Professional advice taken by a beleaguered businessman as his luxury sporting goods company slipped into insolvency was instrumental in the High Court's decision to clear him of allegations that he breached his duties as a director.

Shortly before the company went into liquidation, with a deficiency of more than £740,000, the businessman transferred its stock, equipment and other assets to an associated company for an agreed price of £56,400. The second company also subsequently became insolvent.

The first company's liquidator argued that the transaction was at an undervalue and that the businessman had breached his duty under the Companies Act 2006 to employ reasonable care, skill and diligence in promoting the company's success. The liquidator claimed that the company's creditors had suffered a loss of around £26,000 and argued that the businessman should personally make good that sum.

However, in exonerating the businessman, the Court noted that it was an important factor that he had taken professional advice before entering into the transaction. He had acted honestly and reasonably and had obtained no personal benefit. The liquidator, who the Court found was present when the transaction was entered into, had not objected at the time. The price agreed for the transfer of the assets was in any event a reasonable one and the creditors had suffered no additional loss as a result.

If you or your company are finding it difficult to pay your debts as they become due, take advice promptly. Following the correct procedures is important as the strict rules in insolvency law are tough on those who do not.

For further information on this article and other insolvency matters, please contact Leanne Schneider-Rose on 0121 698 2200, email l.schneider-rose@sydneymitchell.co.uk or fill in our online enquiry form.

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