First Compensation Order

First Compensation Order

Posted: 19/02/2020 09:04

In 2015 the Government brought in new legislation to enable The Insolvency Service to seek Compensation Orders against directors of insolvent companies who have been disqualified as acting as a director, and whose conduct has caused a loss to one or more creditors.

Following a recent case, Re: Noble Vintners, the Courts ordered a director to pay £560,000 in compensation to the creditors.

The legal implications for compensation orders are quite unique and there was some debate as to how they would work, and whether they would act in line with the pari passu principle of Insolvency Law, i.e. everyone gets a rateable share depending on the level of their debt.

However, Re: Noble Vintners has cleared up this debate.

The Court indicated that £460,000 could be allocated directly to several creditors; an Order was therefore made that £460,000 should be paid direct to those creditors.

It was Ordered that the balance of £100,000 be paid to the Company for the benefit of the general body of creditors.

The Judge made specific reference in his order that critics had expressed concern that the legislation may cause “disruption of the priorities of distribution …… and the principle of pari passu distribution”. However, the Judge stated that Compensation Orders were focused on the loss caused to specific creditors and that the legislation was therefore “a new, free-standing, regime, and must be interpreted as such”. 

The Insolvency Service has wanted to strengthen the Directors Disqualification regime for several years and is obviously pleased with the outcome of the case.

David Brooks, Chief Investigator for the Insolvency Service, said: “This case illustrates that compensation orders can be a valuable tool for the Secretary of State in seeking recompense for creditors to supplement the recovery actions available to office-holders who have been unable to take recovery action within the insolvency regime.”

It is clear that directors are facing ever greater scrutiny and exposure for their actions; therefore taking appropriate steps and professional advice will become ever more important.  Further information on the Company Director Disqualification Act 1986 can be found here.

If you are a director, your company is in financial difficulty and you would like a free first meeting to discuss your situation please call Chris Parkman on 01326 340579 or email him at chris@purnells.co.uk