Comment

Liability of Company Directors for Housing Offences

Monday, January 31, 2022 - By Robin Stewart, Solicitor, Anthony Gold

Robin Stewart, Solicitor, Anthony Gold

Corporate structure such as limited companies offer business owners and managers a way to avoid personal liability when things go wrong. The protection offered is mainly protection from commercial risks – the debts of a company do not become the debts of the shareholders and directors can only be held liable for a company’s debts if there has been unlawful trading. Company directors might be asked to give a personal guarantee, which would make them personally liable, but a guarantee of this sort has to be given specifically.

There is a good rationale for company directors and shareholders having protection from debts, but where a company commits a criminal offence, it often does not feel right to victims if no individual is personally held to account. This is one of the reasons why new criminal offences created by Parliament often allow a company director to be prosecuted if the company commits an offence and they are personally culpable.

The Housing Act 2004 follows this pattern; section 251 allows prosecutions against company directors or other managers if an offence under that Act has been committed by the company (or other ‘body corporate’) with the ‘consent, connivance or neglect’ of the individual. It is this section of the Act which allows a local authority to prosecute a company and its directors for HMO licensing offences.

Consent, Connivance and Neglect

The threshold for personal culpability of directors and managers in the Housing Act is expressed in legal jargon, but for good reason. A director commits a criminal offence if the company is proved to have committed the offence, and it was committed with the ‘consent, connivance or neglect’ of the director. These terms, consent, connivance and neglect, are used for lots of criminal offences to designate when a director is committing an offence personally, so the courts have had plenty of opportunities to explain what these terms really mean. These three terms were given definitions in Huckerby v Elliott [1970] 1 All ER 189. Consent means the director was “well aware of what was going on and agreed”. Connivance is when the director was “equally aware of what was going but his agreement was tacit, not actively encouraging what happened but letting it continue and saying nothing about it”. Neglect is where the director “omitted / neglected to do something which he ought to have done”.

Any one of these three matters alone is sufficient for the director to commit the offence. The courts have accepted that in companies of different sizes, it will take different amounts of evidence to show that a particular director is guilty – in a large company one director might know nothing about the offending which was taking place – and not be neglectful if the offending did not relate to their area of responsibility. In a very small business with only one director and no employees, it may be obvious that the director is personally responsible.

Civil Penalties

Directors have faced criminal prosecutions for Housing Act 2004 offence ever since the Act came into force, but civil penalties for these offences were only introduced in 2016. The scheme for financial penalties as an alternative to prosecution does not specifically address whether or not directors can be given financial penalties, but the Upper Tribunal held that penalties can be imposed directly on directors in Sutton v Norwich City Council [2020] UKUT 90 (LC)). The Upper Tribunal held that there was “no additional requirement that the company must already have been charged or convicted”. The Council simply had to prove that the company committed the offence, and that this was with the consent, connivance or neglect of the director.

This broad interpretation of how section 251 (criminal liability of directors) and section 249A (financial penalties) interact makes it very easy for local authorities to impose fines directly on company directors – and this is not just limited to ‘statutory directors’. Section 251 applies to a directors, managers, company secretary or other similar officer of the body corporate, and – importantly - to persons purporting to act in such capacities. This list covers a wide range of individuals involved in the management of any corporate body.

Rent Repayment Orders

The success of Norwich City Council in Sutton may have played some role in encouraging tenants to apply for rent repayment orders against company directors. Tenants who have a claim for rent repayment order against their landlord might feel that their landlord is a bad target if the landlord in question is a limited company with no assets. The idea of making the claim directly against a real person is inviting if that makes it more likely that the award will actually get paid.

The Upper Tribunal recently considered whether a ‘director’ of a company landlord can face a rent repayment order in Kaszowska & Ors v White [2022] UKUT 11 (LC). The result was not a surprise to most commentators. In a short judgment the Deputy President of the Lands Chamber, Martin Rodger QC, explains that section 40(2) of the Housing and Planning Act 2016 defines what an RRO is and identifies whom these orders can be made against: landlords.

“The only person against whom section 40(2) permits a rent repayment order to be made is a landlord.  Had it been intended to extend the scope of rent repayment orders to company directors Parliament would surely have said so in explicit terms.”

Attempting to extend RROs to company directors was always very ambitious, but after the Court of Appeal ruled in Rakusen v Jepson [2021] EWCA Civ 1150 that applications could only be made against the immediate landlord of a tenant, it was extremely unlikely that RROs would be made against directors.

The judgment in Kaszowska mentioned ‘policy arguments’ relied on by the tenants, and accepted the point made that “without the opportunity to proceed against the directors of an insolvent company which was their landlord, some tenants will fall outside the scope of rent repayment orders and the statutory policy of combatting the activities of rogue landlords may be less effective as a result.” This was not enough to change the result, but it may inspire proposals to amend the Housing and Planning Act 2016 to make rent repayment orders easier to enforce.

The author of this blog, Robin Stewart, is a Solicitor in the Housing team at Anthony Gold. His email is ros@anthonygold.co.uk.

Please note that the views and opinions expressed in these blogs are those of the author and do not necessarily represent the views of London Property Licensing. These blogs are designed to stimulate discussion and debate within the property industry. This article does not represent legal advice and should not be treated as such.

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