Vol 15 (2018) - Issue 3

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Nicholson: Decision to Keep Trading Not Always Wrongful

Key points
– In the recent case of Nicholson and another v Fielding and others [2017] All ER (D) 156 (Oct), the English High Court refused an application by the liquidators of a company to hold its former directors liable for wrongful trading, despite significant losses being suffered by creditors.
– The ruling illustrates that a decision to continue trading while in financial distress (particularly in times of heightened uncertainty in the wider economy) is not always a ground for wrongful trading liability.
– The case is a useful barometer of the flexibility accorded directors of companies in financial distress, while also demonstrating that the regime actively encourages directors to keep accurate records of all decision-making.
– Quantifying the claim correctly is critical. The Deputy Registrar found that the liquidators in this case did not submit a proper account of the increase in net deficiency in assets caused by the alleged wrongful trading. As the company had kept exemplary accounting records, the Deputy Registrar held there was no excuse for this oversight: had the wrongful trading claim been successful he would have awarded the liquidators nothing.