- Trading to the detriment of creditors with no reasonable prospect of the company paying its creditors or avoiding insolvent liquidation (Re Arise Networks Ltd; Official Receiver v Obaigbena)
- What are the practical implications of this case?
- What was the background?
- What did the court decide?
- Case details
Restructuring & Insolvency analysis: The Official Receiver (OR) alleged that the director of Arise Networks Ltd, Mr Obaigbena, had committed a serious failure amounting to misconduct, which made him unfit to be concerned in the management of a company within the meaning of section 6 of the Company Directors Disqualification Act 1986. The OR made an allegation analogous to one of wrongful trading under section 214 of the Insolvency Act 1986, alleging that Mr Obaigbena had caused the company to trade to the detriment of its creditors without a reasonable prospect of paying its creditors or of avoiding insolvent liquidation. The court held that there had to be a rational basis for the director’s belief that the company would trade out of its difficulties; the mere belief by a director that it would do so (however fervently and honestly held) would not be sufficient. The director had to identify a rational basis for his belief that could properly ground a reasonable prospect that creditors would be paid or that the company would avoid insolvent liquidation. Written by Tiran Nersessian, barrister at 4 Stone Buildings and counsel to the claimant in this case.
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