Dispute Resolution Matters February 2010

Director imprisoned for breach of undertaking to the court

Where a director acts wilfully or deliberately to breach an undertaking to the court, that director may be in contempt of court and could face imprisonment.  This was illustrated in a recent case where a director who had given undertakings was imprisoned for eight weeks following a finding that he had acted in deliberate breach of the undertakings.

Claire Graham of the commercial litigation team considers the recent case of Secretary of State for Business, Enterprise and Regulatory Reform v Nationwide Legal Services Ltd and NLS Sheffield Ltd [2009] EWHC 145 (Ch).

An undertaking is a promise made to the court to do or provide something, or to refrain from doing or providing something.  The consequences of breaching an undertaking may be just the same as the consequences of breaching an order of the court.  A person who gives undertakings to the court and subsequently breaches any of the terms of the undertakings may be held to be in contempt of court and may be imprisoned, fined or have his assets seized. 
 

The case concerned a public interest winding up and the appointment of a provisional liquidator after presentation of the winding-up petition.  At any time after a petition to wind-up a company has been presented, the court can appoint a provisional liquidator to take control of the company if there are concerns that assets are at risk or it is thought to be against the 'public interest' for the company to continue trading. The purpose of the provision is to protect the assets and potential creditors until the court hears the winding-up petition. 
 

In this case, the Secretary of State had agreed not to pursue an application for appointment of a provisional liquidator after the companies acting by Gerald Barton gave certain undertakings to the court.  Mr. Barton was found to have deliberately, and knowingly understanding the undertakings given to the court, flouted two of the undertakings.  He was committed to prison for eight weeks.  In imposing the sentence the judge stressed that the company had provided the undertakings to avoid the appointment of a provisional liquidator and that a system that allowed the acceptance of undertakings instead of appointing a provisional liquidator could only operate if undertakings are enforced and known to be enforced.

If you require further information on this matter please contact:

Claire Graham

Tel: 0845 165 5428
Email: claire.graham@cobbetts.com