Insolvency - Personal Liability for Directors - The Warning from the Collapse of British Home Stores (BHS)

Partner David Murray, in leading Thames Valley law firm Blandy & Blandy’s Dispute Resolution and Insolvency team, explains the implications of the recent judgment involving two former directors of British Home Stores (“BHS”).

On 11 June 2024, the High Court gave its judgment that two former directors of British Home Stores prior to its insolvency should be ordered to pay at least £18 million for the benefit of its creditors.

The High Court’s judgment is long, running to 533 pages, and will take some time to digest in full, however, what is clear is that the directors are being held personally liable to contribute such large sums as a consequence of the Court finding that they had been involved in wrongfully trading BHS and been in breach of statutory duties owed by them to BHS, being what is known as misfeasance.

Wrongful trading is when a director of a company continues to trade a company when the director knew or ought to have known that there was no reasonable prospect that the company (in this case BHS) would avoid going into insolvent liquidation.

Misfeasance, prior to insolvency, covers a wide range of claims, but in this case included claims that the directors of BHS had been in breach of their statutory duties under the Companies Act 2006, in particular section 172 to promote the success of the company, including failing to consider the interest of the company’s creditors.

Whilst the personal liabilities landed upon the BHS directors in this case are undoubtedly substantial the point remains that all directors of companies, large and small, should be alert to the risk of personal liability arising from the insolvency of companies in which they are directors.

It is strongly recommended that if directors wish to seek to avoid personal liability they should be fully aware of their statutory duties under the Companies Act to act at all times in a certain manner and further that as soon as any possibility arises that the company may be in financial difficulty they seek prompt professional advice.

David Murray is a partner and head of Dispute Resolution at Blandy & Blandy, specialising in providing recovery and insolvency advice. For further information or legal advice, please visit www.blandy.co.uk.