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Hindsight
Note, in particular, the comments
in Sherbourne Associates concerning dangers inherent in the
use of hindsight. This familiar theme through-out the reported
cases was summarised recently by Laddie J in Re: Living Images
Limited (1996) BCC 112 (at 116H):
"I should add that the Court must
also be alert to the dangers of hindsight. By the time an
application comes before the Court, the conduct of directors
has to be judged on the basis of statements given to the official
receiver, no doubt frequently under stress, and a comparatively
small collection of documents selected to support the official
receivers and respondents respective positions. On the basis
of this the Court has to pas judgment on the way in which
the directors conducted the affairs of the company over a
period of days, weeks or, in this case, months. Those statements
and documents are analysed in the clinical atmosphere of the
courtroom. They are analysed, for example, with the benefit
of knowing that the company went into liquidation. It is very
easy therefore to look at the signals available to the directors
at the time and to assume that they, or any other competent
director, would have realised that the end was coming. The
court must be careful not to fall into the trap of being too
wise after the event."
Professor Goode (Principles of
Corporate Insolvency Law (1997) (2nd Edn)) summarises the
position as follows:
"It is necessary to be particularly
cautious in applying hindsight to cases involving personal
liability, eg, for wrongful trading, or the setting aside
of a preference. Business life is neither static nor certain.
Information has constantly to be updated, predictions made
about a range of uncertain events, snap judgements formed,
rapid decisions taken and adaptations continually made in
the light of shifts in customer demand, tax changes, industrial
actions, political events, international relations, and the
like. Just as it is all too easy for historians to pick their
way leisurely across the battlefields of Waterloo identifying
Napoleons errors in the confusions engendered by blazing guns,
cavalry charges, mud, darkness, uncertainty as to the current
arrivals or dispositions of troops and ignorance of the intentions
of the enemy, so also a professional acquainted with subsequent
events in a companys life is all too readily beguiled into
the view that he would have done things differently, that
what is now apparent was obvious from the start.
It is submitted that where the
question is whether a director ought to have concluded that
there was no reasonable prospect of the company avoiding insolvent
liquidation (a question which arises in proceedings for wrongful
trading under S.214 of the Insolvency Act 1986) the directors
reliance on a reasonable accounting view that if the company
did go into liquidation its assets would be sufficient in
value to cover its liabilities and the expenses of winding
up should suffice to render him or her immune from liability,
even if in the event the assets realise a much lower figure
than estimated, with the result that at the time of liquidation
the company in fact has an asset deficiency."
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