Lindsay vs O Loughane(Company Fraud and the Personal Liability of

Directors(2012)

The recent High Court case of Lindsay vs O Loughnane shed further light on the
circumstances in which legal action may successfully be brought against individual directors
of a company where a fraud has been committed.
Mr Lindsay planned to buy properties in Cape Verde. To complete the purchases he needed
to transfer cash sums in Pounds Sterling and convert them into Euros. To achieve this, he
instructed Mr OLoughnane of a company named FX Solutions Limited. The service his
company offered appeared good value for money.
Mr OLoughnane completed a number of the transfers much later than agreed, and told Mr
Lindsay that his bank was responsible for the delays. The real reason, it transpired, was that
FX Solutions Limited was heavily insolvent and withheld Mr Lindsays money to balance its
accounts
Mr OLoughnane then retained two separate deposits from Mr Lindsay amounting to over
500,000 and did not complete the transfers at all. Although he again told Mr Lindsay that
the bank was to blame and that FX Solutions was doing nothing abnormal, by this point the
company had entered into liquidation and Mr Lindsays funds were utilised to pay creditors.
Once the company had wound up, Mr Lindsay sued Mr OLoughnane to recover
damages deceit and applied for the veil of incorporation (an expression meaning the
protection directors of a company have from limited liability) to be lifted if the action
failed. This would ensure that Mr OLoughnane could be held personally liable for the
companys fraudulent behaviour.
Mr Lindsay won damages for the deceit but the application for the veil of incorporation to be
lifted was dismissed. The Judge decided, following previous case law, that the veil of
incorporation can only be removed when the wrongdoing in question took place outside of
the companys activities, with the company being used to protect the wrongdoer. Although
Mr OLoughnane did use the company to cover for his own actions, the fraud in question was
committed during the course of the companys own dealings and not solely for Mr
OLoughnanes own benefit.
The case also established that fraudulent misrepresentations can still be adjudged to have
taken place by e-mail, provided the guilty party has signed his name on the e-mail in question
(i.e. a printout of the e-mail address will not sufficient).


Explanation
Companies should note that the Court of Appeal has decided that directors who put off
a company creditor with lies can be personally liable for their companys debts to that
creditor under the law of deceit, even if their statements are made orally and not in
writing.
Under the circumstances, businesses who decide to give new credit to a debtor in reliance on
statements made to them must make sure those statements are in writing. And if a business
that has already given credit decides to continue that credit in reliance on statements made to
it, those statements need not be in writing, but the creditor should ensure it can prove they
were made.
The law says there is deceit if one person makes a statement that they do not honestly believe
to be true, with the fraudulent intention that someone else will do (or not do) something
because of it. A person does not honestly believe their statement to be true if they make it:
knowing it is not true; or
without believing it is true; or
recklessly, without caring whether it is true or not.
Unlike a negligence claim, a person liable for deceit is personally liable for all losses flowing
directly from the deceit, even if those losses are not foreseeable.

How it is related to the unit directors

. Fiduciary duties
a) Exercise their powers honestly and bona fide for the benefit of the company.
b) Not place themselves in a position in which there is a conflict between their duties to
the company and personal interests.
c) Fiduciary duties owed to the company:
Under the Act (Statutory requirements)- Liability to the company:
1. Ultra Vires Act
2. Negligence- No definition
3. Breach of trust
4. Misfeasance- Willful misconduct
3. Liability for breach of statutory duties:
4. Liability for the acts of co-directors

Conclusion
In this case the court did not lift the veil of incorporation because the activities done by
the director was inside the companys activities hence intra vires the companys objects
, even though a fraud was done it was done during the dealings of the company
The damages had to be paid was given to Mr Lindsay for deceit.
Two concepts
Intravires the objects of the company
Subrogation regarding the borrowings.