Vol 14 (2017) - Issue 3

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Re Ralls Builders Ltd (in Liquidation) [2016] EWHC 1812(Ch)

Introduction
The High Court held that a liquidator’s time-costs and expenses in bringing a wrongful trading claim under section 214 of the Insolvency Act 1986 are not recoverable from a director by way of a contribution under section 214(1) or as a general cost of the litigation (save where the Nossen exception applies).


Facts
The Joint Liquidators of the Company sought a contribution of GBP 1.5 million to the company’s assets from three former directors of the Company ('the Directors') pursuant to section 214 of Insolvency Act 1986. The Joint Liquidators alleged that the Directors knew or ought to have known that the company could not avoid insolvent liquidation by either 31 July 2010 or, alternatively, 31 August 2010, and had taken no steps to protect the creditors of the Company prior to the Company entering administration.

The litigation
On 11 February 2016, Snowden J. handed down judgment on the main action: Re Ralls Builders Ltd (in liquidation) [2016] EWHC 243 (Ch) ('Re Ralls (No. 1)'). In Re Ralls (No. 1) the court held:
(1) that by 31 August 2010 ('the relevant date'), the Directors ought to have known that there was no reasonable prospect of the Company avoiding insolvent liquidation (the Joint Liquidators allegation that the relevant date was 31 July 2010 failed);
(2) that after the relevant date, the directors failed to take the steps they ought to have taken to minimize the risk to creditors (as they had allowed new credit to be incurred) and therefore could not avail themselves of the defence at section 214(3).


However, the court declined to order the Directors to make a contribution to the assets of the Company under section 214(1) because the Joint Liquidators had failed to prove that the net deficiency of the Company increased between the relevant date and the date the Company entered into administration.
After handing down judgment in the main action, Snowden J. indicated he would hear further argument on issues left outstanding during trial, including, whether a contribution should be ordered to be made by the Directors to the assets of the Company in respect of the amount by which the costs and expenses of the administration and liquidation had been unnecessarily increased by continuing to trade after the relevant date ('the costs and expenses claim').