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When should directors conclude that a company has no reasonable prospect of avoiding going into insolvent liquidation? Chloe Poskitt, a solicitor, and Dominic Offord, a partner and head of commercial litigation and insolvency, at Browne Jacobson LLP, discuss the implications of the decision in Re Robin Hood Centre plc (in liquidation).
Brooks and another v Armstrong and another; Re Robin Hood Centre plc (in liquidation)  EWHC 2289 (Ch),  All ER (D) 45 (Aug)
The applicants, in their capacity as liquidators of Robin Hood Centre plc (the company) issued an application under sections 212 and 214 of the Insolvency Act 1986 (IA 1986) against the respondent directors for misfeasance and wrongful trading. The High Court held that, among other things, the respondents knew or ought to have known that there was no reasonable prospect of the company avoiding insolvent liquidation following certain events—such as a letter from HMRC confirming a VAT liability and an increase in the rent and service charge. At that point, the directors should have taken steps to minimise the losses to the creditors as a whole. The directors were ordered to pay compensation calculated by a deficiency comparison based on the difference between the date of a hypothetical liquidation and the actual date of liquidation.
The application was brought by the company’s liquidators against the directors under IA 1986, s 214 for contribution by the directors to the assets of the company in respect of wrongful trading and for an order for compensation under IA 1986, s 212 for breach of duty.
The liquidators claimed that there were a number of events which the meant that the directors knew or ought to have concluded that there was no reasonable prospect of the company avoiding insolvent liquidation. The events were:
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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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