Recent UK insolvency case law
The cases a liquidator and the Insolvency Service can cite against directors and their advisers, summarised for a director audience. Each case is anchored at a stable URL so a specific authority can be cited.
Director duty under CA06 s.172(3)
BTI 2014 LLC v Sequana SA [2022] UKSC 25
The Supreme Court's landmark restatement of when a director's duty under section 172(3) of the Companies Act 2006 engages to consider, or act in, the interests of creditors. The duty is engaged when directors know, or should know, that the company is insolvent, bordering on insolvency, or that insolvent liquidation or administration is probable. The duty intensifies as the prospect approaches inevitability. Before Sequana the trigger had been described variously as “real risk” or “imminent”; the case settled the position. The practical effect: once the company is in the “zone of insolvency”, every adjustment that prefers a director over creditors is being made against an engaged duty to creditors.
Unlawful dividends / misfeasance
Re Marini Ltd [2004] BCC 172
Together with the BHS line of cases, the leading modern authority on unlawful distributions and misfeasance. Directors who declared dividends without distributable reserves at the date of declaration were held personally liable on a misfeasance basis under IA86 s.212. Directors carry the burden of demonstrating that proper interim accounts justified the distribution at the moment it was made — the year-end position is not enough.
Wrongful trading IA86 s.214
Re Produce Marketing Consortium Ltd (No 2) [1989] BCLC 520
The leading early authority on wrongful trading under IA86 s.214. Identifies the “moment of truth” — the point at which a reasonably diligent director ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation. From that moment, the director is required to take every step a reasonably diligent director would take to minimise loss to creditors. Continuing to trade by default after that moment exposes the director to personal liability to contribute to the company's assets.
Test for dishonesty
Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67
The Supreme Court's modern test for dishonesty — whether a defendant's conduct was objectively dishonest by the standards of ordinary, decent people, given the defendant's actual state of mind as to the facts. Ivey displaced the second limb of the Ghosh test and is now applied across insolvency dishonesty claims (s.213 fraudulent trading; dishonest assistance; tipping-off).
Dishonest assistance
Twinsectra Ltd v Yardley [2002] UKHL 12
A foundational House of Lords authority on dishonest assistance — the equitable claim under which an adviser who has dishonestly assisted a breach of fiduciary duty by a director can be liable in tort and equity. Subject to the modern Ivey test for dishonesty.
Dishonest assistance
Royal Brunei Airlines v Tan [1995] UKPC 4
The earlier foundational case in dishonest assistance, establishing the modern doctrine. Pre-dates Ivey on the test for dishonesty but remains the starting point for the cause of action.
Wrongful trading and misfeasance — large-scale recoveries
BHS Group judgments EWHC 2024
A series of High Court judgments in 2024 in the BHS Group liquidations finding directors personally liable for wrongful trading and misfeasance in eight-figure sums, including for unlawful distributions paid in the run-up to the group's collapse. Together with Re Marini, the modern reference point for the burden directors face when defending dividend declarations made without contemporaneous evidence of distributable reserves.
Related reading
- → UK insolvency statutory toolkit — the IA86, CA06 and CDDA provisions these cases interpret
- → Director risks in liquidation — how each case applies in practice
- → Director duties and the zone of insolvency
- → Free advice from a licensed practitioner