Wrongful trading law reviewed as liquidators fail to establish 'increase in net deficiency'

In a comprehensive judgment the High Court has reviewed the law of wrongful trading.

Rejecting claims brought by the liquidators of Ralls Builders Limited, Mr Justice Snowden clarified a number of aspects and contradictory decisions that have caused controversy within the insolvency profession for a number of years.

These include how the 'increase in the net deficiency' should be calculated; considerations for directors trading in the twilight period whilst awaiting investment; the importance of advice from insolvency professionals; and the issue of replacing old creditors with new creditors when the overall financial position does not deteriorate.

In his judgment, Snowden J observed: 'The court does not approach the question of whether a director ought to have concluded that his company has no reasonable prospect of avoiding an insolvent liquidation with the benefit of 20:20 hindsight.'

Going on to consider the advice provided to the directors at the time by professional insolvency advisers, he noted that none of the communications: ''¦suggested that the course that the directors intended to pursue was unrealistic or doomed to failure.'

Ultimately, Snowden J concluded: 'In my judgment, if anything, the figures suggest that the continued operations of the company'¦produced a modest improvement in the net deficiency of the company.

'There are real reasons to believe that a period of continued trading to complete existing contracts during the busy summer months is likely to have produced a significantly better result for the company'¦than would have occurred if there had been an immediate cessation of trading.'

The defendant directors were represented by Verisona Law and counsel Christopher Boardman, of Radcliffe Chambers, leading Christopher Lloyd, of New Square Chambers.