BHS Liquidators Win Record Wrongful Trading Judgment (2025)

FAQs

BHS Liquidators Win Record Wrongful Trading Judgment? ›

FRP Advisory Trading Limited won the United Kingdom's largest-ever wrongful trading claim and successfully established the first "misfeasance trading" claim against former directors of British Home Stores ("BHS"), highlighting the critical responsibilities of directors managing financially troubled company assets.

Examples include: Paying yourself an unreasonably high salary when the company cannot afford it. Entering into credit agreements with suppliers despite knowing the company will not be able to repay them. Amassing high debts to your creditors' detriment.

A judgment of wrongful trading carries with it potential disqualification as a director for up to 15 years, plus other financial fines and penalties. Being held personally liable for company debts is also a possibility.

BHS introduces the concept of misfeasance trading – which in summary, means trading in breach of directors' duties when the company should have gone into administration or insolvent liquidation much earlier if those duties had been complied with.

keeping accurate records of their own activities. ensuring sufficient financial records are kept. seeking professional advice at the earliest opportunity if there are signs the company is in financial difficulty.

The liquidator determines if wrongful trading has occurred, which is during their assessment of the director's conduct. There is a six-year limitation period. Examples of wrongful trading that the liquidator will look for include: Not filing annual returns at Companies House.

Section 212 of the 1986 Insolvency Act addresses the legal concept of misfeasance and makes a director personally accountable to pay back to the company the amount of the loss caused by any misfeasance to the extent that the court so orders.

Malfeasance is an act that is illegal and causes physical or monetary harm to someone else. Malfeasance is intentional conduct that is wrongful or unlawful, especially by officials or public employees.

Malfeasance is used to describe an act that cannot be defined as a distinct crime. Acts of malfeasance usually involve some misconduct and dishonesty. The potential legal consequences of malfeasance are jail sentences, fines, or loss of employment.

Who Can Bring a Misfeasance Claim? Creditors and shareholders can take action for Misfeasance against the director of a liquidated company. However, no claim can be made if the business has entered either Company Administration or a Company Voluntary Arrangement (CVL).

What is the reasonably diligent person test for wrongful trading? ›

Reasonably Diligent Person Test

Before attaching liability to a director, the court considers whether a reasonably competent director would have decided their company is beyond the point of no return. This is an objective standard, meaning it does not matter if the directors did not reach the conclusion.

A shadow director is a person who acts in the capacity of a board member without being listed or formally appointed to the board. Shadow directors are still recognised by law as directors because of the influence and control they exercise over a company.

Section 213 Of The Insolvency Act 1986 – Fraudulent Trading

(1) If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, the following has effect.

Re Continental Assurance Co of London plc [2007] 2 BCLC 287 (also, Singer v. Beckett) is a UK insolvency law case on wrongful trading under section 214 of the Insolvency Act 1986.