In order to obtain an order from the court that a director is personally liable for wrongful trading under section 214 of the Insolvency Act 1986 (the ‘Act’) the Liquidator or Administrator have to not only prove the elements of wrongful trading, but they must demonstrate how the wrongful trading caused an increase in the company’s net deficiency. That is its losses.
That is the company should objectively have been placed into Liquidation at X date. It was not. The net deficiency has increased as a consequence – by how much? No evidence = no personal liability.
In summary, this is claim for personal liability against a director of a company. The claim is made up of the following:
- The company is insolvent and is in Liquidation or Administration;
- A person has been a director of that company at any time; and
- At some time before the commencement of the winding up of the company, that person knew or ought to have concludedthat there was no reasonable prospect that the company would avoid going into insolvent liquidation or entering insolvent administration.
The court, on the application of the Liquidator, may declare that that person is to be liable to make such contribution (if any) to the company’s assets as the court thinks proper.
The court shall not make a declaration if that person took every step with a view to minimising the potential loss to the company’s creditors as they ought to have taken.
That takes into account:
- the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company, and
- the general knowledge, skill and experience that that director has.