The Facts

On 12 September 2012, the joint liquidators of a company brought claims for wrongful trading against its former directors, arguing that they knew (or ought to have concluded) before the date it entered liquidation that the company could not avoid insolvent liquidation. At first instance, Registrar Jones held that the directors were liable for wrongful trading and should pay compensation of £35,000. The directors appealed this decision.

The Decision

  • As claims for wrongful trading are compensatory and not punitive in nature, it was necessary to establish the consequence of the wrongful trading and whether it had increased the company’s net deficiency, which had not been properly possible at the first hearing of the claims because the joint liquidators had delayed in setting out their case
  • While the joint liquidators had submitted that the wrongful trading in this case had caused an increase in net deficiency, this could be legitimately criticised by the directors for lack or probity. This increase was not related to the decision to continue trading
  • The Judge therefore allowed the appeal by the directors.

Comment

The case is useful in demonstrating how the courts approach claims for wrongful trading and, in particular, if a contribution order is being sought, the need to show that the wrongful trading caused an increase in net deficiency.

Brooks and Willetts v Armstrong and Walker [2016] EWHC 2893 (Ch)