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Wrongful trading law reviewed as liquidators fail to establish ‘increase in net deficiency’ PDF Print E-mail
Friday, 12 February 2016

In a comprehensive judgment released today, rejecting claims brought by the liquidators of Ralls Builders Limited, Mr Justice Snowden has reviewed the law of wrongful trading and clarified a number of aspects and apparently contradictory decisions that have caused controversy within the insolvency profession for a number of years, including:

· Quantum of claims – how the ‘increase in the net deficiency’ (between the ‘point of no return’ and liquidation) should be calculated
· Considerations for directors trading in the twilight period whilst awaiting investment
· The importance of advice from insolvency professionals
· The issue of replacing old creditors with new creditors – when the overall financial position does not deteriorate

The defendant directors were represented by Verisona Law and counsel Christopher Boardman (Radcliffe Chambers), leading Christopher Lloyd (New Square Chambers).

In the judgment, Mr Justice Snowden observed: “The court does not approach the question of whether a director ought to have concluded that his company has no reasonable prospect of avoiding an insolvent liquidation with the benefit of 20:20 hindsight.”

Going on to consider the advice provided to the directors at the time by professional insolvency advisers, he noted that none of the communications: “…suggested that the course that the directors intended to pursue was unrealistic or doomed to failure.”

Ultimately, he concluded: “In my judgment, if anything, the figures suggest that the continued operations of the Company…produced a modest improvement in the net deficiency of the Company.

“There are real reasons to believe that a period of continued trading to complete existing contracts during the busy summer months is likely to have produced a significantly better result for the Company…than would have occurred if there had been an immediate cessation of trading.”

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