Broadly Pleaded Claims Based On Date Of Knowledge In Misfeasance And Wrongful Trading Claims Struck Out (Chandler v Wright)

• Published date: 02 September 2022
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Insolvency/Bankruptcy
• Law Firm: Gatehouse Chambers
• Author: Mr Phillip Patterson

Restructuring and Insolvency analysis: The respondents to a claim brought by the joint liquidators of BHS Group companies have successfully struck out parts of claims brought under sections 212 and 214 of the Insolvency Act 1986 (IA 1986) on the basis of open-ended pleadings as to the relevant date of knowledge that insolvent liquidation was inevitable and trading should have ceased.

Chandler v Wright and others [2022] EWHC 2205 (Ch)

What are the practical implications of this case?

This is a useful judgment offering guidance to office-holders bringing misfeasance claims under IA 1986, s 212 and wrongful trading claims under IA 1986, s 214. It confirms that the question of what is required by way of a proper pleading is case sensitive and will vary from case to case.

However, there is general principle that office-holders are afforded greater leeway than other litigants in terms of the strictures of the pleading. When wrongful trading claims in particular, are tried, courts enjoy a degree of flexibility in fixing the relevant date by which the respondents knew or should have known that there was no realistic prospect of the company avoiding insolvent liquidation and this may be different from the date pleaded.

While there was no obligation on the office-holder to plead one or a number of specific dates of knowledge, what is not permissible is the pleading of a broad time period in which the relevant date is said to have arisen. The court cited with approval the dicta of Mr Justice Cockerill in King v Stiefel [2021] EWHC 1045 (Comm) in which three functions of pleadings were noted:

1. to enable the other side to know the case it has to meet
2. to ensure the parties can properly prepare for trial, and
3. to operate as a critical audit for the claimant and its legal team that it has a complete cause of action or defence

What was the background?

This is an appeal in relation to an interim matter in ongoing proceedings brought by the joint liquidators of four companies within the BHS Group. The claims are brought against former directors of those companies under IA 1986, ss 212 and 214.

In respect of the IA 1986, s 212 claims, it is alleged that the defendants breached their duties to the companies and that those breaches led to a deterioration of the financial positions of those companies. In respect of the IA 1986, s 214 claims, the central allegation is that the defendants wrongfully allowed the companies to continue to trade when they knew or should have...