When a company enters liquidation, its liquidator can apply to the Court for a financial contribution from any director who has allowed the company to wrongfully trade (as per section 214 of the Insolvency Act 1986).

In order to succeed, the Court must be satisfied that the director in question knew or ought to have concluded, before the commencement of the winding up process, that there was no reasonable prospect that the company would avoid going into insolvent liquidation.

A recent case provides useful guidance on how the wrongful trading test should be applied.

In what is being widely regarded as a helpful decision for liquidators, the Court confirmed that, once it has been established that a director knew or ought to have concluded that there was no reasonable prospect of the company avoiding insolvent liquidation, the burden of proof shifts to the director to demonstrate to the Court that he took every step with a view to minimising the potential loss to creditors.

The Court also emphasised that the question as to whether a director has taken such steps must be judged by reference to the body of creditors as a whole because it is they as a class who are protected by section 214 and not just individual creditors.

On the facts, the Court identified two fundamental problems for the directors in their attempt to apply the so-called Minimising Loss Defence:

(1) The directors had allowed a period of approximately 18 months to pass without getting close to a sale of the business; and

(2) The company was only able to continue trading because the directors had chosen to adopt a policy of discriminating against specific creditors, namely the company’s landlord and HMRC. In this respect, while the directors in question had ensured that trade creditors were being paid in full, the same could not be said for the company’s VAT and rent liabilities, which meant that the company’s liabilities to the creditors as a whole continued to increase.

This decision is a useful reminder of how section 214 is applied in practice by the Court. In particular, it confirms that respondent directors who seek to rely upon the so-called Minimising Loss Defence will be required to produce evidence to the Court that every step they took was taken with a view to minimising the potential loss to creditors as a whole.

[1] Philip Anthony Brooks and Julie Elizabeth Willetts (Joint Liquidators of Robin Hood Centre Plc) v Keiron Armstrong and Ian Walker [2015] EWHC 2289 (Ch)

Source: www.gateleyplc.com

Mary Taylor
Director

Mary began working in insolvency for a national accountancy practice in Glasgow thirty years ago and worked in most divisions of the insolvency department.

She then moved to a smaller firm so she could advance her knowledge on a more hands on basis. She moved back to Leeds in 1987 and commenced working with a small firm of accountants and subsequently made partner.

She left in 1999 to set up her own practice, McCann Taylor.
McCann Taylor became involved with the consumer market both in England and Scotland.

Mary sold McCann Taylor in March 2007 and formed Walsh Taylor to concentrate on helping businesses experiencing financial difficulties.

Kate Ellis (neé Breese)
Director

Kate has worked in insolvency since 2001 starting out at a firm of solicitors in Leeds and latterly gaining positions within two national accountancy firms.

During this time Kate gained extensive experience in all aspects of personal and corporate insolvency, for the first part of her career specializing in personal insolvency and latterly corporate.

Kate has been with Walsh Taylor since its incorporation in September 2008, being promoted to Director in January 2010.

Kate is CPI and JIEB qualified, is experienced in a variety of industries and sectors and is the firm’s joint appointment taker.

Meg Heath
Director

Meg has a background in supporting SMEs, including the raising of finance and advising on organisational change. She is a non-executive director of companies in the private and third sector, including Walsh Taylor.

Previously she was Deputy Fund Director of one of the largest CDFIs in the UK, and has experience of the social enterprise, charity and private sectors. Her experience of assisting companies to survive and thrive has been gained across a broad range of sectors and in companies of all sizes.

In addition to her work at Walsh Taylor she works for other private companies, including non-executive and trustee positions.

Emma Mifsud
Director

After graduating from Leeds University in 2005 with a BA Hons degree in Criminology, Emma worked for a regional law firm in both the property department and insolvency and banking department. Whilst doing so Emma gained a Graduate Diploma in Law at BPP University.

Emma then joined a national accountancy firm in 2009 gaining experience in personal insolvency before moving to a Leeds based firm. At this firm Emma specialised in bankruptcies, IVA’s and negotiating informal agreements with creditors. In 2013 Emma gained her CPI qualification.

Since joining the firm in December 2013, Emma has taken on a portfolio of personal and corporate insolvency cases to extend her knowledge and expertise in all areas of insolvency.

In December 2017 Emma become a licensed appointment taker under the Insolvency Practitioners Association, she is JIEB qualified.

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