On 13 May 2022, in the case of Rushbrooke UK Ltd v 4 Designs Concept Ltd [2022] EWHC 1687 (Ch), the High Court held that one of two directors (Director 1) of Rushbrooke UK Ltd (Rushbrooke) lacked the authority on his own to instruct its solicitors, Neath Raisbeck Golding Law (NRG), to apply for an injunction to impede a creditor’s winding-up petition. A winding-up petition is a form of legal action taken by a creditor in order to reclaim its debts and carries with it a very real possibility of insolvency for the target company.
The other director (Director 2), however, supported the creditor’s winding-up petition and did not approve the instructions to impede the winding-up petition.
The company’s articles of association of Rushbrooke empowered its directors to delegate their powers to an executive director, such as a managing director (MD). In this case, however, neither director had been appointed MD. As established in Mitchell & Hobbs (UK) Ltd v Mill [1995] 7 WLUK 316, in the situation where no MD had been appointed, it is generally the case that no individual director may sanction the initiation of court proceedings without a board resolution. A board resolution generally must be passed by a simple majority meaning that both directors would have had to agree.
The court held that Director 1 did not have the correct level of authority to instruct their solicitors to submit the application to impede a winding-up petition. The application was consequently struck out.
Unfortunately for NRG, this was not the end of the line. After the court struck the application out, NRG was subsequently issued with a wasted costs order which ordered that NRG pay a sum of the respondent’s legal costs. HHJ Matthews issued the order on the grounds that NRG acted without first ensuring those who had instructed them had the authority to do so, amounting to negligence and a breach of the Codes of Conduct for both solicitors and firms. As a consequence of this, HHJ Matthews held that the respondent incurred unnecessary costs.
It is crucial for a solicitor to be sure of the authority of those instructing them in their representation of the client. This case represents the importance of this and acts as an example for those who fail to do so. For advice and further information, please contact Krystina Tang (Trainee Solicitor) at ktang@maddoxlegal.co.uk.