Meaning
Statutory provisions in United Kingdom law establish the liability of directors for continuing to trade when insolvency is unavoidable. This insolvency act section 214 allows liquidators to claim compensation from board members who failed to take every step to minimize losses to creditors. It applies to both formal directors and those acting in a shadow capacity.
The rule activates only when a company has entered insolvent liquidation. Legal actions under this provision focus on the period of terminal decline where recovery was no longer a realistic option.
Knowledge Test
Courts evaluate what a reasonably diligent person with the director’s experience should have known. The test for insolvency act section 214 focuses on the point in time when there was no reasonable prospect of avoiding insolvency. Failure to monitor financial reports is not an excuse for ignoring the impending failure.
Defense Availability
Liability is avoided if the individual can prove they acted to protect the creditor body. A successful defense for insolvency act section 214 requires evidence of dissenting votes or attempts to seek professional advice. Resigning from the board is often insufficient to escape responsibility if the damage was already done.
Remedy Calculation
Judges determine the amount the director must contribute to the company’s assets. The calculation for insolvency act section 214 usually equals the increase in the net deficit between the tipping point and the commencement of liquidation. This award is distributed among the unsecured creditors who suffered from the continued trading.
