Case Law Update: Wrongful trading law clarified

Dispute Resolution - 1 minute read

This case brings further clarification to the law on wrongful trading.  It was held that rather than the onus being on the liquidator to establish that the directors has knowledge of insolvency at a particular date, it was enough that they knew at some point before liquidation. The Court also held that it was up to directors to establish that they had taken steps to minimise loss to creditors, rather than liquidators proving they had not. 

Lessons from the ruling include that Directors of companies in financial difficulty should ensure they closely monitor the company’s financial situation to spot when there is no reasonable prospect of their company avoiding insolvent liquidation. They then need to minimise losses to creditors as a collective unit, rather than selecting or favouring a creditor. 

The full reference for the case is Brooks and another v Armstrong; Re Robin Hood Centre plc (in liquidation) [2015] EWHC 2289. 

The directors also argued that the onus was on the liquidator to prove the directors had not taken every step with a view to minimising the loss to creditors. The court disagreed again - the burden was on the directors to prove that they had.