The High Court has handed down judgment against two former directors of a number of BHS group companies. The Joint Liquidators, Anthony Wright and Geoffrey Rowley (both of FRP Advisory) brought claims against Lennart Henningson and Dominic Chandler for wrongful trading, misfeasance trading and individual misfeasance.
The Joint Liquidators brought wrongful trading claims citing six key dates between the purchase of the BHS group from Philip Green by Retail Acquisitions Ltd in March 2015 and the commencement of the companies' administration on 25 April 2016.
The Court found that by 8 September 2015 (which was around 8 months before the appointment of administrators) the directors knew or ought to have known that insolvent administration or liquidation was inevitable. The directors were ordered to pay £6.5 million each in damages (£13 million in total). According to FRP Advisory, this is the largest wrongful trading award to be handed down since its introduction under the Insolvency Act 1986.
The Court ruled that the directors had breached their duties under the Companies Act 2006 by failing to promote the success of the companies or to consider the interests of their creditors. The Court went on to say that if the directors had complied with their duties, the companies would not have continued to trade and would have gone into an insolvent administration. This is the first time that a ruling for "misfeasance trading" has been made by the courts and it is particularly unusual given that the Court also found that an insolvent administration was not a certainty when the directors breached their duties.
The directors were also found to have committed misfeasance trading in June 2015, which means that they were liable for misfeasance trading before they were held to be liable for wrongful trading.
The Court also found that the directors had breached their duty not to accept benefits from third parties. The benefits included a £300,000 secret commission paid to Mr Henningson on 19 June 2015. The trading and individual misfeasance awards against the directors totalled at least £5 million.
The outcome of Re BHS Group Ltd, and in particular the finding of misfeasance trading, should serve as a warning to directors to be vigilant about their statutory duties, particularly when a company enters financial difficulties. This includes considering how to minimise loss to creditors before it would arguably fall within the ambit of wrongful trading.
Wright, Rowley, BHS & Others v Chappell & Others [2024] EWHC 1417 (Ch)
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