Defending a Wrongful Trading Claim: What Directors Need to Know (Including How We Won a £6.5M Case)

A wrongful trading claim is one of the most serious allegations a company director can face. The financial exposure can run into millions of pounds. The personal consequences — including director disqualification — are severe. And if the claim is funded by a litigation funder like Manolete Partners, you are up against an opponent with effectively unlimited resources and a professional team that pursues these cases every day.

The good news: wrongful trading claims can be won. We know this because we have done it.

In 2020, our firm successfully defended director Robin Ellis against a wrongful trading claim brought by Manolete Partners PLC at a full High Court trial. Manolete was claiming over £6.5 million. The judge dismissed the wrongful trading claim in its entirety.

This guide explains what wrongful trading is, who brings these claims, how they are defended, and what the Robin Ellis case teaches directors facing similar circumstances.

What Is Wrongful Trading?

Wrongful trading is a civil liability created by section 214 of the Insolvency Act 1986. It is not a criminal offence, but the financial consequences can be ruinous.

The Legal Test

A director becomes liable for wrongful trading when:

 1. The company has gone into insolvent liquidation, and
2. At some time before the winding up commenced, the director either knew or ought to have concluded that there was no reasonable prospect of the company avoiding insolvent liquidation.

If the liquidator establishes both elements, the court may order the director to contribute personally to the company's assets — effectively making them personally liable for the increase in the company's net deficiency from the point they should have stopped trading.

The test under section 214(4) is both subjective and objective. The court asks what a reasonably diligent person with the general knowledge, skill and experience both expected of someone in that role, and actually possessed by that particular director, would have known. This matters enormously in practice: an experienced finance director is held to a higher standard than a founder with no financial training.

The "Every Step" Defence — Section 214(3)

There is a statutory defence at section 214(3). A director will not be held liable if the court is satisfied that, after the point at which they knew or ought to have known that insolvent liquidation was unavoidable, they took every step with a view to minimising the potential loss to the company's creditors as they ought to have taken.

The courts have made clear this is a high hurdle. In Grant v Ralls [2016] EWHC 243 (Ch), the High Court confirmed that the wording "every step" must be construed strictly — it is not enough to have taken some steps, or reasonable steps. The defence requires the director to demonstrate comprehensive, documented action directed at minimising creditor losses.

What constitutes "every step" depends on the circumstances, but typically includes:

 - Taking independent legal or financial advice
- Convening board meetings to assess the position and document the analysis
- Exploring all restructuring options before accepting insolvency
- Reducing exposure to creditors where possible
- Initiating a formal insolvency process promptly once rescue is not viable

Documentation is critical. A director who took the right steps but cannot prove it is in a very difficult position.

What the Court Can Order

If wrongful trading is established, the court has wide discretion under section 214 to order the director to contribute "such sum as the court thinks proper" to the company's assets. In practice, courts calculate the increased net deficiency in the company's assets between the trigger date (when the director should have stopped) and the date of liquidation. The larger the gap, and the longer the period of continued trading, the higher the exposure.

Who Brings Wrongful Trading Claims?

The Liquidator

The primary route is via the liquidator, who has standing to bring wrongful trading proceedings under section 214. In many cases, liquidators lack the funds to pursue litigation and the claim goes uninvestigated. That has changed dramatically with the advert of litigation funding.

Manolete Partners PLC

Manolete Partners PLC is an AIM-listed litigation funder that specialises in buying insolvency claims from liquidators. Their business model is straightforward: they acquire claims at a discount from the liquidator, pursue the director at their own cost and risk, and retain a significant share of any recovery.

Manolete can pursue wrongful trading claims where the company entered liquidation on or after 1 October 2015. Since that date, their claim volume has grown substantially year on year. A director who receives correspondence from Manolete is dealing with a professional litigation machine backed by unlimited funding.

The Insolvency Service

Separately, the Insolvency Service can pursue wrongful trading allegations as part of director disqualification proceedings under the Company Directors Disqualification Act 1986. A finding of wrongful trading in disqualification proceedings does not automatically create civil liability, but the two sets of proceedings often run simultaneously and on the same underlying facts.

If you are facing both a litigation or Manolete civil claim and a Section 16 letter from the Insolvency Service, your strategy must be coordinated across both fronts.

The Robin Ellis Case — How Simon Burn Solicitors Won a £6.5M Trial

Manolete Partners Plc v Ellis [2020] EWHC 1674 (Ch), 26 June 2020

The Robin Ellis case is the defining example of what a wrongful trading defence looks like when it succeeds — all the way through to a full High Court trial judgment.

The Company and the Director

Bright Future Software Limited (BFS) was a socially worthwhile venture: a software developer, service provider and trainer aimed at providing employment and training in technology to young people in deprived areas of the North West of England. It was supported by a grant and loan from the Regional Growth Fund and had the involvement of KPMG.

Robin Ellis was Ms Thompson's partner. He was a minority shareholder and had been appointed as a non-executive director of BFS. Critically, he had no involvement in the running of the business on a day-to-day basis. He invested approximately £2 million of his own money into the venture — money he lost entirely.

BFS entered creditors' voluntary liquidation in February 2016. The liquidators identified claims against both Ms Thompson and Mr Ellis. Manolete acquired those claims in October 2017.

The Claim

Manolete's case was that Mr Ellis should have stopped the company trading from 31 January 2015 at the latest — more than a year before the actual liquidation. On the basis of that trigger date, they calculated that the company's deficiency to its creditors had increased by over £6,569,168 in the intervening period.

The Trial

The trial took place in March 2020 before Mr Richard Spearman QC, sitting as a Deputy High Court Judge in the Chancery Division. Simon Burn Solicitors acted for Mr Ellis throughout, with Michael Green QC of Fountain Court (now the Honourable Mr Justice Michael Green KC) as counsel.

The Judgment

Mr Spearman QC dismissed the wrongful trading claim in its entirety.

His reasoning centred on the fundamental unfairness of holding a non-executive director personally liable in the circumstances:

**"It would, in my judgment, be very harsh on Mr Ellis if he were held liable for wrongful trading on the facts of this case."**

The court found that:

 - Mr Ellis had no involvement in the day-to-day running of the business
- Those around him — including professional advisers connected to the Regional Growth Fund and KPMG — gave no indication that there were grave concerns as to BFS's solvency as at the alleged trigger date
- In those circumstances, it could not be said that Mr Ellis knew or ought to have known that insolvent liquidation was unavoidable as at the date Manolete asserted

The breach of duties claim was also dismissed. The only award made was on the preference claim — £188,769 — a fraction of Manolete's overall claim.

The 5 Most Common Wrongful Trading Defence Arguments

1. The Company Was Not Actually Insolvent at the Alleged Trigger Date

Manolete and liquidators will assert a trigger date — the earliest date from which they say the director should have known insolvency was unavoidable. That date determines the quantum of liability. Pushing the trigger date later is often the most valuable thing a defence team can do, since it directly reduces the period of alleged continued trading and therefore the maximum exposure.

2. The Director Took Every Step to Minimise Losses — Section 214(3)

Even where the trigger date is not in dispute, the section 214(3) defence can succeed. A director who can demonstrate that, from the trigger date, they actively sought professional advice, explored restructuring options, reduced trading exposure and initiated formal insolvency as soon as it became the appropriate course, will have a powerful defence.

3. The Director Was Not Involved in Management

As Manolete v Ellis demonstrates, non-executive directors, nominee directors and minority shareholders who had no real involvement in the day-to-day management of the company are in a categorically different position to executive directors running the business.

4. The Claimed Loss Period Is Overstated — Expert Evidence Challenge

Manolete's deficiency calculations are frequently challenged. Courts have demonstrated willingness to scrutinise these figures carefully, and expert evidence that undermines the methodology — or identifies that HMRC assessments or other third-party figures used in the calculation are unreliable — can dramatically reduce the quantum, even where some liability is found.

5. Limitation — The Claim Is Out of Time

Wrongful trading claims by liquidators are subject to limitation. Where an assignment to Manolete is delayed, or where Manolete did not commence proceedings promptly after acquiring the claim, limitation arguments may arise.

How Wrongful Trading Interacts With Director Disqualification

A wrongful trading finding in civil proceedings is one of the most serious forms of conduct that can underpin a director disqualification under the Company Directors Disqualification Act 1986.

More commonly, the same underlying facts — a company that traded into insolvency despite the director's knowledge — will be used by both Manolete (in civil proceedings for financial recovery) and the Insolvency Service (in disqualification proceedings for regulatory purposes). These two sets of proceedings run simultaneously and on closely related evidence.

Directors who face both a Manolete claim and a Section 16 letter from the Insolvency Service should instruct a firm that handles both practice areas.

Frequently Asked Questions

What is the difference between wrongful trading and fraudulent trading?
 

Wrongful trading under section 214 is a civil liability based on negligence — the director should have known the company had no prospect of avoiding liquidation. Fraudulent trading under section 213 requires dishonest intent and carries criminal as well as civil consequences.

Can a non-executive director be liable for wrongful trading?
 
Yes — but the standard applied reflects their actual knowledge, skill and experience, and their actual level of management involvement. As Manolete v Ellis demonstrates, a genuinely non-executive director with no involvement in day-to-day management is in a significantly stronger position than an executive director.

What happens if the liquidator or Manolete wins?
 
The court can order the director to contribute personally to the company's assets (or to pay Manolete money) — potentially millions of pounds. In addition, a wrongful trading finding almost always leads to director disqualification proceedings by the Insolvency Service.

Next Steps

Wrongful trading claims can be won. The Robin Ellis case proves it. But the defence must be built on the right forensic strategy, the right expert evidence, and the right specialist legal team — from day one.

Facing a wrongful trading claim? Call Simon Burn Solicitors for a confidential case assessment.

Call :  01242 228444
Email : simon.burn@simonburn.com

Simon Burn Solicitors — over 20 years defending directors against wrongful trading claims, Manolete proceedings and director disqualification. The only UK firm to have won a £6.5M High Court wrongful trading trial against Manolete Partners.