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Landmark ruling expands scope of section 212 Insolvency Act

22nd January 2024

Landmark ruling expands scope of section 212 Insolvency Act

In a groundbreaking judgement, Deputy ICC Judge Agnello KC has recently reshaped the contours of section 212 of the Insolvency Act 1986 (IA 1986).

The case of Kelsall and another v Stajic and another [2023] EWHC 3020 (Ch) not only dismissed the respondent’s strike-out application but also clarified that claims for dishonest assistance can indeed fall within the ambit of s.212, offering insolvency practitioners a more comprehensive avenue for holding individuals accountable for actions detrimental to the company’s interests.

Under section 212 of the Insolvency Act 1986, while not introducing a new statutory liability, streamlines the procedure for officeholders to initiate proceedings. This unique provision allows officeholders to bypass Part 7 of the Civil Procedure Rules, facilitating a more efficient process for holding third-party individuals accountable for actions detrimental to the company’s interests.

Under section 212 (1), a claim can be brought against present or past officers of the company, present or past officeholders, and individuals involved in the promotion, formation, or management of the company. Such claims arise when these individuals misapply or retain company funds or property or are involved in misfeasance or breach of fiduciary duties.

Redefining section 212: dishonest assistance claims

The recent ruling in Kelsall, another v Stajic, and another [2023] EWHC 3020 (Ch) has added a new layer of significance to section 212 by clarifying that claims for dishonest assistance can be pursued under this section. Importantly, this clarification comes without the need to establish misfeasance or a breach of duty by the respondent. The judgement emphasises that a third party engaging in dishonest assistance, aiding a company director in breaching fiduciary or other duties, can be held accountable under section 212.

Contrary to the commonly held notion that a breach of duty by the respondent is mandatory for a section 212 claim, the decision underscores that such a requirement is not essential when pursuing a claim for dishonest assistance. This holds true, provided the respondent falls within the third category outlined in section 212(1) and a breach by the principal fiduciary can be demonstrated.

Implications for UK insolvency lawyers 

The ruling in Kelsall and another v Stajic and another [2023] EWHC 3020 (Ch) marks not only a more inclusive avenue for pursuing claims related to dishonest assistance but also the clarification that claims for dishonest assistance can stand independently of establishing a breach of duty, which broadens the scope of accountability.

Insolvency practitioners are now equipped with a valuable tool to address scenarios where a third party actively aids a company director in breaching fiduciary duties or other duties.

Shaping the future of insolvency cases 

The nuanced interpretation the court provides demands the attention of insolvency practitioners across the UK. This decision not only shapes the current legal landscape but also can potentially influence future cases related to dishonest assistance.

The judgement in Kelsall and another v Stajic and another [2023] EWHC 3020 (Ch) marks a significant development in the interpretation of s.212, and UK insolvency lawyers should embrace this redefined framework as it unveils new frontiers and provides a more comprehensive and nuanced understanding of the legal avenues available in cases involving dishonest assistance. 

As practitioners navigate these uncharted territories, the ruling serves as a catalyst for adapting strategies and approaches to better serve the interests of their clients within the evolving landscape of insolvency law.

If you require advice please contact Chloe Shilton, Associate in our Restructuring & Insolvency team on 01384 327189 or by email at chloe.shilton@higgsllp.co.uk

 

 

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