In this case the company had been set up to utilise satellite technology and offer broadband internet access to the rural areas in the UK which was seen as a market opportunity that was not being taken by other providers.
The factor that triggered the directors’ decision to cease trade was that its main supplier of satellite services ceased the supply without providing any notice leaving the company unable to trade.
Under Section 214 of the Insolvency Act (wrongful trade) directors can be personally liable if they allow the company to carry on trading after the point when they “had known, or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation”
The company had always been under capitalised, had always traded at a loss and it probably had been always insolvent on a cash flow basis.
However, the High Court Registrar believed that the directors had genuinely and reasonably believed right up to the point of liquidation that the company could be saved and had done all that they reasonably could to minimise the potential loss to creditors.
The Registrar appeared to acknowledge that the main reason for the liquidation was probably the failure of the any available satellite provider.
What can be learnt from this recent decision?
It is all too easy to assess director’s conduct with the benefit of hindsight. The Registrar said that the question of culpability is based purely on the information which was know or ought to have been known by the directors at the relevant time.
It is up to the liquidator to identify the precise date which he believes the company became insolvent and then consider the reasonableness of every director’s decision.
Another important lesson arising from this case is that directors should always make careful and dated notes and document all decisions and actions that they take to protect the creditors.
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Griffin and King are a leading firm of Insolvency Practitioners within the West Midlands with offices covering Dorset, Hampshire, Shropshire and Mid Wales