Restructuring & Insolvency

Written by Will Beck

Key developments in 2024

2024 has seen one of the most significant insolvency cases in recent years.  In June, Justice Leech handed down his judgment on the claim brought by the liquidators of BHS against certain of its former directors for wrongful trading and misfeasance.  This judgment is likely to have important consequences for the D&O market.

It was particularly noteworthy as it was the first time that the directors of a company had been found guilty of the novel claim of 'misfeasant trading'.

Once it becomes probable that a company will enter insolvent administration or liquidation (or the company is insolvent or is bordering on insolvency), the directors, when seeking to fulfil their duty to promote the success of the company, increasingly have to consider the interests of the company's creditors as well as its shareholders.

Should a court determine that this creditor duty is engaged, and the directors have failed to properly consider their duty to creditors and continued trading the company at a time when they objectively should have put it into administration or liquidation, then they could be at risk of being found liable for misfeasant trading.  The liability trigger for misfeasant trading can arise at an earlier time than that for wrongful trading – i.e. before the insolvency of the company has become inevitable.

Any director found guilty of misfeasant (or indeed wrongful and/or fraudulent trading) can be required to contribute personally to the assets of the company.  This was starkly demonstrated in the BHS case where the directors were ordered to pay compensation in the region of £110 million.

Importantly, from a D&O perspective, the Court also held that it would have not been prepared to reduce the level of the awards made against the directors to reflect any deficiency in their D&O cover.  As such, we would expect that, post-BHS, directors will be increasingly concerned to ensure that D&O cover is obtained which is adequate to cover their potential risk exposure.

What to look out for in 2025

The economic outlook for 2025 remains uncertain. 

The inflation rate rose in October by more than expected to 2.3%, with warnings that the cost of living crisis is not yet over.  And whilst the number of registered company insolvencies in England and Wales in that month was less than in October 2023, they are still at a much higher level than that seen both during the COVID-19 pandemic and between 2014 and 2019.

Indeed, in the past few months, there have been a number of very high-profile insolvencies including ISG, Homebase and TFI Friday's.  This suggests that, across various sectors such as construction, hospitality, retail and leisure, conditions remain challenging for many companies.  The burden of increased costs, pressures in supply chains and managing, and potentially needing to refinance, high levels of debt are continuing to make trading difficult for some businesses. 

We therefore expect that the R&I market will remain busy for the foreseeable future and that further high-profile insolvencies are sadly inevitable.  This, in turn, is likely to lead to more claims being made against D&O and trade credit policies.

It will be important therefore for the insureds under those policies to keep a close eye on their trading counterparties to look for any possible signs that they may be in financial difficulty and to seek to mitigate their potential exposure.  This could include, for example, seeking shorter payment terms or requesting payment upfront from their customers, obtaining improved termination rights which can be exercised pre-insolvency and strengthening any retention of title provisions in their applicable contracts.

Explore Annual Insurance Review 2025