Company Law and Insolvency

Referring to the challenge being taken up by Endicot against Kenzie and Barospec due to the relocation to Hull from Bristol and following the articles of association inter alia provides initially an insufficient reasoning In theory, the ultimate control over a company's business lies with the members in a general meeting. One would obviously conclude that a meeting involved more than one person; and indeed there is authority to that effect in Sharp v Dawes (1876) in which a meeting between a lone member and the company secretary was held not to be validly constituted. Undoubtedly the point at which a director is subject to s.214 is not always precise. A director can re-assess strategy when he or she knows that there is no reasonable prospect that the company would avoid going into insolvent liquidation, but concern that a court, at a later date, might hold that a director ought have concluded that insolvent liquidation was a reasonable prospect might lead to over-caution.

This is an issue which is taken out of the hands of the director. Having accepted this point, there appears to be no evidence that since the introduction of s.214 there has been a reduction in the amount of risk-taking that occurs in British markets. Furthermore, the fact is, as I talk about in the next Part of the article, the case law should not cause directors to feel that they should be unduly risk-averse.



C. The Courts Lack Experience and Ability

The case suggest that judges will only find directors liable where the latter have plainly acted irresponsibly, a point made in Re Sherborne Associates Ltd. Subsequently, Park J. in Re Continental Assurance Co of London plc made a similar point when he said that typically the cases where directors have been found liable have involved directors who have : In those cases the directors had been irresponsible, and had not made any genuine attempt to grapple with the company's real position.

In addition, while judges will, it is acknowledged, often have to wrestle with tough questions flowing from differing views of what constitutes right action in the circumstances in which companies operated, they are able to make a fair assessment of the actions of directors and are now able and better equipped to take practical and commercial decisions. Judges have sought to achieve a balance between the protection of bona fide creditors, on the one hand, and ensuring that directors (on behalf of their companies) are not totally discouraged from taking appropriate business dangers, on the other hand. The very paucity of cases where liquidators have succeeded contradicts the assertion that judges are going to be set against directors.

The one allegation that might be made against the process is that courts might not be apprised of all the necessary information for making a decision, due to time and cost. However, this is something that could be levelled at many areas of the law, such as actions brought pursuant to s.459 of the Companies Act ...