Key Points
- Directors should take (and follow) advice from insolvency practitioners as early as possible in distressed situations in order to protect themselves from liability.
- If a company does continue to trade “wrongfully”, the directors must be able to demonstrate that they have taken all steps to reduce losses to individual creditors, as well as creditors as a whole. However, no order should be made unless the deficiency for creditors as a whole is increased in the period of wrongful trading.
The Facts
Key point
Key points
- Principles applying to exercise of liquidators’ powers are the same as those prior to legislative changes
- Views of creditors influenced by personal considerations to be disregarded
- The overriding requirement is for liquidators to exercise their professional judgment in the best interests of creditors
The facts
The Court of Appeal has refused to allow a liquidator of a company that was the vehicle for a VAT fraud to rely on the defence of illegality in defending a claim for breach of duty under section 212 of the Insolvency Act 1986: Top Brands Ltd and others v Sharma (as former liquidator of Mama Milla Ltd) [2015] EWCA Civ 1140.
Key point
A liquidator can be held liable personally for obligations under a conditional fee arrangement.
The facts
Key Issue
A former liquidator would not be entitled to relief from liability under section 212 of the Insolvency Act 1986 where her conduct had fallen well short of the standard to be expected and she had paid away substantial sums which would otherwise be available to creditors.
The Facts
In the High Court decision of Jackson v Baker Tilly (unreported, 10 April 2014), the liquidators of an insolvent company successfully applied for the company's accountants to produce documents detailing their dealings with the company.
Key point
Only a current liquidator or a current creditor has standing in an English liquidation to pursue a claim under section 212 of the Insolvency Act 1986 ("IA 86"). A former liquidator has no standing to apply to court to expunge a proof of debt (Insolvency Rule 4.85).
The facts
If a company goes into liquidation, the liquidator is able to disclaim the whole of an insolvent tenant’s liability under a lease. The disclaimer ends all of the tenant’s rights, interests and liabilities, effectively meaning that the tenant can get out of the lease early. This can have a significant impact on a landlord, whose expected income from the property suddenly comes to an end.
Last week I blogged about the Capital Gains Tax consequences of undervaluing property. This blog will look at another situation when undervaluing property or shares could lead to future exposure in an insolvency situation.