UK: Scotland: lax governance and relief under s 1157 of the Companies Act (2006)

The opinion of Lord Hodge in Gillespie Investments Ltd v Gillespie [2010] CSOH 113 was delivered last month. One of the questions before him was whether directors should be relieved from liability, under section 1157 of the Companies Act (2006), in respect of breaches of fiduciary duty. Section 1157 provides the court with the power to relieve a director from liability (in whole or in part) in respect of breach of duty where he acted honestly and reasonably and, having regard to the circumstances of the case, he ought fairly to be excused. With regard to the application of section 1157 to the facts before him, Lord Hodge observed (para. [54]):

I am not satisfied that either defender [i.e., director] acted reasonably in their failure to keep proper records to vouch the various transactions and thereby to have a proper basis for the reimbursement of the company by the persons who benefited from the irregular appropriation of its funds. I am therefore not in a position to grant relief under section 1157. Had I concluded that the defender in each action had acted reasonably in the circumstances, I would still have been disinclined to grant relief as I do not think that either ought to be excused the consequences of their lax governance. I note that in Re Duckwari plc (No 2) [1997] 2 BCLC 729 Judge Paul Baker QC (at p.737) took account of the personal interest of a director in a transaction as a factor which pointed against the fairness of granting relief. In my opinion the combination of lax governance and personal gain in these cases would have militated against the grant of relief".