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Energy sector should seek specialist advice to avoid personal liability claims

The UK energy sector is facing seismic changes following the easing of the COVID-19 lockdown with price increases forcing smaller gas and electricity suppliers out of the market.

The constraints of the price cap in the domestic supply of gas and electricity has seen small and medium suppliers fall into Ofgem’s ‘Supplier of Last Resort’ (SoLR) process and enter administration or liquidation.

With energy supplier pressure still causing concern, it is vital that directors of companies who could still be at risk seek advice from insurance specialists to understand the potential for personal liability claims.

The actions of company directors involved in businesses which have entered administration or liquidation will be scrutinised to decide if they could have acted differently to reduce potential losses to creditors. If directors acted cautiously, took advice early, and recorded decisions through regular board minutes, that can form a defence from personal liability claims.

The main potential claims against directors will be brought by the liquidator or administrator and can also be assigned to third parties.

A negative report by administrators and liquidators to the Insolvency Service on the conduct of all directors who have held office in the 3 years preceding the insolvency can lead to the individual being disqualified as a director.

 That would mean an individual can be disqualified from being involved in any way with the promotion, formation, or management of a company without the Court’s permission for up to 15 years.

Potential areas that could trigger personal liability claims include:

Wrongful trading

This claim applies when a company (or an LLP) has gone into an insolvent liquidation or administration at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up or administration.

At the centre of a wrongful trading claim is that before the commencement of the company's liquidation or administration, its director knew or ought to have known that there was no reasonable prospect of the company avoiding insolvent liquidation or administration

Factors a court will examine include objective and subjective tests to determine the knowledge, skill and experience that could reasonably be expected of a person carrying out that function and the knowledge, skill and experience that the individual actually possesses

If found liable, the court can order the individual to contribute to the debts or liabilities of the company

Misfeasance

 A claim for misfeasance is triggered by a breach of the duties held by directors listed in sections 171-177 of the Companies Act 2006 and usually brought together with a claim for wrongful or fraudulent trading, unless you can demonstrate that you acted reasonably and honestly and it would be fair to excuse you from liability.

If found liable for misfeasance the defendant can be ordered to repay any misappropriated money or property to the company, with interest and compensate the company by way of contribution to the company's assets.

Fraudulent trading

Fraudulent trading is a criminal offence and carries criminal sanctions while it can also be subject of a civil claim if the business of the company was found to have been carried on with the intent to defraud creditors, defraud creditors of any other person or business, or for any other fraudulent purpose.

An individual found guilty must compensate for the loss caused by the fraud with the court holding wide raging powers, and the court’s powers.

The W Denis dedicated ProFin team specialises in Management Liability Insurance, including Directors & Officers Insurance, Trustees Liability Insurance, Public Offering of Securities Insurance, Corporate Liability Insurance as well as other types of Professional Liability Insurance.

To discuss this further with an expert at W Denis, please make arrangements with Richard Bowdidge on 0203 713 3982 or at Richard.Bowdidge@wdenis.co.uk and Daniel Moss at daniel.moss@wdenis.co.uk or on 0044 (0)113 2439812

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