability between Contractors and Mr Griffiths for the judgment debt. Mr Griffiths' case is that that liability does not continue, by reason of the operation of rule 4.90, and per Stein. Archers claim and Contractors' cross-claim/counterclaim were automatically extinguished when Contractors went into insolvent liquidation. A single claim for the balance was substituted. Miss Hitching submits that the balance, if any, is the only "debt of the company" for which Mr Griffiths could now be liable under section 217.
33. Miss Hitching submits that the concept that a debt can be extinguished is not novel. She relies on the principle, described in paragraph 1085 of Halsbury's Laws volume 9(1), whereby a joint contractor may be discharged eg by payment or release. Miss Hitching submits that the position here is analogous to discharge of a joint debtor by payment or release because the original claim has been extinguished.
34. Miss Hitching submits that the fact of Contractors' debt having been extinguished must have some effect. Otherwise, section 217 could render a person liable for a debt which had been wholly extinguished. Mr Griffiths would be liable for a debt even though the claim against Contractors had been extinguished. That would introduce the risk of double recovery and unfairness to Mr Griffiths.

Conclusion

35. If Miss Hitching is correct in saying that the original debt is extinguished, is the consequence that Mr Griffiths' liability is thereby also extinguished, or is his liability substituted by liability for the balance due between Contractors and Archer? Rule 4.90 creates a mechanism for the substitution of liability for a balance in place of the original debts. However, there is no obvious mechanism for the parallel substitution of the liability of a joint and several debtor. The only mechanism which Miss Hitching could suggest was that the effect of Rule 4.90 is that Mr Griffiths is released on terms whereby the original debt is replaced by liability for the balance. I cannot accept that Rule 4.90 creates such mechanism in the relationship between Mr Griffiths and Archer. Rule 4.90 does not regulate the relationship between Mr Griffiths and Archer. Rule 4.90 cannot have the effect on the relationship between Mr Griffiths and Archer for which Miss Hitching contends. Contractors' insolvency alters the nature of Contractors' obligation to Archer (per rule 4.90, following Stein), but does not alter the nature of Mr Griffiths' obligation to Archer.
36. I conclude that it does not follow that, because Contractors' debt was replaced by liability for a balance only, Mr Griffiths' liability as joint and several debtor is either (a) extinguished altogether or (b) replaced by a liability for only the balance as between Contractors and Archer.
37. Contractors' claim against Archer is a severable claim. If the issue here were one of common-law or equitable set-off, Mr Griffiths would have no prospect of arguing set-off: there is no mutuality and the parties differ. Mr Griffiths is not entitled to the benefit of any set-off available to Contractors. The crucial nature of the responsibility under section 217 is that it is joint and several. Archer obtained judgment against Contractors before the winding-up order was made in respect of Contractors. The rule 4.90 set-off operates to adjust the respective liabilities of a third party and the insolvent company. The insolvency set off is available to insolvent companies. It relates to the company only, not to a director. The mischief to which section 217 is directed gives rise to the crucial nature of personal responsibility of Mr Griffiths. That liability, in my judgment, continues, notwithstanding the insolvency of Contractors and the effect on Contractors' debt of the operation of Rule 4.90. The nature of Mr Griffiths' obligation does not alter by reason of the insolvency of Contractors.
38. Mr Griffiths says he is liable for such debt of Contractors as exists. But that ignores the fundamental point that a creditor is entitled to pursue any one or more of joint debtors for the whole sum. Mr Griffiths' case is, in effect, one of quasi surety. But the claim against him is not secondary. Mr Griffiths ignores the joint and several liability which section 217 specifically imposes. Contractors and Mr Griffiths are jointly and severally liable. Mr Griffiths has a primary liability, as a principal. His is not liability as a surety or guarantor.
39. Miss Hitching submits that her construction of the legislation is fair. I accept, however, Mr Din's submission that that this is not a case where the court should exercise discretion. That appears to follow from Thorne v Silverleaf. Even if I am wrong on that, a number of factors arise which would suggest that it may not be unfair to conclude that Mr Griffiths is liable for the full amount of the judgment debt. For example, Contractors could have asked permission to use the name. Further, I should reject any suggestion that "double recovery" issues fell to be considered in relation to any question of fairness or the exercise of discretion. Double recovery as such would not arise here, because any money which Mr Griffiths pays will go to reduce the amount of the judgment debt. I recognise that the amount which Mr Griffiths must pay will be greater than Contractors' debt. That, in my judgment, is an inevitable consequence of the operation of section 217 and would not amount to a reason not to enforce the personal liability which the section imposes.
40. I recognise (though this was not a point raised in argument) that the consequence of the conclusion I reach is that, while an insolvent company's liability to the creditor is only for any balance after operation of rule 4.90, the company may be liable to a director who is personally liable under section 217 for the full amount of the debt, if that director has a right of recovery against the company. Notwithstanding that potential anomaly, I remain of the view that, here, Mr Griffiths is liable for the whole of the debt.
41. The answer to issue 1.2 (on the basis of 1.4) therefore is: Mr Griffiths is personally liable for the relevant debts of Contractors and in particular for the judgment debt of £80,315.67 plus accrued interest and cost.
42. The answer to issue 1.3 (on the basis of 1.4) is: Mr Griffiths cannot defend Archer's claim on the grounds disclosed by paragraph 11 of the defence or by paragraph 6.2 of Miss Hitching's skeleton argument.