ABSTRACT
This part deals with an action that might be taken by liquidators against directors of a company who engaged in what is known as ‘wrongful trading’ before the company entered insolvent liquidation. The action is taken to obtain some contribution from the directors towards the payment that is made to the creditors, who, of course, in an insolvent liquidation are not going to get back what they were owed by the company. This action is initiated pursuant to s 214 of the Insolvency Act 1986. Section 214 provides, in effect, that the liquidator of a company that is in insolvent liquidation – effectively the situation where a company’s assets are not sufficient to pay its debts at the time of liquidation (s 214(6)) – may commence proceedings against the company’s directors, and these proceedings may seek an order that the directors make such contribution to the company’s assets as the court thinks proper (s 214(1)). Directors may only be liable where at some time before the commencement of the winding up of the company, they knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation (s 214(2)). Courts are not to make an order against directors if satisfied that, after the directors first knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation, they took every step with a view to minimising the potential loss to the company’s creditors that they ought to have taken (s 214(3)). It is worth pointing out that s 214 does not use the words, ‘wrongful trading’; it is a description that is only employed in a marginal note, and there is clear authority that a marginal note is not to be used as an aid to interpretation of legislation (Chandler v DPP [1964] AC 763). The trading that offends against s 214 is, perhaps, better referred to as ‘irresponsible’ or ‘illicit’.1
