The English High Court has made the first ever compensation award for "misfeasant trading". 

Background

This follows an earlier judgment in which certain former directors of the British Home Stores Group (BHS) were held liable for various other breaches of statutory duty and wrongful trading (see our previous Alert).

Decision

Misfeasant trading is the failure of directors to consider the interests of creditors when insolvency is probable but instead carrying on trading. The judge found that the starting point for assessing compensation is the increase in the net deficiency of the company (IND) to the date of winding up. 

The directors' decision to continue to trade in June 2015 was an "effective cause" of the IND (except for the increase in the pension deficit) and the directors were found liable for the sum of GBP110 million (significantly more than the award for wrongful trading which arose in September 2015).

Key takeaways 

Pending any appeal, this ruling has significant implications for directors and insolvency practitioners:

• Compensation for both misfeasant trading and wrongful trading claims is the IND.

• Liability may be apportioned between the directors for wrongful trading but for misfeasant trading it is joint and several. 

• The evidential bar is lower for misfeasant trading, there is no need to prove that the director knew or ought to have known that insolvency was inevitable, the creditor duty arises when insolvency is merely probable.

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring & Insolvency team.

Wright & Ors v Chappell & Ors, Re BHS Group Ltd & Ors [2024] EWHC 2166 (Ch) (19 August 2024)