High Court Examines Fraudulent Trading and Breach of Directorial Duties in Bouchier v Booth Case

Citation: [2023] EWHC 3195 (Ch)
Judgment on

Introduction

In the High Court case of Geoffrey Wayne Bouchier & Anor v Gary Booth & Anor [2023] EWHC 3195 (Ch), the court examined allegations of fraudulent trading under Section 213 of the Insolvency Act 1986 and breaches of duty under Section 212 and Section 172 of the Companies Act 2006. The judgment provides an exposition of the legal principles surrounding directors’ duties, the treatment of fraud in corporate trading, and the considerations for equitable compensation for losses caused by directors’ conduct.

Key Facts

The claimants, joint liquidators of Tiuta International Limited (TIL), accused the respondents, both directors of TIL, of engaging in fraudulent trading and breach of duty. The allegations pertained to a series of loans (the Restructured Ramadan Loans) that were made primarily to one borrower, which were refinanced from funds ostensibly destined for low-risk bridge financing to third parties. This strategy was said to have exacerbated TIL’s financial difficulties, incurring significant losses and ultimately contributing to the company’s insolvency. The respondents contested the claims, asserting that their actions were in the best interest of TIL and were based on plausible commercial judgment.

The court scrutinized the legal principles related to fraudulent trading and directorial duties. In assessing fraudulent trading, it considered whether the business had been conducted with the intent to defraud creditors or for any fraudulent purpose. The legal test involved examining the director’s actual state of mind, considering objective standards of honesty, and applying the concept of “blind-eye knowledge,” wherein deliberate avoidance of awareness of fraudulent activity is tantamount to knowledge of such activity.

Regarding breach of duty, the court addressed the directors’ obligations under the Companies Act 2006, underlining the requirement to act in good faith in the best interests of the company and its creditors, especially when a company faces insolvency. The duties included acting in a manner likely to promote the success of the company for the benefit of its members as a whole. This subjective test is qualified by the directors’ responsibility to maintain high standards of business conduct.

Outcomes

The court found that both respondents, Gary Booth and Stephen Nicholas, were knowingly involved in the fraudulent trading of TIL. Their actions in refinancing the challenged loans were dishonest, misled the Fund from which the refinancing was secured, and were counter to the interests of TIL and its creditors, including investors in the said Fund. Consequently, a declaration was made under Section 213 of the Insolvency Act 1986 that they should make a significant contribution to TIL’s assets.

Furthermore, the court concluded that the respondents breached their fiduciary duties under Section 172 of the Companies Act 2006. It was established that they failed to act honestly, reasonably, and in the company’s and its creditors’ best interests regarding the Restructured Ramadan Loans.

Conclusion

The Bouchier & Anor v Booth & Anor case underscores the stringent legal scrutiny applied to directors’ conduct, especially in the twilight of a company’s solvency. The court rigorously applied legal standards to ascertain dishonesty and breach of duty, leading to a notable judgment for contributions to the company assets. This judgment amplifies the importance of directors’ duties towards their company and its creditors and solidifies the interpretation of fraudulent trading within the ambit of the Insolvency Act and the Companies Act. It is a landmark pronouncement reinforcing directors’ accountability and the repercussions for contraventions of their legal obligations.