15. Directors’ liabilities and vulnerable transactions on insolvency

This chapter considers directors’ liabilities on a company going into insolvency. Redress for breach of duty by directors is available through summary action for misfeasance (IA 1986, s 212), fraudulent trading (ss 213, 246ZA), and wrongful trading (ss 214, 246ZB). The scope of these provisions is considered in detail together with the relevant case law. Wrongful trading is potentially a valuable remedy but it is somewhat underused. It may be advantageous instead to challenge certain transactions by the directors prior to insolvency; for example, as transactions at an undervalue (s 238) or preferences (s 239). More broadly, the overall conduct of the directors is reviewed in order to determine whether disqualification is appropriate on the grounds, usually, that they are unfit. All of these matters are addressed in this chapter.

26. Liabilities arising from insolvency

This chapter considers the rules that enable insolvency practitioners to claim assets which are not held by the insolvent company itself. It discusses wrongful trading; transactions at an undervalue and preferences; transactions defrauding creditors; and invalid floating charges.

20. Company insolvency and liquidation

This chapter deals with procedures and legislation governing the insolvency and liquidation of a company and who are qualified as insolvency practitioners. It discusses insolvency procedures such as administration, voluntary arrangement, creditors’ voluntary winding up, winding up by the court and the appointment of a provisional liquidator. It considers the effect of insolvency and liquidation procedures on floating charges, court control of insolvency and liquidation procedures, and liability for fraudulent trading and wrongful trading. The legal principles underlying disqualification orders against a company’s directors, the use of an insolvent company’s name, the order of the application of assets in liquidation and the dissolution of a company are also examined.

12. Mixed Topic Questions

The Concentrate Questions and Answers series offers the best preparation for tackling exam questions and coursework. Each book includes typical questions, suggested answers with commentary, illustrative diagrams, guidance on how to develop your answer, suggestions for further reading, and advice on exams and coursework. This chapter looks at mixed topic questions and provides four example questions and suggested answers. The questions require the consideration of a variety of topics, including: directors’ duties, shareholder remedies, derivative claims, unfair prejudice, de facto and shadow directors, corporate personality, lifting/piercing the veil of incorporation, pre-incorporation contracts, wrongful trading, disqualification, and the articles of association.

26. Liabilities arising from insolvency

This chapter considers the rules that enable insolvency practitioners to claim assets which are not held by the insolvent company itself. It discusses wrongful trading; transactions at an undervalue and preferences; transactions defrauding creditors; and invalid floating charges.

7. Creditors

Because of limited liability, creditor protection has always been a feature of company law. Large creditors can contract ex ante for customised protection and the law facilitates this in various ways, notably by the creation of the floating charge. Non-adjusting creditors require the protection of mandatory rules, at least in some situations. Creditor protection in relation to companies in the vicinity of insolvency is now well established, not only through ‘wrongful trading’ but also via transaction invalidity rules and directors’ disqualification. For going-concern companies the emphasis is on rules restricting the shifting assets to shareholders via distributions and associated rules relating to the maintenance of capital.

Creditors

Because of limited liability, creditor protection has always been a feature of company law. Large creditors can contract ex ante for customised protection and the law facilitates this in various ways, notably by the creation of the floating charge. Non-adjusting creditors require the protection of mandatory rules, at least in some situations. Creditor protection in relation to companies in the vicinity of insolvency is now well established, not only through ‘wrongful trading’ but also via transaction invalidity rules and directors’ disqualification. For going-concern companies the emphasis is on rules restricting the shifting assets to shareholders via distributions and associated rules relating to the maintenance of capital.

20. Company insolvency and liquidation

This chapter deals with procedures and legislation governing the insolvency and liquidation of a company and who are qualified as insolvency practitioners. It discusses insolvency procedures such as administration, voluntary arrangement, creditors’ voluntary winding up, winding up by the court and the appointment of a provisional liquidator. It considers the effect of insolvency and liquidation procedures on floating charges, court control of insolvency and liquidation procedures, and liability for fraudulent trading and wrongful trading. The legal principles underlying disqualification orders against a company’s directors, the use of an insolvent company’s name, the order of the application of assets in liquidation and the dissolution of a company are also examined.

26. Liabilities arising from insolvency

This chapter considers the rules which enable insolvency practitioners to claim assets which are not held by the insolvent company itself. It discusses wrongful trading; transactions at an undervalue and preferences; transactions defrauding creditors; and floating charges.