Biscoe v Milner [2021]
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Biscoe and Baxter as Joint Liquidators of Equitable Law Capital Limited v Milner [2021] EWHC 763 (Ch) provides a notable clarification in relation to wrongful trading claims under Section 214 of the Insolvency Act 1986. The High Court ruling establishes that, contrary to the contentions of respondent directors, proving a wrongful trading claim does not necessitate demonstrating that compliance with their duties would have prevented the creditors' loss.
The litigation arose from the collapse of Equitable Law Capital (ELC), which operated the ELC Legal Redress Scheme. Investors, contributing £3.3 million, received only £230,000. ELC went into insolvency in November 2016, leading to claims against various parties involved in the scheme, including allegations of dishonest assistance, conspiracy, and wrongful trading against the directors. The crux of the dispute revolved around the directors' argument that a successful wrongful trading claim must establish a causal link between their breach of duties and the prevention of the alleged losses.
Justice Meade, delivering the judgment, sided with the claimants, rejecting the imposition of a causation requirement beyond establishing a link between the continuation of trading and an increase in deficiency to creditors. The judge's stance aligns with the language of Section 214(1) of the Insolvency Act 1986 and draws support from the precedent set in Grant v Ralls [2016], emphasising the importance of a causative connection.
Ultimately, one of the directors involved in the case was held liable for wrongful trading. The judgment clarified that the director's breach of duties directly contributed to losses for creditors, reinforcing the principle that the focus lies on establishing a connection between the wrongful trading and the resulting increase in deficiency to creditors.
This decision has implications for the interpretation and application of wrongful trading claims, highlighting that the key criterion is the causal relationship between a director's actions, the continuation of trading, and the adverse impact on creditors' interests. It emphasises that establishing causation in this context does not necessitate proving that compliance with duties would have entirely averted the creditors' losses, thereby providing clarity and guidance in wrongful trading cases.
The litigation arose from the collapse of Equitable Law Capital (ELC), which operated the ELC Legal Redress Scheme. Investors, contributing £3.3 million, received only £230,000. ELC went into insolvency in November 2016, leading to claims against various parties involved in the scheme, including allegations of dishonest assistance, conspiracy, and wrongful trading against the directors. The crux of the dispute revolved around the directors' argument that a successful wrongful trading claim must establish a causal link between their breach of duties and the prevention of the alleged losses.
Justice Meade, delivering the judgment, sided with the claimants, rejecting the imposition of a causation requirement beyond establishing a link between the continuation of trading and an increase in deficiency to creditors. The judge's stance aligns with the language of Section 214(1) of the Insolvency Act 1986 and draws support from the precedent set in Grant v Ralls [2016], emphasising the importance of a causative connection.
Ultimately, one of the directors involved in the case was held liable for wrongful trading. The judgment clarified that the director's breach of duties directly contributed to losses for creditors, reinforcing the principle that the focus lies on establishing a connection between the wrongful trading and the resulting increase in deficiency to creditors.
This decision has implications for the interpretation and application of wrongful trading claims, highlighting that the key criterion is the causal relationship between a director's actions, the continuation of trading, and the adverse impact on creditors' interests. It emphasises that establishing causation in this context does not necessitate proving that compliance with duties would have entirely averted the creditors' losses, thereby providing clarity and guidance in wrongful trading cases.
