UK Construction and Law

A man who ran a property development company without ever being its director loses the six year limitation defence

By Staff Writer  |  29 August 2026

The High Court held that the man behind a development company was both a de facto and a shadow director, that his breaches of duty were dishonest, and that section 21 of the Limitation Act 1980 removed the time bar. The company's deficit rose by 912,126 pounds while it traded.

The company carried on residential property development. Its shares were registered in the name of a man who described himself as the manager of the construction side and who held them as nominee for the true owner, an offshore based entrepreneur. The person who ran the investment and financial side was not a director of record at all. He decided which creditors were paid and when, he decided the company should be wound up, and he told the registered director what to sign, file and report.

Money left the company through a consultancy owned on paper by his wife. After the liquidation, a further company took over the same business from the same offices and equipment, freed from the debts built up. The same pattern had happened before, with a predecessor that carried on the business from about 2007 and was dissolved in 2012.

Two labels, both of them fitting

The court held that he was a shadow director so far as compliance and formalities went, because the registered director was accustomed to act on his instructions, and a de facto director in relation to everything that did not have to be seen to be done by the director of record. As a cross-check the judge asked whether he could have avoided damage to creditors by taking proper steps to protect their interests, and whether it was fair to hold him liable as a fiduciary given his degree of control. Both answers were clearly yes. He therefore owed the general duties of a director, including those under sections 172 and 174 of the Companies Act 2006.

He had not defended. The defences were struck out and both defendants debarred in March 2026 after serious failures to comply with disclosure, and permission to appeal out of time was refused at the start of the hearing.

I have tried to bear in mind throughout that the Defendants, though debarred from defending, are entitled to a critical appraisal of the evidence against them and a fair evaluation of whether the case against them is sufficiently proved.

Mr Justice Fancourt

Why limitation did not save him

The breach of duty claim was issued more than six years after the liquidation began, so it was time barred unless section 21(1) of the Limitation Act 1980 applied, which disapplies limitation for fraud or fraudulent breach of trust. That turns on dishonesty as explained in Armitage v Nurse and applied to directors in Gwembe Valley.

On the payments the judge had no difficulty. They were the director knowingly preferring his own interests to the company's by paying himself large sums through the consultancy to which no honest entitlement had been established, and the account given to the liquidator and in the pleaded defence was misleading. Two further points were recorded: to the extent the payments were disguised remuneration, the method avoided liability for pay as you earn and national insurance, and the company wrongly reclaimed input VAT on the consultancy's invoices. Those breaches were dishonest, so the limitation defence did not avail him.

The larger claim was that running the business at all was a continuing breach, because the company had no right to be paid enough for the work it did to make a profit. Here the judge was careful about the step from breach to fraud, drawing on recent appellate treatment of good faith and subjective belief under section 172.

Applying that, the finding was that he knew the company's financial position and turned a blind eye to the risk of injury to creditors, allowing it to trade from June 2012 to November 2015 without adequate protection for them, in his own and the owner's interests, and aware from the earlier failure of what was likely to follow. That made him dishonest, and the fraudulent breach was established.

What is left to argue

Relief has not been fixed. The judge indicated repayment of the corrected schedules of payments with interest, subject to an adjustment for reasonable remuneration and exclusion of the 2012 payment falling outside the undervalue period, plus damages or equitable compensation assessed on the basis of fraud. He flagged a risk of double counting between the increased shortfall of 912,126 pounds and orders for repayment of the same payments, since making those payments contributed to the shortfall, and directed the parties to resolve the measure of loss by agreement or written submissions. Anyone acting for a liquidator should read that as a warning to plead the two measures as alternatives, not cumulatively.