ABSTRACT
If directors have breached their obligation to the company’s creditors, then, absent a settlement out of court, proceedings will have to be taken to obtain recompense. Who has standing to commence those proceedings depends on the nature of the duty. If it can be established that creditors are owed a direct duty by directors, then creditors will be entitled, short of some restriction being placed on this right, to initiate proceedings against the company’s directors if there is a breach of duty, and a creditor can establish that fact. As mentioned in the previous chapter, this is one of the main attractions of having a direct duty. But, if the duty is owed to the company to take into account creditor interests, then, pursuant to the thrust of the rule in Foss v Harbottle (1843) 2 Hare 461, only the company is entitled to bring proceedings if there is a breach. As directors are highly unlikely to sanction the initiation of proceedings against themselves, or one of their number, creditors will usually have to wait until a liquidator or administrator is appointed in relation to the affairs of the company, and hope that he or she will bring proceedings, technically on behalf of the company, but, in reality, on behalf of the creditors. Proceedings would usually be commenced pursuant to s 212 of the Insolvency Act 1986 (commonly known as ‘misfeasance proceedings’) where a company is in liquidation. It is a major point made by those who have argued against the existence of any obligation of directors to creditors that, because the obligation to creditors in fact involves an indirect duty, and not a direct duty to creditors, creditors have no right to bring proceedings against directors.1 In the words of Morey McDaniel, ‘a right without a remedy is worthless’.2
