Landmark court ruling could cost directors dear
Banks may soon be calling on directors of insolvent businesses to pay company debts from their own pockets, after a landmark court case.
Link: Row over NatWest insolvency test case
Last Thursday, the High Court, in the case Natwest v Spectrum, upheld the controversial 2001 Brumark ruling, depriving banks of secured creditor status via fixed charges on book debts. An appeal is likely.
Insolvency practitioners warned that the case – which effects hundreds of companies – may lead banks, deprived of their usual means of recouping debt, to target personal guarantors of company loans.
Chris Ashurst, partner at Mazars, said: ‘Banks are in the position to say “Dear Mr Director, we want your cheque please – for the whole lot?”.’
This week it emerged that situation is already occuring. Many liquidators have been denying banks payment for fixed charges on book debts since Brumark, because they feared the involvement of English Law Lords in deciding the New Zealand case meant the ruling applied in the UK.
Julian Dobson, of insolvency solicitors Julian Dobson, said: ‘We had a chap who put his company into liquidation thinking he would be free [because book debts were sufficient to cover his liability]. The liquidators refused to pay out and the bank went after him as a guarantor. Our chap was left filling the sandwich.’
The case ended in a painful settlement. ‘He was not a wealthy man and unless you have bottomless funding no one is going to take on a major clearing bank,’ said Dobson.
