Wrongful Trading Claims: Defence Strategies That Win

Tue, 09 Jun 2026 08:55:14 GMT

Few insolvency allegations place directors under more pressure than a wrongful trading claim. The financial risk can be devastating, especially where a liquidator or litigation funder alleges that a company continued trading long after insolvency became unavoidable.

Claims of this type are often accompanied by threats of director disqualification, personal contribution orders and aggressive litigation tactics. Where the proceedings are being pursued by Manolete Partners PLC or another insolvency litigation funder, directors quickly discover they are dealing with highly experienced professional claimants.

However, these cases are defendable.

Simon Burn Solicitors successfully represented director Robin Ellis in a High Court wrongful trading trial brought by Manolete Partners PLC, where claims exceeding £6.5 million were dismissed. That case remains one of the leading modern examples of a director successfully resisting a major wrongful trading action at trial.

This article explains:

how wrongful trading claims arise,
what liquidators and Manolete must prove,
the most effective defence arguments,
how courts assess directors’ conduct, and
what lessons can be learned from the Robin Ellis judgment.

Understanding Wrongful Trading

Wrongful trading is governed by section 214 of the Insolvency Act 1986. The legislation allows a liquidator to pursue directors personally where a company continued trading after the point at which insolvent liquidation became unavoidable.

Unlike fraudulent trading, wrongful trading does not require dishonesty. A director may face liability even where they acted honestly and believed they were trying to save the business.

The issue for the court is whether the director knew — or should have realised — that there was no realistic prospect of avoiding insolvency.

To establish liability, a claimant generally needs to prove:

the company entered insolvent liquidation;
there was a point before liquidation when continued trading had no reasonable prospect of success; and
the director failed to take appropriate steps to minimise losses to creditors.

If successful, the court can order directors to contribute personally towards creditor losses.

The Legal Standard Applied to Directors

Wrongful trading cases involve both subjective and objective standards.

The court considers:

what a reasonably diligent director would have understood in the circumstances; and
the actual knowledge, experience and expertise of the particular individual involved.

This distinction is important. Courts are likely to expect significantly more from:

finance directors,
qualified accountants,
insolvency professionals, or
experienced serial directors,

than from inexperienced founders or genuinely non-executive directors.

The court examines matters such as:

management accounts,
cashflow forecasts,
creditor pressure,
HMRC arrears,
professional advice received,
board discussions, and
steps taken once financial problems became apparent.

The “Every Step” Defence

Section 214(3) provides directors with a statutory defence.

Even where insolvency was unavoidable, a director may avoid liability if they can demonstrate that they took every step they reasonably should have taken to reduce losses to creditors.

The wording matters.

Courts have repeatedly confirmed that “every step” sets a demanding standard. It is not enough for directors merely to show they acted reasonably in general terms. The court expects evidence of active and continuing efforts to minimise harm.

Examples may include:

seeking specialist insolvency advice,
monitoring financial information carefully,
reducing creditor exposure,
preserving company assets,
pursuing refinancing or restructuring,
documenting board decisions, and
placing the company into a formal insolvency process promptly when rescue efforts fail.

In practice, documentary evidence is often decisive. Directors who fail to keep proper records can struggle even where sensible decisions were actually made.

Why Manolete Partners Changes the Risk Landscape

Historically, many liquidators lacked funding to pursue complex director claims. That position changed with the rise of insolvency litigation funders.

Manolete Partners PLC

Manolete purchases insolvency claims from officeholders and pursues litigation directly against directors. The company’s business model is based on acquiring claims cheaply and attempting to recover substantially larger sums through settlement or litigation.

As a result:

more directors are being sued,
claims are pursued more aggressively,
litigation is better funded, and
settlement pressure is far greater than in traditional insolvency disputes.

Manolete regularly pursues:

wrongful trading claims,
breach of fiduciary duty claims,
preference claims,
unlawful dividend allegations, and
misfeasance proceedings.

Directors facing correspondence from Manolete should treat matters seriously from the outset.

The Robin Ellis High Court Victory

One of the most important modern wrongful trading decisions is:

Manolete Partners Plc v Ellis

Simon Burn Solicitors acted for Robin Ellis throughout the proceedings.

Background

Bright Future Software Limited operated as a socially focused technology and training business aimed at supporting young people in deprived communities. The company received support connected to the Regional Growth Fund and had involvement from professional advisers including KPMG.

Robin Ellis was a minority investor and non-executive director. He invested approximately £2 million personally into the business and ultimately lost the entirety of that investment.

The company later entered creditors’ voluntary liquidation.

Manolete subsequently acquired the claims from the liquidators and alleged that Mr Ellis should have ceased trading over a year before liquidation occurred.

The £6.5 Million Allegation

Manolete argued that by January 2015 the company had no reasonable prospect of avoiding insolvent liquidation.

They alleged that continuing to trade after that date caused creditor losses exceeding £6.5 million.

The claim proceeded to a full High Court trial in the Chancery Division in March 2020.

Counsel for Mr Ellis was Michael Green QC of Fountain Court Chambers, now Mr Justice Michael Green KC.

Why the Court Rejected the Claim

The court dismissed the wrongful trading allegations entirely.

A central issue was Mr Ellis’s role as a genuinely non-executive director with no operational involvement in day-to-day management.

The judge accepted that:

Mr Ellis was not running the business,
he relied on information provided by management and advisers,
there were no obvious indicators that liquidation was inevitable at the alleged trigger date, and
imposing personal liability in those circumstances would be unjust.

The judgment contained an important observation:

“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 wrongful trading claim failed completely.

Although a smaller preference claim succeeded, the overwhelming majority of Manolete’s case was defeated.

Key Defence Strategies in Wrongful Trading Cases

1. Challenging the Trigger Date

The alleged “trigger date” is often the most important issue financially.

Claimants usually attempt to identify the earliest possible date on which directors should have ceased trading. The earlier the date, the larger the alleged increase in creditor losses.

Defence teams frequently focus on demonstrating that:

restructuring remained viable,
investment discussions continued,
refinancing was realistic,
management information was incomplete, or
professional advisers still believed rescue was achievable.

Even moving the trigger date forward by several months can dramatically reduce liability exposure.

2. Demonstrating Active Loss-Minimisation

Courts look carefully at director conduct after financial distress becomes apparent.

Helpful evidence may include:

insolvency advice,
turnaround plans,
negotiations with HMRC,
restructuring discussions,
redundancies or cost reductions,
efforts to secure investment, and
detailed board minutes.

The stronger the paper trail, the stronger the defence.

3. Distinguishing Executive and Non-Executive Roles

Not every director has the same operational control.

A director with no practical involvement in management may be in a substantially different position from:

managing directors,
finance directors,
shadow directors, or
controlling shareholders.

The Robin Ellis judgment illustrates how courts may approach genuinely non-executive directors.

4. Attacking Quantum Calculations

The amount claimed is often heavily disputed.

Liquidators and litigation funders frequently rely on:

estimated deficiency calculations,
disputed tax liabilities,
retrospective accounting assumptions, or
simplified methodologies.

Expert accountancy evidence can significantly reduce alleged losses even where some liability exists.

5. Limitation and Procedural Defences

Some claims are issued years after the liquidation.

Where assignments, investigations or proceedings are delayed, limitation issues may arise. Procedural weaknesses in the assignment of claims can also become relevant in Manolete litigation.

Wrongful Trading and Director Disqualification

Wrongful trading allegations often overlap with director disqualification investigations.

The Insolvency Service

The Insolvency Service may rely on the same allegations when pursuing proceedings under the Company Directors Disqualification Act 1986.

This creates two separate risks:

personal financial liability, and
disqualification from acting as a director.

Directors facing both civil proceedings and regulatory investigations require a coordinated defence strategy.

Frequently Asked Questions

Is wrongful trading a criminal offence?

No. Wrongful trading is a civil claim under the Insolvency Act 1986. However, the financial consequences can still be severe.

Can directors become personally liable?

Yes. Courts can order directors to contribute personally towards creditor losses arising from continued trading.

What is the difference between wrongful and fraudulent trading?

Wrongful trading concerns negligence-type conduct where directors should have recognised insolvency was unavoidable.

Fraudulent trading requires dishonesty or intentional deception and carries potentially criminal consequences.

Can non-executive directors be sued?

Yes. However, the court will consider their actual role, knowledge and level of management involvement.

Does taking professional advice help?

Very often, yes. Independent insolvency or restructuring advice can be critical evidence that directors acted responsibly.

Speak to Specialist Wrongful Trading Solicitors

Wrongful trading litigation is highly technical and often financially overwhelming for directors. Early strategic advice can fundamentally change the outcome of a case.

Simon Burn Solicitors has over 20 years’ experience defending directors against:

wrongful trading claims,
Manolete litigation,
insolvency officeholder actions, and
director disqualification proceedings.

The firm successfully defended the £6.5 million wrongful trading claim brought against Robin Ellis in the High Court — one of the most significant director defence victories against Manolete to date.

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

defending-liquidators

Wrongful Trading Claims: Defence Strategies That Win