Wright & Ors v Chappell & Ors [2024] EWHC 1417 (Ch) concerned the liquidators’ claims on behalf of the British Homes Stores Group (“BHS”) following its administration in 2016.

In summary, the liquidators alleged that former BHS directors knew or ought to have known that there was no reasonable prospect of BHS avoiding insolvent liquidation and that the directors breached their duties under the Companies Act 2006 by continuing to trade when it was not in BHS or its creditors’ best interests to do so.

Claims for wrongful trading and misfeasance were brought against the former directors.

The court found against the directors in respect of both the wrongful trading and the misfeasance claims. Three former directors were found to be personally liable for sums exceeding £100m in the aggregate.

Directors’ and Officers’ insurance (D&O)

While the facts of BHS are extreme, the court’s findings are applicable to all directors, no matter the size of the company and the underlying facts to which an insolvency event relates.

Notably for directors are the findings that:

  1. The limit of indemnity available to directors under a D&O policy is not a relevant consideration for determining the extent of a director’s liability for claims established against him/her. This is unsurprising since otherwise, directors could avoid liability simply by failing to procure adequate
  2. In this case, the limit of indemnity available to the directors under the D&O policy was inclusive of defence Consequently, the amount that would be recovered for creditors might be limited in any case, given the cost of litigation.
  3. Subject to the facts, it may not be a defence for directors to seek to rely on professional advice from third It is the directors’ duty to determine the appropriate course of action, not external advisors. This is not to say that a director’s independent view will automatically override any external professional advice, but directors will need to evidence that an assessment of all the relevant facts and advice has been undertaken.
  4. The above applies to the internal decision- making of the All directors are equally responsible for decisions that are taken.
  5. It is unnecessary for the directors’ conduct to be the proximate cause of the The liquidators only needed to show that the directors’ failure to comply with their duties caused BHS to continue trading.

Comment

The decision in BHS is noteworthy for the insurance market. It ought to cause insurers and insureds to think carefully about the extent of cover available under a D&O policy, particularly in relation to the limits of indemnity.

It also raises familiar questions about whether those limits should or could be ring-fenced to afford adequate levels of cover for multiple directors of large corporate groups. D&O cover of £20m, as was the case in BHS, might suffice for many D&O disputes, but that sum will quickly be eroded in complex claims with multiple defendants. It will be eroded even quicker if multiple directors are the subject of the same or similar allegations, all of whom are in a race to exhaust a single non-ringfenced limit of indemnity.

For the directors themselves, the positives to take from BHS are the clear findings as to where a director may find him or herself liable to claims from liquidators. When carefully considering the takeaways from BHS and other cases, it follows that directors ought to be able to determine how they mitigate any risk of liability arising.

 


 

Read more

This article is an extract from The Policyholder Review 2024/25. A detailed review and commentary on the key developments and trends across various commercial lines of insurance.

Key Contacts

See all people