Biscoe v Milner [2021] EWHC 763 (Ch)

Facts

• Indigo Telecom Group Limited, a telecommunications company, encountered financial distress leading to its liquidation.
• Mr. Milner, a director, was sued by the liquidator for wrongful trading under section 214 of the Insolvency Act 1986.
• It was alleged that Mr. Milner continued trading when he knew, or should have known, that insolvent liquidation was unavoidable.
• The proceedings examined the period after Indigo entered a Company Voluntary Arrangement (CVA) intended to rescue the company or improve creditor outcomes compared to immediate liquidation.
• The court considered the company’s financial condition, CVA terms, and the actions and decisions of Mr. Milner throughout and after the CVA process.

Issues

1. Whether Mr. Milner knew, or ought to have known, that insolvent liquidation was inevitable, satisfying the requirements for wrongful trading under section 214.
2. Whether Mr. Milner took every reasonable step to minimize loss to Indigo’s creditors once such knowledge should have arisen.
3. Whether entering into and conducting business under the CVA aligned with the directors’ duty to minimize creditor losses.
4. Whether the objective standard for director knowledge, as established in prior case law, was correctly applied to the facts.

Decision

• The court found in favour of the liquidator, holding that Mr. Milner engaged in wrongful trading.
• It was determined that Mr. Milner continued to trade for too long after recognizing the inevitability of insolvency, including during the CVA period.
• The court ruled that Mr. Milner’s actions did not align with the duty to minimize creditor losses as required by section 214 of the Insolvency Act 1986.
• The judgment emphasized the continuing obligation on directors to monitor a company’s financial situation and to act decisively when insolvency appears unavoidable, regardless of insolvency arrangements such as a CVA.

Legal Principles

• Section 214 of the Insolvency Act 1986 creates liability for wrongful trading if a director knows, or ought to know, that insolvent liquidation is unavoidable and fails to minimize loss to creditors.
• The assessment of a director’s knowledge is based on an objective standard, considering what a reasonably diligent person in the same role would have known or concluded.
• Directors are under a positive duty to take every reasonable step to protect creditors once aware of likely insolvency.
• The decision clarifies that director duties and liabilities continue even during restructuring processes such as a CVA.

Conclusion

The decision in Biscoe v Milner [2021] EWHC 763 (Ch) clarifies the application of the objective test under section 214 of the Insolvency Act 1986 to wrongful trading, reinforces directors' duties to minimize creditor losses—even within a CVA—and highlights the importance of proactive and responsible corporate governance during financial distress.