Wrongful trading meaning

Flowchart This flowchart outlines the requirements that need to be met to found a wrongful trading claim...

Checklist This checklist concerns claims under sections 212–214, 246ZA and 246ZB of the Insolvency Act 1986 (IA 1986), brought by an insolvency office-holder. For more detail on claims under IA 1986, ss 212–214, 246ZA and 246ZB in general, refer to the following Practice Notes: Misfeasance claims under section 212 of the Insolvency Act 1986 Fraudulent trading claims under sections 213 and 246ZA of the Insolvency Act 1986 Wrongful trading claims under sections 214 and 246ZB of the Insolvency Act 1986 Step/action Time (days) Section/rule Examine the events and context that led to the company’s insolvency and the issues underpinning any claim against the respondent(s). This entails securing the company’s books and records, and interviewing current and former directors, as well as any individuals holding information about the company’s promotion, formation, business, dealings, affairs or property. Note that if the office-holder intimates a claim against the respondent(s), they may jeopardise the investigative powers under IA 1986, ss 234–236 in...

Procurement process flowchart This Procurement process flowchart outlines the sequence a procurement might follow and highlights the factors to weigh and the considerations involved to maintain a transparent and appropriate procedure. It further points to the Precedents on hand to support you through the procurement steps. This Flowchart serves as a worked illustration and is not meant to be exhaustive. While organisations may adopt quite varied approaches, it offers a useful baseline or point of reference. Any contract value amounts shown here are for demonstration purposes only...

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South Square South Square Digest In this issue, International Judge Jim Peck sets out arguments for adopting US-style mediation across UK restructurings...

Wright and another (liquidators of BHS Group Ltd and other companies (all in liquidation)) v Chappell and others [2024] EWHC 1417 (Ch) What are the practical implications of this case? This is an important judgment that maps the many risks and potentially competing obligations confronting directors as they try to navigate a distressed company away from insolvency, where the prospect of failure can shift from possible, to probable, to inevitable. The result on the trading misfeasance claim shows that the moment when liability can arise for directors who do not take account of creditors’ interests and who fail to move straight to administration can be identified, even if the criteria for a wrongful trading claim (under IA 1986, s 214) are not yet fulfilled. It remains to be seen how the court will ultimately assess equitable compensation for that aspect of the liquidators’ claims. The judgment contains a detailed exposition of the law and authorities in this developing area, which is essential reading. The court’s approach...

This note sets out how a Limited Liability Partnership (LLP) may enter creditors’ voluntary liquidation (CVL), describes the scope of the liquidator’s authority, and explains the duties of the members. It does not extend to Limited Partnerships; for guidance on those, see Practice Note: Limited partnerships and insolvency—key principles. Applicable legislation The Limited Liability Partnerships Act 2000 (LLPA 2000) introduced LLPs and should be read together with the Limited Liability Partnerships Regulations 2001 (LLPR 2001), SI 2001/1090. Under the LLPR 2001, the Insolvency Act 1986 (IA 1986) and the Insolvency (England and Wales) Rules 2016 (IR 2016), SI 2016/1024, are applied to LLPs. The IA 1986 applies solely to LLPs registered in Great Britain...

This Practice Note explores the doctrine of separate legal personality for a registered company, and surveys the relevant case law addressing the narrow situations in which the corporate veil might be pierced. It also separates true piercing or lifting of the veil from the more routine instances in which the veil is sidestepped by reliance on another legal or equitable entitlement. The analysis underscores the limited nature of this intervention and the authorities that define it. Corporate legal personality—the Salomon principle A duly incorporated company is a person distinct from its members, holding its own rights and bearing its own liabilities as an independent legal subject. This rule, often called the corporate veil or the Salomon principle, was most famously articulated by Lord MacNaghten in Salomon v Salomon: the company, at law, is wholly separate from the subscribers to the memorandum; even if, after incorporation, the undertaking remains exactly as before, with the same individuals managing it and the same people receiving the profits, the company is not...

This Practice Note Sets out how tax considerations affect a court’s determination of the sum to be paid to a claimant as damages for financial loss, and how tax is taken into account when computing any interest component of the award. The court’s aim is to award a figure that restores the claimant to the position they would have been in if the wrong or injury (for example negligence, misrepresentation, or breach of contract) had not occurred. This may make it relevant to consider the following: any tax charge that will arise on the damages award (see Practice Note: Direct tax treatment of damages and compensation payments); and/or the tax that would have been due if the wrong or injury had not taken place—for instance, where damages replace a loss of trading profits, whether the claimant would have been taxable on those profits Where the dispute is contractual, before applying the principles outlined in this Practice Note, you should check whether there...

Although both liquidators and administrators may pursue a wrongful trading action under sections 214 or 246ZB of the Insolvency Act 1986, respectively, this Precedent is prepared principally from the standpoint of a liquidator advancing such proceedings...

CASE NO: [ insert case number ] Either in the High Court of Justice, Business and Property Courts of England and Wales, Insolvency and Companies List (ChD); or in the High Court of Justice, Business and Property Courts in [ insert location ], Insolvency and Companies List (ChD); or in the County Court at [ insert location ] Business and Property work Before: [DEPUTY] Insolvency and Companies Court Judge............................. The Honourable [MR/MRS] Justice.......................... [DEPUTY] District Judge............................. [HIS/HER] Honour Judge.......................... ...

Note: Use this precedent with an application notice template compliant with the Insolvency (England and Wales) Rules 2016, SI 2016/1024—see Form IAA, IR 2016, r1.35. INSOLVENCY ACT APPLICATION NOTICE CASE NO: [insert case number] In the matter of [company] and the Insolvency Act 1986. Between [Applicant(s)] Applicant(s) and [Respondent(s)] Respondent(s). Section [214 or 246ZB]. Applicant(s): [names/addresses]. Respondent(s): [names/addresses]. Application concerns [company details] to [level of judge] in [court/hearing centre as per heading]. Within existing insolvency proceedings? YES/NO. Ref: [number]. Declaration that from [date] there was no reasonable prospect of [company] avoiding insolvent [liquidation/administration]. Declaration that the Respondent(s) contribute [sum] or such other sum as the Court thinks fit. Order that the sum found due be paid to the Company. Interest for such period and rate as the Court considers appropriate. Costs of and incidental to this application. Such further order or relief as the Court thinks fit. Grounds: set out in the [number] witness statement of [witness] dated [date]. Served on: [names/addresses] [or none]....

Can a claim be made against a company for trading whilst insolvent? Wrongful trading There is no standalone claim triggered merely by a company ‘trading whilst insolvent’, even though that phrase is commonly used. What is usually intended is a ‘wrongful trading’ claim. This cause of action arises under section 214 of the Insolvency Act 1986 (IA 1986) and, at present, applies only where a company has gone into an ‘insolvent liquidation’. IA 1986, s 214(6) defines this as the company entering liquidation at a time when its assets are insufficient to meet its debts, other liabilities, and the expenses of the winding up. The key point is that a wrongful trading claim can only be brought by the company’s liquidator; it is not a claim that a creditor may advance against a company, whether or not insolvency proceedings are on foot. The claim is pursued against the company’s director(s), rather than the company itself...