Tim Symes, Louisa Nicholson and Eugene Pekos write for Accountancy Daily following a recent High Court judgment in the BHS Group case which introduces a new duty for company directors. The ‘misfeasance trading’ duty is causing alarm bells for directors of potentially insolvent companies.
The article can be read in full on the Accountancy Daily website (free subscription required).
Key take aways
The article includes some practical take away points for directors of English companies to follow. These are:
- Do not turn a blind eye to a company’s worsening financial position. Be alive to the knowledge condition and consider whether you know or ought to know that the company is unlikely to avoid insolvency.
- Consider the interests of creditors. Their interests should be considered not just when the company is insolvent but also when it is nearing insolvency.
- Whatever your role as director is, ensure you are aware of the financial position and insist on being made aware of it.
- Once formal insolvency (ie, insolvent liquidation or administration) becomes a possible outcome, but you consider that the company is realistically able to trade into better times, take extra care to document the board’s reasoning and decision-making.
- Be mindful of the new category of director’s breach, ‘misfeasance trading’, in all your dealings by ensuring you are not trading the company into a worse financial state without any realistic prospect of the company trading through it.
- Use professional advisors (lawyers, accountants) to supplement your independent judgment of your company’s solvency, but taking care to:
- Provide such advisors with detailed instructions that ensure any information given regarding the company’s affairs is complete and shows an accurate picture.
- Consider what the advice given means for the company’s future and document reliance on it or reasons for departures from it in board minutes and other documents.
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