Directors’ liability for company’s debts under section 217 of the Insolvency Act 1986 and rule 22.17 of the Insolvency Rules 2016 (Maxima v Fealy and Barrett)
Restructuring & Insolvency analysis: The High Court has dismissed a claim brought by an assignee of creditors' debts against individuals who were directors of a company in liquidation and a second company which was operating under a prohibited name pursuant to section 216 of the Insolvency Act 1986 (IA 1986). The defendants successfully argued that the second company fell within ‘The Third Excepted Case’ under the Insolvency Rules 2016 (IR 2016), SI 2016/1024, r 22.7, and that the second company had been known by its name for the entire 12 months prior to the first company's liquidation and had not at any time in those 12 months been dormant. The case is thought to be the only reported case on the true meaning and effect of the second of the two elements of The Third Excepted Case and demonstrates that the principles of corporate accounting law on non-dormancy cannot be translated from an accounting to an insolvency scenario. The concept of phoenix syndrome and the principle against doubtful penalisation were also considered. Written by Laura Newbery, legal director at Addleshaw Goddard LLP.
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