1. 3. Company that signed the lease no longer exisited - was the director
personally liable?
Clarence Holdings Ltd v Hall, Court of Appeal, CA176/00 14 May 2001 McGrath J
Hall and Bagnall purchased Mt Albert TV Services Limited which had an existing lease with
Clarence Holdings Ltd. In 1992 Clarence Holdings produced a new lease agreement which
Hall and Bagnall signed on behalf of this company.
In 1993 Hall and Bagnall formed Mt Albert TV 1993 Limited which acquired the old
company's assets and undertakings. The old company stopped trading at this point and the
next year it was removed from the companies register. Clarence Holdings was not notified of
the formation of the new company but cheques and other payments to the landlord from this
point were in the new company's name.
In 1994 Clarence Holdings gave notice of plans for redevelopment. The old company was
asked to vacate the premises. Hall and Bagnall signed and acknowledged the request in the
old company name. After some negotiations with Hall and Bagnall, Clarance Holdings'
solicitors wrote to the old company to confirm changes to the lease. Hall signed his agreement
to these changes. (He later argued that the signature wasn't his but the judge found that it
was.) The business (ie. the new company) subsequently moved into the new premises
following development.
Clarence Holdings then sent the old company a new lease agreement. The old company was
clearly committed (under its 1992 lease and subsequent letters signed in its name) to signing
this. However, for the next two years it was not signed and the lawyers of the two parties
exchanged letters. Finally, Hall and Bagnall sent a letter in the new company name stating
that the 1992 lease was between Clarence Holdings and the old company, and therefore the
new company was not bound by any lease agrement. In 1997 the new company vacated the
premises and ceased to pay rent.
The Court held that despite its name not appearing on the lease the new company in acquiring
the old company's assets was fully liable for all of the obligations under the 1992 lease. This
however was of little value to Clarence Holdings as the new company was now wound up.
Clarence Holdings argued that Hall was personally liable for the obligations under the lease
because he had misstated which company was the lessee. Section 116 of the Companies Act
1993 provides that directors can be held personally liable for obligations entered into on
behalf of a company where they have mistated the company name.
The Court declined to make Hall personally liable for the obligations under the lease.
Although the Court can make a director personally liable for mistating the company's name
under Section 116, it may excuse the director where it would be not be just and equitable to
hold the director liable. The Court found that Clarence Holdings would have suffered the
same loss had the old company remained as lessee. The new company was in a similar
financial position and the formation of the new company was not a contributing factor to
Clarence Holdings loss.