Director liability in insolvency and its vicinity

Journal article

Under English law, directors’ duties change in the vicinity of insolvency so as to require enhanced regard for creditors’ interests: that is the rule in West Mercia Safetywear v Dodd. This rule is conventionally analysed as a constraint on directors deploying assets in risky ventures in insolvency. However, a review of the case law shows that the rule performs a very different function: the regulation of payments to creditors in the lead-up to insolvency proceedings. On its own, the rule functions as an alternative to a preference action, providing recourse against the director who authorised the payment, rather than against the payee. Combined with accessory liability rules, the rule can also function as a substitute for a preference action, providing a different way of obtaining recourse against the payee. The first of these functions, however, raises a serious remedial problem—acknowledged by the courts—that appears ripe for consideration at an appellate level.

Authors: Van Zwieten, K

• Publication status: Published
• Peer review status: Peer reviewed
• Publisher: Oxford University Press
• Journal: Oxford Journal of Legal Studies
• Volume: 38
• Issue: 2
• Pages: 382–409
• Publication date: 2018-05-07
• Acceptance date: 2018-03-02
• DOI: 10.1093/ojls/gqy013
• EISSN: 1464-3820
• ISSN: 0143-6503
• Language: English
• Keywords: creditor protection; insolvency law; directors’ duties; preferences; company law