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If a company trades while in financial difficulties, at what point does liability arise where the directors know or ought to know that there is no reasonable prospect of avoiding insolvent liquidation. Mark Mullen, barrister at Radcliffe Chambers considers the case of Re Ralls Builders Ltd.
Re Ralls Builders Ltd (in liquidation); Grant and another (Joint Liquidators of Ralls Builders Ltd) v Ralls and others  EWHC 243 (Ch),  All ER (D) 142 (Feb)
The Chancery Division ruled on the joint liquidators’ application for a declaration of wrongful trading that, although the directors of a company in administration ought to have concluded by a certain date that there was no reasonable prospect of the company avoiding insolvent liquidation, continued trading had not caused loss to the company overall or worsened the position of the creditors as a whole. Accordingly, no declaration was made under section 214(1) of the Insolvency Act 1986 (IA 1986), requiring the directors to make any contribution to the assets of the company in respect of any losses said to have been caused to the company during the period of wrongful trading.
This was a wrongful trading claim brought by the joint liquidators of Ralls Builders Limited against its former directors. The company operated in the construction industry and had been profitable to the end of October 2008. In the year to October 2009 it made trading losses as a result of disruption to its business in the winter months and liabilities incurred for defective works carried out by a sub-contractor. The company entered administration on 13 October 2010, moving to liquidation in January 2011. It had continued to trade until entering administration and its liquidators brought proceedings under IA 1986, s 214(1), seeking a declaration that the directors should contribute to the company in respect of losses caused by
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Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.
Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.
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