Grant v Ralls [2016]

Grant v Ralls [2016]

Grant v Ralls [2016] BCC 293 revolved around the definition of "loss" under Section 214 of the Insolvency Act 1986. The joint liquidators argued that loss should be measured at the time of insolvent liquidation, focusing on the loss suffered by creditors. In contrast, the directors contended that loss should be defined as any increase in the net deficiency in assets during the period of continued trading.

Ralls Builders Limited entered administration on October 13, 2010, and subsequently faced insolvent liquidation. Joint liquidators sought a declaration under Section 214 of the Insolvency Act 1986. They aimed to obligate the defendant directors to contribute just under £1 million for losses resulting from wrongful trading.

The High Court held that by August 31, 2010, the directors should have reasonably concluded that the company had no prospect of avoiding insolvent liquidation. Despite this finding, the judge accepted the directors' definition of loss. Importantly, no contributions were ordered due to insufficient evidence supporting the occurrence of a loss as defined.

Justice Snowden, in his remarks on loss, emphasised the correct approach to determining directorial contributions under Section 214. He stressed the need to assess whether the company suffered a loss caused by the continuation of trading. This assessment involves examining the increase or reduction in the net deficiency of the company concerning unsecured creditors during the relevant period.

Furthermore, Snowden J emphasised the necessity of a causal connection between any contribution and the continuation of trading. He highlighted that losses incurred as a consequence of a company entering a formal insolvency process should not be attributed to directors under Section 214. This consideration gained particular importance in light of the difficulties involved in dealing with customers during the insolvency of a construction company.

Regarding the implications of the current case, the judge found it entirely plausible that the company's continued trading did not cause an overall loss or worsen the position of creditors. Notably, the company's bank and certain historic creditors were paid at the expense of new creditors, deemed as the real sin of the Directors. The judge acknowledged limitations in the structure of Section 214, suggesting that any remedy for such situations would need to come from parliamentary intervention.
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