Vol 15 (2018) - Issue 6

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The Eurosail Judgment in a Post-Crisis World – Part One

Introduction
The seminal Eurosail judgment on the interpretation of the s.123 Insolvency Act 1986 on balance sheet and cash-flow insolvency has had major implications both on policy grounds and in terms of operational justice. The adoption of the Supreme Court of a holistic, fact specific test has brought overall legal uncertainty as to the specific threshold triggering insolvency and how this is to be satisfied by a creditor. The decision has further infringed upon the freedom of contract which the parties in the instant case ought to have had in preparing the documentation. It has been criticised by academic literature due to the vagueness of the legal test it created and the misunderstanding of, inter alia, the futurity element in future and contingent liabilities expressed in previous case law. Moreover, as was observed in the Supreme Court, the linguistic statutory interpretation, recommended by both commentators and the Cork Committee, is difficult to uniformly apply simultaneously in cases concerning SPV structures lacking directorial agency and more orthodox business ventures. A further point can also be made on subsequent decisions having affirmed some of the valuation attitudes used in the judgment, without necessarily resolving the issues created by the legal tests. This has had further implications in the areas director’s duties in general and wrongful trading in particular, where a certain 'double burden' now exists for liquidators representing creditors. In addition to the ‘double burden’ a 'double standard' exists in how liabilities incurred during periods of doubtful solvency are valued for the purposes of wrongful trading compensation.