Application for a declaration that the director has been engaged in wrongful trading
| Author | Mark Watson-Gandy |
| Pages | 363-376 |
OBJECTIVE
The court has the power on the application of the liquidator or the administrator
to make a declaration that a person who is, or was, a director of the company in liquidation has been carrying on the business of the company as a director at a time when he knew, or ought to have concluded, that there was no reasonable prospect that the company would avoid going into insolvent liquidation or administration.
The application can be made against any person who is, or was, a director of the company in liquidation or administration.
Any compensation ordered goes to the general funds in the hands of the liquidator or administrator rather than to compensate an individual creditor. This is the case even though the nature of the contribution is compensatory rather than punitive.
The liability of the directors is several rather than joint and several.
The director has a defence if he can show that he took every step with a view to minimising the potential loss to the company’s creditors he ought to have taken with the knowledge that there was no reasonable prospect that the company would avoid going into insolvent liquidation or administration.
The knowledge of the director and the conclusions he ought to have reached are, for the purposes of the section, judged against that which might be expected of a reasonably diligent person having both the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same
364 Corporate Insolvency Practice
functions by that director in relation to the company and the general knowledge, skill and experience that the director has.
APPLICATION
Proceedings are commenced by application notice (on Form IAA).
The application must recite the nature of the declaration sought and the grounds for bringing the application.
The application should be returnable to the registrar in the Companies Court or to the district judge in a Chancery District Registry or county court with insolvency jurisdiction.
The respondent should be the person against whom relief is sought.
COURT FEES
Where fresh proceedings need to be brought, a court fee of £280 is payable.
the application can be made as part of exisiting proceedings and the application is on notice to other parties, a court fee of £155 is payable.
SERVICE
The application will need to be filed at court and served on the respondent as soon as practicable after it is filed and in any event, unless it is necessary to apply without notice or on short notice, at least 14 days before the date fixed for the hearing.
The usual rule is that, subject to any other express provision, the application must be served at least 14 days before the date fixed for the hearing.
court does have power, in cases of urgency, to hear an application immediately with or without notice to the other parties.
Service may be effected personally
THE FIRST HEARING
At the first hearing, the registrar or district judge will give directions as to whether points of claim are needed and for the filing of evidence. He may also require the application to be served on other people. He may give directions as to whether witnesses are to attend for cross examination. The first hearing is likely to be heard in chambers and the advocates are not expected to robe.
EVIDENCE
No evidence needs to be filed before the first hearing. The application will, however, need, in due course, to be supported by a witness statement by the liquidator. This will need to address:
ƒ the order he seeks;
ƒ the date the company was incorporated;
ƒ the registered office of the company;
ƒ the nominal share capital of the company;
ƒ the issued share capital of the company;
ƒ the objects of the company;
ƒ the date upon which the petition to wind up the company was presented;
ƒ the date upon which the company went into liquidation;
ƒ that he was appointed as liquidator of the company;
ƒ the date upon which he was appointed as liquidator;
ƒ the date the company became insolvent;
ƒ that the respondent is, or was, a director of the company at the time;
ƒ the respondent’s role in allowing the company to continue to trade;
ƒ particulars of the matters that the respondent can be said to have known about, or ought to have known about;
ƒ the conclusions which might be expected of a reasonably diligent person having both the general knowledge, skill and experience that may reasonably expected of a person carrying out the same functions by that
366 Corporate Insolvency Practice
director in relation to the company and the...
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