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When is a former director liable for post-liquidation fiduciary breaches? The UK Supreme Court's decision in Mitchell and another (Joint Liquidators of MBI International & Partners Inc (in Liquidation)) v Sheikh Mohamed Bin Issa Al Jaber (No 2) UKSC/2024/0076 answers that question. This case explains when post-liquidation intermeddling with company assets triggers fiduciary accountability, and how courts should value loss where post-breach events are said to reduce the value of the loss to zero.
Background Summary
MBI International & Partners Inc, a BVI company, entered liquidation on 10 October 2011. Under section 175 of the Insolvency Act 2003 (the "Act"), custody and control of assets passed to the liquidator and directors' powers ceased. Nevertheless, in February-March 2016 the controlling director signed undated transfer forms "as Director" to divert 891,761 shares in JJW Hotels & Resorts Holding Inc to a Guernsey group entity and procured registration. The trial judge found this conduct to be dishonest.
In 2017 the shares were moved within the group and, following a July 2017 transfer of JJW Inc's assets and liabilities to a UK entity, were treated below as worthless. The Supreme Court highlighted unanswered questions about that transaction, the Sheikh's role, and its propriety given JJW Inc's 2016 net assets.
The litigation centred on three issues:
- breach of fiduciary duty despite loss of director powers post-liquidation;
- whether unpaid vendors' liens attached to the shares; and
- how to assess loss where a later intra-group transfer allegedly rendered the shares worthless by trial.
The Supreme Court's Analysis
The Court held that a person who purports to exercise a fiduciary power over another's property is accountable as a de facto fiduciary, even without holding office. By signing the transfers "as Director" after liquidation, the Sheikh assumed fiduciary accountability and breached it by misapplying company property.
Personal receipt is unnecessary to establish liability. The Court rejected the argument that personal receipt is a condition of liability. Causing title to be transferred away, or otherwise exercising command and control over the asset, suffices to constitute "intermeddling" and to trigger fiduciary accountability. It is irrelevant that the recipient was a company under the wrongdoer's control rather than the wrongdoer personally. The same indivisible act can both found the assumption of fiduciary duty and constitute its breach where the arrogation is a dishonest misapplication.
In the BVI context, section 175 of the Act extinguishes director powers on winding up, but equity treats those who purport to exercise them as subject to fiduciary duties, with regard to creditors' interests in insolvency.
On unpaid vendors' liens, the Court endorsed findings that none attached to the 891,761 shares: the IPO-oriented structure and intended funding from proceeds strongly indicated an intention to exclude liens that would impede the sale (Brentwood Brick considered).
On the issue of equitable compensation, equity restores the value of misappropriated property to the estate, and the Court will consider in hindsight what the property would have been worth to the principal but for the breach. While equity often assesses at trial, there is no inflexible trialdate rule; the assessment must reflect a fair allocation of risk and the usual "butfor" analysis (Re Dawson, Libertarian, Target, and AIB considered).
Critically, not every supervening event may be invoked by a defaulting fiduciary to reduce liability. The burden lies on the fiduciary to prove that a later event is a legitimate intervening occurrence to be included in the counterfactual, and a fiduciary cannot rely on a subsequent event he helped bring about or from which he stood to benefit, particularly where he has not made full disclosure about that event. It follows that not every supervening event reduces liability. The fiduciary bears the burden of proving a legitimate intervening occurrence and cannot rely on events he helped bring about or from which he stood to benefit, particularly without full disclosure.
What This Means for BVI Directors
Liquidation removes directors' powers; any purported dealing with company assets as "director" is void, yet equity will still impose fiduciary accountability on those who intermeddle and misapply assets, with creditor interests in view.
In the context of such a fiduciary breach, personal receipt is unnecessary: directors who orchestrate transfers to controlled vehicles remain personally liable. The decision strengthens liquidators' tools against post-liquidation intermeddling.
What This Means for Equitable Compensation
Misappropriation creates a prima facie loss equal to the value of the property at the time, assessed with hindsight and flexible timing. The fiduciary bears the burden of proving any legitimate supervening event that reduces loss and cannot rely on events he engineered, benefited from, or failed to disclose fully. This practical approach rejects rigid trial-date valuation, places later value-risk on the wrongdoer, and supports substitutive awards grounded in reliable contemporaneous evidence.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
