Case Study - System Building Services Group
Restoring Value for Creditors and Establishing a Landmark Insolvency Precedent
Key Outcomes
Successfully challenged transactions that disadvantaged creditors, recovered value for the insolvent estate, and secured a landmark High Court judgment confirming that directors' fiduciary duties continue after a company enters administration and liquidation.
Background
Systems Building Services Group Limited (SBSG) was a specialist contractor operating in the passive fire protection sector. The company entered administration on 12 July 2012 before later progressing into Creditors' Voluntary Liquidation (CVL) in July 2013. At the time of its insolvency, the company had significant liabilities and unsecured creditor claims exceeding £1 million. The company was initially administered by Gagen Sharma. Following findings of misfeasance against Sharma in unrelated insolvency matters, a number of her appointments were transferred to alternative office holders. SBSG had been dissolved in February 2016 but was subsequently restored to the register, with Stephen Hunt of Griffins appointed as liquidator to investigate the company's affairs and determine whether creditors had suffered losses as a result of previous transactions.
The Challenge
Upon appointment, Griffins faced the challenge of reviewing a dissolved company's affairs several years after the original insolvency events had taken place.
The investigation uncovered concerns surrounding:
• The sale of a company-owned residential property to the company's sole director.
• Payments made following the company's entry into administration.
• Transactions involving connected parties.
• The potential impact of those transactions on recoveries available to creditors.
Of particular concern was whether the former director had continued to act in a manner inconsistent with the interests of creditors after the company entered formal insolvency proceedings. This raised a significant legal question that had not previously been addressed with certainty by the courts: do directors continue to owe fiduciary duties once an administrator or liquidator has been appointed?
Griffins' Investigation
A detailed forensic review of company records, asset disposals, payment transactions and insolvency documentation was undertaken.
The most significant issue identified was the disposal of a residential property owned by SBSG. The property had been acquired by the sole director, Brian Michie, for £120,000. Evidence obtained during the investigation demonstrated that the asset had not been properly marketed and was worth substantially more than the amount paid. The Court later determined the property's value to be approximately £195,000, representing an undervalue of £75,000.
Griffins also examined payments made after administration and the treatment of creditors and connected parties during the insolvency process. These investigations formed the basis of legal proceedings brought on behalf of the company and its creditors.
The Legal Action
Acting as liquidator, Stephen Hunt commenced proceedings in the matter of Hunt (as Liquidator of Systems Building Services Group Ltd) v Michie & Others [2020] EWHC 54 (Ch).
The claim alleged that the director had:
• Acquired company property at a substantial undervalue.
• Failed to act in the interests of creditors.
• Breached his fiduciary and statutory duties.
• Benefited personally at the expense of the insolvent estate. [hfw.com], [pinsentmasons.com]
A central argument advanced on behalf of the liquidator was that although directors lose management powers when an insolvency practitioner is appointed, they do not cease to be directors and therefore remain subject to their statutory and fiduciary obligations.
The Judgment
In a landmark decision, ICC Judge Barber ruled in favour of the liquidator.
The Court found that:
• The property had been purchased at a significant undervalue.
• Brian Michie knew he was acquiring the property on advantageous terms.
• The transaction was not in the interests of creditors.
• The director had breached his fiduciary duties to the company and its creditors.
Most significantly, the Court confirmed that directors' duties under the Companies Act 2006 continue after a company enters administration or creditors' voluntary liquidation. The appointment of an insolvency practitioner removes a director's powers but does not extinguish their duties. The Court held that the director's conduct gave rise to liability and that he could not use the insolvency process to obtain company assets at the expense of creditors.
Results
Financial Recovery
The proceedings enabled the liquidator to challenge transactions which had reduced the value available to creditors and seek recovery for the benefit of the estate.
Legal Precedent
The judgment established a significant point of insolvency law by confirming that directors' fiduciary duties survive formal insolvency proceedings.
Improved Creditor Protection
The decision strengthened the position of office holders seeking to investigate directors' conduct and recover value where assets have been transferred improperly after insolvency.
Industry Impact
The case has become an important authority for insolvency practitioners dealing with connected-party transactions, director conduct, asset recovery actions and sales involving insolvent estates.
Why This Case Matters
The SBSG matter demonstrates the value of rigorous post-appointment investigations and the importance of challenging transactions that may disadvantage creditors.
For Griffins, the case highlights:
• Expertise in complex insolvency investigations.
• The ability to restore dissolved companies and pursue historic claims.
• Determination to maximise returns to creditors.
• Willingness to pursue litigation where necessary.
• Success in establishing legal precedents with lasting significance for the insolvency profession.
Conclusion
The liquidation of Systems Building Services Group Limited stands as one of the most significant cases undertaken by Griffins. What began as an investigation into historic transactions developed into a landmark High Court case that clarified the continuing duties of directors during insolvency.
Through the restoration of the company, a thorough forensic investigation and successful litigation, Stephen Hunt and the team at Griffins secured both a better outcome for creditors and an enduring contribution to UK insolvency law.