
The issue concerned the ability of a company in liquidation to bring a claim against a director for causing a payment to be made to a creditor in breach of the creditor interests duty. The court at first instance had held that the company could not bring such a claim since the act of paying a creditor caused no net loss to the company, since the payment resulted in a corresponding discharge of the company’s liability. The Court of Appeal overturned that conclusion on appeal, holding that a loss to the body of creditors is to be regarded as a loss to the company for the purposes of a breach of the creditor interests duty, and that the body of creditors would suffer loss by reason of the amount of assets available for distribution being reduced. The approach taken by the English Court of Appeal in West Mercia was correct, and was not limited to the circumstance where the director derived a personal benefit from the transaction.
This is an important decision which clarifies the application of the creditor interests duty in relation to payments of creditors made at a time when a company is insolvent.
Tom Smith KC appeared for the successful appellant, instructed by HFW and Grant Thornton.

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