Back in 2016, the demise of BHS was headline news, not least because there was massive confusion as to what went wrong.
At the time the collapse of the company seemed exceptional, however, it now seems that BHS was the first in a long list to fall.
Since then a number of big names have fallen into administration, including House of Fraser, Evans Cycles, Steamer Trading, L K Bennet, Patisserie Valerie, Gaucho and, of course, Debenhams (to name just a few). And no industry seems safe!
In the case of each big corporate collapse, the scrutiny that is placed on the last few years of a company’s life is commonplace in trying to understand what went wrong.
We regularly see claims being brought by insolvency practitioners against company directors who have not kept a steady ship in the final years before corporate bankruptcy. It is easy to fall foul of the rules of the Insolvency Act 1986 when actions taken at a point in time are viewed with the benefit of hindsight.
For example, a company liquidator may look at bringing a claim in respect of the following actions taken by company directors:
Preferential treatment of creditors: Consider payments made to a director when a company was technically insolvent. The payments may have been made in order to repay the director’s loan account which was overdrawn at the time so could arguably be considered to be due for repayment on demand. However, the fact that the director settles his own debt when other creditors’ debts also remain outstanding means that there could be a claim for preferential treatment.
Transactions at undervalue: We are currently looking at a group which underwent restructuring just before entering liquidation. One of the group assets was transferred to a company owned by the director and we are considering the valuation of the asset transferred at the date of transfer in order to determine whether it was appropriately valued at the time. A company liquidator may look to set aside transactions at undervalue.
Wrongful trading: A director who allows a company to continue to trade when insolvent can be liable for an increase in the debts of the company arising from this ongoing trading. We have recently acted as an expert to opine on the date of insolvency of a company. This is a complex task requiring consideration of both balance sheet strength and cash flows – it is difficult to say that a company is solvent one minute and insolvent the next. However, this is what will be required in claims for wrongful trading and no doubt, it will be a matter of much debate in the dispute in question.
In concluding on any of the above actions the court will have to rely on the information available about the situation at the time. Often difficult to obtain or non-existent, but our experience and expertise in dealing with such insolvency claims means we are well placed to assist.