Starting life as a market trader, Balvinder Shergill went on to run a number of companies, mostly in the furniture business. Two of his early companies used the trading style Houghton Furnishing. After they stopped doing business, Mr Shergill went on to become involved as a director in five other companies. As ICC Judge Greenwood put it, “[A]part from his involvement in relation to the ‘Houghton’ companies, Mr Shergill had, by 2012/2013, acquired some experience as a director of several companies, and of the protection from personal liability that they afforded (or might have seemed to afford) their directors and owners, even where insolvent; in addition, he had acquired personal experience of certain liabilities to HMRC which a company might involuntarily come to owe.”
ICC Judge Greenwood’s judgment in Stacks Living Limited & Ors v Balvinder Shergill & Anor [2025] EWHC 9 (Ch) follows the trial of applications brought by the joint liquidators of two insolvent companies, Stacks Living Limited and Staffs Furnishing Limited, both of which were wound up in 2018 on petitions presented by Stafford Borough Council based on a failure to pay national non-domestic rates tax in respect of trading premises in Stafford which they had used or occupied. Both companies were owned and controlled by Mr Shergill. However, between 17 July 2018-19 October 2018 a Miss Miranda Smith acted as the sole appointed director of Staffs, although it continued to be managed and operated by Mr Shergill as a de facto director during that period. It was during that period, on 21 September 2018, that Stafford Council secured a liability order against Staffs, although by the time it presented its petition in respect of Staffs on 1 November 2018, Miss Smith had resigned.
Mr Shergill and Miss Smith had lived together as husband and wife since about 1987 and had two children.
Stacks and Staffs both carried on business as furniture retailers: there was no real distinction between the businesses. Mr Shergill and Miss Smith, the respondents to the liquidators’ applications, described Staffs as the successor of Stacks. The liquidatorsdescribed one as the phoenix of the other, assuming and carrying on for a short time the failed business of its predecessor before its own business failure.
The liquidators/companies made a number of claims:
(1) Against Mr Shergill alone for fraudulent trading under s 213 Insolvency Act 1986 on the basis that the business of the companies had been carried on with intent to defraud creditors, specifically, the Council and/or HMRC, and that in each case Mr Shergill had knowingly been a party to the business being carried on in that fashion.
(2) Against Mr Shergill and Miss Smith for wrongful trading under s 214 Insolvency Act, contending that from about 31 July 2018, and thereafter, both either knew or (in the case of Miss Smith) ought to have concluded that there was no reasonable prospect that Staffs could have avoided insolvent liquidation or administration, and that neither respondent had taken the steps they ought to have to minimise the potential loss to creditors.
(3) Against Mr Shergill and Miss Smith (in Miss Smith’s case limited to the period of her directorship of Staffs) for misfeasance/breach of duty arising out of:
(a) unexplained and/or otherwise improper or unjustified payments made by the companies to Mr Shergill personally by Stacks, cash withdrawals from the Stacks’ bank account and payments made to various retailers by Stacks;
(b) payments made to Mr Shergill personally by Staffs after the presentation of the winding up petition, so void under s 127 Insolvency Act 1986,
(c) similar payments made to/for the benefit of Miss Smith.
The liquidators’/companies’ claims were resisted. Furthermore, if and to the extent that any of the claims was said to be based on negligence, default, breach of duty or breach of trust, the respondents sought to rely on s 1157 Companies Act 2006, which allows the court to give relief from liability in circumstances where a person has acted honestly and reasonably and ought fairly to be excused. The provision was relied on in particular by Miss Smith, having regard to the circumstances of her appointment and her relationship with Mr Shergill.
It is well known that successful prosecution of a fraudulent trading claim is rare; bringing a wrongful trading claim is also fraught with difficulties, not least in establishing a date by which the respondents should have acted to protect creditor interests. In spite of that, both the fraudulent and wrongful trading claims succeeded in this case. ICC Judge Greenwood concluded that Mr Shergill had operated the business of Stacks, and the subsequent business of Staffs, with intent to defraud the Council and/or HMRC, acting in each case with actual dishonesty and real moral blame such that he was liable to make a contribution to the companies’ assets. In reaching that conclusion he had regard to Mr Shergill’s experience of acting as a director going back to at least 1992, the number of companies with which he had been involved that had been dissolved or gone into insolvent liquidation, in each case leaving liabilities to “involuntary creditors,” and the fact that at least some of the companies had neither assets nor cash that would ever have enabled such creditors to be paid.
“In summary,” he said, “Mr Shergill must have known, and [in] my judgment in fact knew, that neither of the Companies could afford to meet its NDR [council tax] obligations as they fell due, and yet continued to trade at the expense of the Council: he had no real or honest belief that those debts would be discharged and no real expectation of a reduction or discount based on an appeal or otherwise. Indeed, in my judgment, he knew and intended that the Companies’ NDR obligations would not be discharged; his whole intention was to replicate the method employed previously in respect of the ‘Houghton’ companies, incurring but not paying liabilities, and then dissolving or abandoning the company in question before continuing the same business through another newly incorporated ‘phoenix’ company for as long as possible, paying those voluntary trade creditors required for the continuation of the business itself, but not involuntary creditors (except to a very limited extent, in order to prolong the scheme). That course of conduct was dishonest by the standards of ordinary, decent people, and it is highly likely that Mr Shergill himself actually knew that to be so.”
Having regard to the decisions in Re Overnight Ltd (No.2) and Re E-Tel (UK) Limited, ICC Judge Greenwood decided that the contribution payable ought to be compensatory, determined by reference to the degree of the respondent’s responsibility as a knowing party to the fraud for the losses, costs and expenses suffered, which included the costs and expenses of the liquidation.
He was satisfied that the wrongful trading claim had been made out against both respondents. He concluded that Mr Shergill knew from at least 31 July 2018 that insolvent liquidation or administration was the “practically inevitable” fate of Staffs That was the date on which the company was to make an instalment payment to the local authority which it had no prospect of honouring. He accepted that that had no real consequence as to the extent of relief to be granted against Mr Shergill, given the relief already granted against him under s 213, but the judge said, “Had the claim under section 214 stood alone, I would have ordered him to contribute a sum equal to the amount by which the company’s net deficiency as regards unsecured creditors increased between 31 July 2018 and 19 December 2018, the date on which its liquidation began.” As against Miss Smith, he held that the appropriate contribution was the amount by which the company’s net deficiency increased after 31 July 2018 until her resignation from the company on 19 October 2018.
At the time of the trial, Miss Smith had been working in the Children and Families Department of Staffordshire County Council for 21 years. The judge accepted her evidence that Mr Shergill had prevailed upon her to become a director, to which she agreed in spite of misgivings: “[S]he was appointed and knew of her appointment, an appointment to which she agreed; inescapably, she was therefore during that period subject to all the usual duties of a company director,” he said. He declined, however, to reduce the amount of her contribution because of the circumstances in which she was appointed, or by virtue of her role at the company for a number of reasons, ultimately deciding that “to reduce the sum due would be unprincipled – it would be a reduction based on Miss Smith’s failure to know about the company’s affairs, in circumstances in which that failure was part of the very wrong on which her liability was based.” He declined to grant her relief under s 1157 Companies Act in spite of what he described as her honesty, following Lexi Holdings Plc (In Administration) v Luqman, in which Briggs J (as he then was) held that complete inactivity by a director was by definition unreasonable, and precluded reliance on the predecessor provision (s 727 Companies Act 1985).
The misfeasance claims also succeeded, resulting in an order for Mr Shergill to compensate the companies in the aggregate amount of all the payments challenged in the proceedings by the liquidators, and an order for Miss Smith to compensate Staffs in the aggregate amount of the challenged payments made during the period of her appointment as a director.
The modest level of recourse to s 214 Insolvency Act is well known and has even been the subject of academic comment (see, for example, Yatin Arora, “What Went Wrong With Wrongful Trading?” Business Law Review (2022) pp 164-177), and that is even more the case when it comes to s 213. It may be that ICC Judge Greenwood’s decision will encourage more claims under the provisions where the evidence justifies them.