Brooks v Armstrong [2017] BCC 99
Court: High Court (Registrar Jones)
Tag: Piercing the Veil
Facts: The case concerned wrongful trading under section 214 of the Insolvency Act 1986. The directors of Armstrong Ventures were accused of continuing to trade despite knowing the company was insolvent. The liquidators sought to hold the directors personally liable for worsening the company's financial state.
Issue: What conditions must be met to hold directors personally liable for wrongful trading under insolvency laws?
Held: Registrar Jones established three core conditions for wrongful trading:
Insolvency Condition: The company must have entered liquidation with insufficient assets to meet creditors’ claims.
Knowledge Condition: Directors must have known or ought to have known that insolvency was unavoidable.
Minimising Loss Defence: Directors must have taken reasonable steps to minimize creditor losses once aware of insolvency.
The court held that the liquidators proved the insolvency and knowledge conditions, but the directors failed to show they had taken adequate steps to minimize losses, leading to personal liability.
Key Judicial Statement: Registrar Jones emphasized that directors are required to take reasonable steps to minimize losses once they are aware of insolvency.
💡 Leveluplaw: Directors may be held personally liable for wrongful trading if they fail to address insolvency issues and do not take reasonable steps to minimize creditor losses.