Following on from our recent blog post on Ralls Builders Limited (in liquidation) [2016] EWHC 243 (Ch), in which Mr Justice Snowdon discussed the issues around wrongful trading under section 214 of the Insolvency Act 1986 and the quantum of liability that may be placed on directors who continue to trade when they knew, or ought to have known, that the company was insolvent, the Financial Reporting Council (“FRC”) has issued new guidance on the going concern basis of accounting and reporting on solvency and liquidity risks.

The Court of Appeal has allowed an appeal against a limitation order (providing for the restoration to the register of a dissolved company, C,  and the suspension of the limitation period during dissolution) and provided guidance on how judicial discretion should be exercised when making such an order.

Shortly before being placed into administration C entered into a sale and leaseback arrangement.  C later went into liquidation; however, the purchase price in respect of the sale was not received before the company was dissolved, over four years later.

There is nothing quite like obtaining a new customer or getting a new big sale - the prospect of recurring revenue from a new source, the validation of business strategy, or the culmination of a successful negotiation.

However, there is nothing more disheartening than when a new customer is unable or unwilling to pay for the product you just shipped or services you just provided. Perhaps there is one thing that is worse, when a long-term customer fails to pay.

Introduction

Generally, directors are focused on making a success of the business to which they are appointed and the prospect of insolvency and the potential for personal liability often seems remote. Indeed, many directors will never have to face the difficult decisions associated with a struggling business. However, when they do, they often rely on the advice of experienced insolvency professionals.

Rise in FRC investigations

For all corporate insolvencies starting on or after 6 April 2016 insolvency office-holders are now required to submit a report on the conduct of anyone who was a director of the insolvent company in the 3 years leading up to the insolvency, irrespective of their conduct. Currently, reports are only required where office-holders consider a director’s conduct makes them unfit to be involved in a company’s management in the future.

Directors of a company are subject to certain duties under the Companies Act 2006. These duties are of obvious importance throughout their service as a director but some of them become particularly important during the period leading up to the insolvency of the company.

In February 2016, Mr Justice Snowden handed down his judgment in the High Court proceedings concerning Ralls Builders Limited (in liquidation) [2016] EWHC 243 (Ch). This matter concerned an application by the liquidators of Ralls Builders Limited (in liquidation) (the company) for a declaration regarding the alleged wrongful trading of the company by its directors, under section 214 of the Insolvency Act 1986 (the Act).

The duties and obligations of directors in the United Arab Emirates (UAE) are drawn from various legislative sources, there is no consolidated legislative framework dealing with the duties and obligations of directors under UAE Law. Note that under UAE law the terms “manager” and “director” are used interchangeably. As such, any reference in this memorandum to the foregoing terms should be construed as one and the same, where possible we have used the generic term “director” to avoid potential confusion.

Applicable Law 

Obtaining Decree

In most circumstances, court proceedings will need to be raised by creditors to recover outstanding sums owed. Depending on the amount due, the action will be a Small Claim (up to and including £3,000) a Summary Cause (over £3,000 and up to and including £5,000) or an Ordinary Action (over £5,000). 

After obtaining a Decree (or judgement in England) there are a number of steps that can be taken, if the debtor does not make payment, to recover the outstanding debt. In Scotland this process is known as “diligence”.