Following the widely publicised downfall of BHS (and its group companies),the joint liquidators commenced proceedings against former directors for misfeasance under s.212 of the Insolvency Act 1986 (“IA 1986“) and wrongful trading under s.214 IA 1986. In relation to wrongful trading, the joint liquidators advanced five alternative dates (all within a twelve-month period) from which wrongful trading was alleged to have taken place (the “Alternative Date Claims“). No quantum was pleaded in relation to the Alternative Date Claims.
Application to strike out the Alternative Date Claims
An application was made by one of the respondents, supported by two others, to strike out the Alternative Date Claims on the basis that they were deficient. The alleged deficiencies included, inter alia, that the Alternative Date Claims:
- failed to allege what loss was suffered by the group companies as a result of continuing to trade;
- failed to allege whether there was an increased net deficiency (“IND“) to creditors, and if so, by how much; and
- failed to clarify what contribution was being sought from the respondents and what remedy was being sought.
In addition, the strike out application contended that the respondent did not understand the case made against him, could not properly plead a defence and could not therefore disclose relevant documents; prepare witness statements; or instruct experts.
Strike out application dismissed
The strike out application was dismissed by Schaffer J, who cited eight factors which were material in reaching this decision, whilst also expressing disapproval at the way in which the application had unfolded. The eight factors are summarised below:
- The Court dismissed the notion that the respondent did not understand and could not properly plead to the Alternative Date Claims. It was clear from the Points of Claim, as assisted by the joint liquidators’ responses to RFIs, that the respondents knew precisely what the case against them was.
- The fact that the Alternative Date Claims did not provide sufficient information on what the IND would be was not reason enough to strike out. The IND for any of the alternative date periods could be addressed by expert evidence at a later stage and evaluated by the trial judge to determine whether any IND had been established.
- It had already been agreed between the parties that the starting date to determine IND would be 17 April 2015. Each party’s experts would have, following disclosure, the same documents to reach their own determinations of IND for the relevant dates under the Alternative Date Claims.
- IA 1986 requires the joint liquidators to identify a date from which the IND should be calculated. The joint liquidators satisfied this temporal element of the act by identifying the various alternative periods.
- The joint liquidators had given the respondents fair notice with fair opportunity to rebut the Alternative Date Claims because the dates relied upon by the joint liquidators had been clearly stated. It would be for the experts to opine on quantum and their reports would be made available to all parties well before trial.
- Whilst it was the case that the IND figures would be unknown until later expert analysis, asking the joint liquidators to amend the points of claim at an early stage would be “a premature and entirely arid exercise“.
- The fact that the five Alternative Date Claims did not identify the IND did not mean that the claims were “vague and unparticularised” such that the court should strike them out (as argued by the respondents).
- It would not be appropriate to ask the joint liquidators to embark on the task of quantifying exactly what losses and contributions would be in each of the five Alternative Date Claims given that these figures will be better addressed by the experts at a later stage.
The case demonstrates that failing to plead quantum in a wrongful trading claim does not render the claim defective in circumstances where a framework from which the parties’ experts may calculate the relevant INDs is provided. As such, the decision should not be read as an open invitation to initiate claims prematurely and without careful consideration on quantum from the start. The judgment makes it clear that this is not a case where new dates or new calculations are being sprung upon the respondents at the last minute. Instead, the quantum is a “known-unknown” which would become known by the experts long before the trial, and the respondents would have fair notice and opportunity to rebut.