Changing Insolvency Laws to help Creditors

[Anthony Reeves]

From cases I am involved with there seems to be a large number of situations where creditors need a better mechanism by which they can hold directors to account if there has been wrong doing, such as “wrongful trading”. This where a company continues to trade while it is insolvent.

As the law stands at present, only the liquidator can make an application to the court for the directors to be made to contribute personally to the debts of the company. In reality, this does not happen. Rather than the creditors having to persuade the liquidator to make an application I believe that there ought to be an amendment to the Insolvency Act 1986. This would permit creditors to be able to make the application. It would require a very simple two clause Act of Parliament.

Anthony Reeves
Pinniger Finch & Co, Solicitors.

[Kent Accountant]

I cannot but agree. I accept that there are many cases where insolvency occurs through no fault of the debtor/company director but I also believe that there are far more cases where a contribution should be made than actually occurs. Even with XL, there were contributory factors but they did make a £24million loss the year before and one does wonder at what stage they became aware that they would be unable to pay their debts as and when they fell due :|

Problem normally is that the liquidator normally has no funds with which to commence legal action against the directors and few creditors are prepared to throw good money after bad to fund the litigation :(

[Anthony Reeves]

The amendment could be as simple as suggested below. Surely this would not take up much Parliamentary time?

Proposal:

Insolvency Amendment Bill 2008

A Bill to permit creditors of an insolvent company to apply to court under section 213 and section 214 of the Insolvency Act 1986.


In section 213 (2) of the Insolvency Act 1986, after the word “liquidator” insert the words “or a creditor of the company”.
In section 214 (1) of the Insolvency Act 1986, after the word “liquidator” insert the words “or a creditor of the company”

Anthony Reeves
Pinniger Finch & Co, Solicitors

[telephoneman]

I disagree. A liquidator is likely to understand the facts behind the Company failure. A creditor may not. There are circumstances where a Company is technically insolvent but could continue trading for a period, e.g. where the directors believe that continuing to trade may actually benefit all creditors or where there is a reasonable chance that negotiations with other parties may resolve the Company's difficulties. Creditors being unaware of all the facts could initiate a lot of expensive and ultimately fruitless litigation.