UK: England and Wales: contributions for fraudulent trading under Section 213(2) of the Insolvency Act (1986)

In Goldfarb v Higgins & Ors [2010] EWHC 613 (Ch), handed down yesterday, the trial judge held that a company secretary (Mr Higgins) and director (Mr Charalambous) of a company in liquidation were liable to contribute to the assets of the company under Section 213, the fraudulent trading provision in the Insolvency Act (1986).

In assessing their contribution the trial judge was required to consider whether, as counsel for the liquidator contended, the company secretary and director should be jointly and severally liable for the totality of the loss. The liquidator's counsel was unable to cite any authority considering whether Section 213(2) required joint and several liability. The trial judge stated (paras. [29] - [32]):

I find some assistance ... from the judgment of Park J in In Re Continental Assurance Co [2001] BPIR 733. That case concerned not section 213 but section 214 of the 1986 Act. Section 214 is concerned with wrongful trading and provides that the court may declare that 'a person who is or has been a director of the company' is liable 'to make such contribution (if any) to the Company's assets as the court thinks proper'. Where several respondents were subject to an application by the liquidator under section 214, Park J rejected the argument that the starting point is one of joint and several liability. He held that the wording of the section clearly 'concentrates individually on each director who is a respondent to an application by a liquidator' [386]. And he continued at [387]: '…The initial duty of the court where it finds that liability exists on the part of two or more respondents is to determine in the case of each respondent how much he individually ought to contribute'.

The wording of section 213 is different from section 214 in that the statutory jurisdiction under the former is addressing "persons" in the plural rather than a single "person". But the reference in section 213 to "contributions" is in my view a clear indication that the contribution need not be the same for each respondent. I think it would be surprising if the 1986 Act sought to prescribe a different approach in a fraudulent trading case within section 213 from that in a wrongful trading case within section 214. The fact that immediately adjacent provisions in the statute adopt almost identical wording is in my view a strong indication that, as a matter of interpretation, no such distinction is intended.

It is clearly possible for the court to determine that several respondents should all be jointly and severally liable for the full loss caused to the creditor(s). However, in my judgment, it is appropriate to make a separate assessment of the contribution of Mr Higgins and of Mr Charalambous on the facts here".