Section 127 of the Insolvency Act renders void any disposition of property by a company made in the period between presentation of the winding up petition and the making of a winding up order on that petition unless the court orders otherwise. Guidance on applications for validation orders is given in the Insolvency Practice Direction (“PD”).

A common query with D&O insurance coverage is whether post-insolvency claims against the insolvent company’s directors and officers trigger the Insured vs. Insured exclusion found in most D&O policies. This issue arises when claims are brought on behalf of the insolvent company against directors in an attempt to recover money for creditors.

Shlosberg v Avonwick Holdings Ltd & Ors [2016] EWHC 1001

Law firm Dechert LLP has been ordered to cease acting for the principal creditor of bankrupt Russian businessman, Mr Shlosberg, because it also acted for the trustees in bankruptcy, and accordingly had had access to documents subject to Mr Shlosberg's legal professional privilege.

Facts

Directors can be held liable to contribute to company assets if they knew or ought to have known at a point before the commencement of administration or insolvency that there was no reasonable prospect that the company would avoid this process. This is known as wrongful trading (section 214 of the Insolvency Act).

1 April 2016 will see the insolvency profession fall in line with other civil litigation as the exemption which enabled the recoverability of CFA success fees and After the Event (ATE) insurance premiums from the unsuccessful party to litigation comes to an end. This recoverability was abolished in other civil litigation in April 2013, principally as one of a number of changes intended to control and reduce the costs of civil litigation.

In Sharma v Top Brands Ltd [2015] EWCA Civ 1140, the Court of Appeal refused to allow a former liquidator of a company (which was a vehicle for VAT fraud) to rely on the illegality defence to avoid liability for a claim brought against her for breach of duty under section 212 of the Insolvency Act 1986 (IA 1986).

Background

The recent case of Oraki v Bramston and Defty [2015] EWHC 2046 (Ch) concerned former bankrupts' claims of professional negligence against their former trustees in bankruptcy (“the Trustees”). In dismissing the claims, the High Court held that the Trustees did not owe a common law duty of care to the bankrupts.

Patrick Hill and Declan Finn of DAC Beachcroft LLP, who acted on behalf of the successful Trustees, discuss the case and consider its implications for trustees in bankruptcy.

Background

This month in Sharma v Top Brands Ltd [2015] EWCA Civ 1140 the Court of Appeal has again been asked to grapple with the question of when the illegality defence is available to defendants to actions brought by an insolvent company where the losses claimed are arguably tainted by the company's own fraudulent actions. In this instance the question for the court was whether the defence was available to a former liquidator of a company seeking to defend a claim brought against her for breach of duty under section 212 of the Insolvency Act 1986 (IA 1986).

Pre-Packs

Several provisions of the Small Business Enterprise and Employment Act 2015, which will come into force on 1 October 2015, are likely to have an impact on directors and their D&O insurers. The first key change is that administrators and liquidators will be able to assign insolvency claims, such as claims for wrongful trading, fraudulent trading and transactions at an undervalue, to third parties.