On 2 December 2016, retail store BHS entered into administration, with Anthony John Wright and Geoffrey Paul Rowley being appointed as joint administrators (now acting as “the Liquidators”), after failing to a agree a last-minute deal to rescue the business.
In 2020, proceedings were issued against three of BHS’ former directors for wrongful trading, trading misfeasance and individual misfeasance under the Insolvency Act 1986.
Following a lengthy hearing in November and December 2023, Mr Justice Leech upheld the claims of the Liquidators, which granted what is believed to be the largest-ever award for wrongful trading in the UK.
It was held that the directors had breached their duties by not considering creditors’ interests before causing BHS to enter into certain loan agreements, leading to potential liability of up to £133.5m. The judgment emphasises the importance for directors to exercise independent judgment and provide full context when seeking professional advice.
If your company goes into insolvent liquidation, and at some time before the commencement of the winding up of the company, you knew, or ought to have known, that there was no reasonable prospect of the company avoiding insolvent liquidation, you could face claims from an insolvency office holder which could lead the court to order the directors to make a contribution to the company’s losses.
The only defence to wrongful trading is that after you first knew, or ought to have known, of the company’s inevitable insolvency, you took every step that could have been taken to minimise the potential loss to the company’s creditors. Therefore, it is essential that you take the right steps and document these as having been taken when your company is on the brink of insolvency.
With the increasing number of investigations into directors’ misconduct, it is crucial that directors understand their duties. Our insolvency team at Farleys offer advice on these matters, whether it is concerns pre-insolvency or post insolvency investigations. To discuss your circumstances in confidence, please call 0845 287 0939 or contact us by email.
