Burden of proof in wrongful trading claim

Philip Anthony Brooks and Julie Elizabeth Willetts (Joint Liquidators of Robin Hood Centre Plc) v Keiron Armstrong and Ian Walker [2015] EWHC 2289 (CH)

The facts

Joint liquidators applied for orders against directors of the company under section 214 of the Insolvency Act 1986 (IA) for contribution by the directors of the assets of the insolvent company in respect of wrongful trading, and an order under section 212 of the IA for breach of duty.

The decision

It was held that once a director knew, or ought to have known, that there was no reasonable prospect that the company would avoid going into insolvent liquidation, the onus was on the director to establish the defence under section 214(3) that he had taken every step to minimise the loss faced by the company’s creditors: it was not for the liquidator to establish that he had taken the necessary steps.

The court also considered other issues relevant in determining claims under section 214, including how to assess a directors knowledge, the relevance of company accounts, the approach to the exercise of the court’s discretion in ordering compensation to be paid by the director, whether the director had taken every step to minimise the loss, and the calculation of compensation.

The case in noteworthy for clarifying where the burden of proof lies in section 214 (3) claims.