The High Court has granted the largest ever wrongful trading award and the first award on the grounds of “misfeasant trading”.
Background
British Home Stores Group Ltd (BHS Group Ltd) was part of a group of four companies (BHS Group). On 25 April 2016 the board of directors resolved to put the BHS Group into administration, and it subsequently went into liquidation.
The liquidators brought proceedings against the former directors for wrongful trading and misfeasant trading, on the basis that the directors had breached their duties.
Wrongful trading
If directors allow a company to continue trading beyond the time when they knew or ought to have known that there was no reasonable prospect of the company avoiding insolvent liquidation or insolvent administration, they can be held personally liable for the increase in the net deficiency in the assets. The only potential defence is to show that the directors took every step with a view to minimising the potential loss to the company’s creditors.
The Court found that by 8 September 2015 (which was around 8 months pre-administration) the directors of the BHS Group knew or ought to have known that insolvent administration or liquidation was inevitable.
Misfeasant trading
The Court ruled that the directors had breached their duties by “failing to promote the success of the companies or to consider the interests of their creditors“. If the directors had complied with their duties, the BHS Group would not have continued to trade and would have gone into an insolvent administration.
Key Takeaways
This case will be considered by courts considering future wrongful trading claims and will also shape advice given to directors of companies in financial difficulties going forward.
Anthony John Wright and Geoffrey Paul Rowley & Ors v Dominic Joseph Andrew Chappell & Ors (Re BHS Group Ltd & Ors (in liquidation)) [2024] EWHC 1417 (Ch).
Find out more
To discuss the issues raised in this article in more detail, please contact a member of our Restructuring and Insolvency team.
