Last week, on 11 June 2024, the High Court handed down the judgment in the claim by joint liquidators against two of BHS's former directors.
The Court held the directors liable for:
- Wrongful Trading – s.214 of The Insolvency Act 1986; holding the directors liable for knowing or ought to have known there was no reasonable prospect of avoiding insolvent liquidation or administration by September 2015 and seeking a payment of £6.5 million each for the transaction between that date and when they filed for administration 7 months later.
- Individual Misfeasance transaction – holding the directors liable for breaching various statutory directors' duties in a number of transactions which they authorised to the tune of £5.6 million.
- "Misfeasant trading" – a novel claim and a significant legal development holding the directors liable for breach of fiduciary duties in continuing to trade rather than putting the company into an insolvency process and failing to consider the interests of their creditors. The value of this head of claim is yet to be decided and judgment is reserved to later this month.
There are some important lessons to be learned by Directors and Insolvency Practitioners from the 533-page Judgment.
- The Court rejected a number of claims that earlier dates of knowledge of Wrongful Trading were relevant, particularly a date claim within 1 months of the directors' appointment. The Court therefore considered the factual reality faced by the directors and what was happening around BHS at that time
- When the Court finally accepted the date of 8 September 2015, the Court took little interest in the fact that the directors had sought both legal and accounting advice at that time, from top tier professional, who did not advise that insolvent liquidation/administration was likely. It did not help the directors case to try and rely on these professional advisors' advice (no matter how expensive they were)
- The liability of each director has been ordered to be several – meantime that each director has been liable for its differing level of involvement or culpability
- The Court also rejected a number of the malfeasant transactions because the director's action did not cause the transaction, particularly looking at the real facts of the situation that even if a director had objected or acted to prevent a transaction, what would the likely outcome have been, other than a more dominant director of majority shareholder removing said director and the transaction going ahead regardless. Consideration must be given to whether the breaches really did cause the transaction.
All eyes remain on the reserved judgement on the quantum of the "malfeasant trading". Is the Court to hold the directors liable for the entire increase in deficit in the insolvency or more sensibly the discrete loss created by the individual transactions based on the directors' breach of duty?
A burning question for me is – how much of the minimum £18 million will find its way back to the creditors of BHS?
At Kuits we represent both Insolvency Practitioners in charge of considering transactions by directors, seeking to challenge them and also directors faced with allegations such at wrongful trading and misfeasance. This allows us to provide rounded advice from all angles of the dispute.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.