What Is Half Of Nothing? Wrongful Trading Developments In The ‘Robin Hood' Case

Case law on wrongful trading has developed significantly over the past two years, with the cases of Ralls Builders and Brooks increasing judicial consideration of the conduct of directors in the period preceding an insolvency.

The judgment of the appeal and cross-appeal in Brooks was handed down in late 2016. It provides an essential update on the factors a court must assess in determining the basis on which directors may be compelled to personally contribute to the company for their own wrongful trading actions. It also serves as a warning to liquidators to ensure the basis of the compensation sought is very clearly and correctly prepared.

Background

In October 2015, we published an update on the case of Brooks and another v Armstrong and another [2015] EWHC 2289 (Ch), also known as the 'Robin Hood' case. A link to our previous post is available here.

The liquidators and the directors appealed the above judgment before David Foxton QC, sitting as a Deputy Judge of the High Court (citation [2016] EWHC 2893 (Ch)).

In summary, the first instance hearing before Mr Registrar Jones considered in detail whether the directors of Robin Hood Centre plc (the Company) were liable to contribute to the assets of the Company's insolvent estate as a result of wrongful trading (i.e. continuing to trade after the point at which the directors knew, or ought to have known, that the Company could not avoid insolvent liquidation). It was held that the directors had not acted as reasonably diligent directors and had failed to establish the statutory defence to wrongful trading. Consequently, the directors were held to be jointly and severally liable to pay a minimum contribution of £35,000 to the estate of the Company.

The appeal hearing, heard on 18-20 October 2016, considered appeals from (i) the liquidators and (ii) the directors, by way of cross-appeal. Each of the areas appealed included a number of grounds.

The liquidators' grounds of appeal

The liquidators challenged the date on which the Registrar deemed the starting point for wrongful trading, the Registrar's conclusion as to the amount of compensation to be paid by the directors, and the fact that the Registrar made no order as to costs.

The directors' grounds of appeal

The directors also challenged the dates on which the Registrar concluded that wrongful trading had occurred, and the amount of compensation they were ordered to pay.

The judgment of David Foxton QC

The appeal covered various grounds for...