The collapse of UK retailer British Home Stores ("BHS") in 2016 remains one of the most high-profile corporate insolvencies of recent times. It went from being a household name across the UK, with over 11,000 employees, to having reported debts of £1.3 billion, including a pension deficit of nearly £600 million. The group's demise saw the closure of some 164 stores nationwide and significant job losses.

In the recent case of Re LYHFL Limited [2023] EWHC 2585 (Ch), the High Court has considered the proper interpretation of paragraph 12(1)(b), Schedule B1 of the Insolvency Act 1986, by which directors can apply to court for an order putting the company into administration.

Drawing on previous authorities concerning this and similar provisions, the Court concluded that an individual director has no power to make such an application without the approval of the majority of the company's directors and a valid board resolution.

Facts

On the eve of trial, the Insolvency Service (IS), acting on behalf of the Secretary of State for Business and Trade, has discontinued disqualification proceedings brought in January 2021 against five former non-executive directors (NEDs) of Carillion plc. The trial, which had been listed for around 13 weeks (and originally as long as 6 months) had been due to start on Monday 16 October 2023.

In a recent case, the High Court has had one of its first opportunities to consider BTI v Sequana [2022] UKSC 25 (see our previous update here), in which the Supreme Court gave important guidance on the existence and scope of the duty of company directors to have regard to the interests of creditors (the so-called “creditor duty”, which arises in an insolvency scenario).

The judgement raises important questions for directors faced with substantial liabilities

Although not directly concerned with directors' liabilities, the recent Supreme Court judgment in Stanford International Bank Ltd v HSBC Bank PLC provides further clarity on the circumstances in which a distressed or insolvent company may seek to make claims against its directors.

INTRODUCTION

The key aspects affecting directors' liabilities presented in the Supreme Court ruling are that:

In Peel Port Shareholder Finance Co Ltd v Dornoch Ltd [2017] EWHC 876 (TCC), Peel Port Shareholder Finance Co Ltd (Peel Port) applied for pre-action disclosure of the defendant's insurance policy under Civil Procedure Rule 31.16. Peel Port was not able to rely on the provisions in Third Party (Rights against Insurers) Act 2010 because the defendant was not insolvent. Peel Port argued that it was highly probable that rights against insurers would be transferred to them under the 2010 Act in due course.

A key question in any litigation is whether the defendant can satisfy a judgment. Where the defendant is both insolvent and insured a further issue is whether the claimant can ultimately recover payment from the insurer. This may be possible under the Third Parties (Rights against Insurers) Act 1930 ("1930 Act") but there are a number of significant hurdles for a third party to overcome before it can benefit from the application of the1930 Act.

The Third Parties (Rights Against Insurers) Act 2010 is a step closer to coming in to force with the publication of draft Regulations whose aim is to correct omissions in the Act. Once in force the Act will improve the position of claimants who are bringing actions against insolvent defendants and looking to recover from those defendants' insurers.