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she takes steps reasonably expected from reasonable directors in similar
circumstances.
When directors encounter the first sign of distress, 146 the most logical action for
them is to engage professional advice and also to consult their creditors by
convening a creditors‟ meeting, and then to decide on the appropriate action. In
assessing the steps which ought to be taken by the director, the court should avoid
using hindsight and should confine itself to the circumstances and information
available to directors at the time decisions were made. 147
A directors‟ decision to continue trading does not necessarily mean it is bad,
because there are possibilities of trading the company out of difficulties or
alternatively, of selling the company as a going concern at a higher value
compared to if the company were to be put into liquidation immediately. 148 The
Cork Committee in its recommendations proposed that directors or anyone who
may be caught under wrongful trading be able to apply for anticipatory relief
should their decisions to continue trading prove to be incorrect. 149 This will allow
directors to continue trading within a certain period allowed by the court in order
to see whether there is a possibility for them to turn the company to profitability
without fear of being subjected to personal liability for wrongful trading.
However, this proposal was not adopted in the Insolvency Act 1986 and directors
who decide to trade when they know there are no reasonable prospects of the
company avoiding insolvent liquidation would be confronted with wrongful
trading unless they had taken every reasonable step that ought to be taken. Hence,
it is essential that a decision to continue to trade must be based on accurate
information available at the time and directors must continue reviewing their
146 See Oditah above n52 at 210; the writer suggested whether the directors ought to have
reasonably concluded there were no prospects of avoiding insolvency can only be answered by
identifying the cause of insolvency. The next step is for the court to look at any steps taken to
alleviate the circumstances.
147 See Re Sherborne Associates Ltd [1995] BCC 40 at 54.
148 Oditah above n52 at 208-209.
149 Cork Report above n5 at [1798].
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