200. Re Purpoint Ltd, 1991 BCLC 121

Citation:200. Re Purpoint Ltd, 1991 BCLC 121

Rule of thumb:If a organisation has been unprofitable for a sustained period, then does a big marketing push, and it still yields no new business & profits, is the business insolvent? Yes, it is an argument by directors against accusations of wrongful trading that the business was viable & all it lacked was a big marketing push, but, if this marketing push is done, and the business is still unprofitable, then it may be wrongful trading for the organisation to keep trading & keep losing money (which could make the directors personally liable for losses thereafter).

Judgment:

‘the first question is as to the date when Mr Meredith ought to have known that there was no reasonable prospect that the company could avoid going into insolvent liquidation. The latest date is 28 May 1987 when Mr Meredith was warned by Adamsons that if the company continued to trade he might be personally liable for its debts. Nothing that happened thereafter would have given any reasonable director ground for hoping that the company could avoid an insolvent liquidations. I have felt some doubt as to whether a reasonably prudent director would have allowed the company to commence trading at all. It had no capital base... The business it inherited from Winnersh Printing Services Ltd has proved unprofitable... However, I do not think it would be right to conclude that Mr Meredith ought to have known that the company was doomed to end in an insolvent winding up from the moment it started to trade. That would, I think, impose too high a test. Mr Meredith believed that his connections in the advertising and publicity field would enable him to introduce new business and that the failure of the old company had been due to not to any want of skill or organising ability on Mr Froome’s part, but on his inability to attract custom... it should have been plain to Mr Meredith by the end of 1986 that the company could not avoid going into insolvent liquidation. The company could not meet its debts as they feel due. In addition it owed very large crown debts and it had no prospect whatever that it could turn its trading into profit sufficiently quickly to pay them off...’.

Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.