Trading While Insolvent

Trading While Insolvent – What Directors Need to Know

Losing Money Isn’t Automatically a Breach of Directors’ Duties, but your conduct still can be.

Next Generation Holdings Ltd, Ambon Brokers Limited (Formerly AFL Insurance Brokers Limited) v Finch [2026] EWCA Civ 1015.

When a company is losing money, directors can quickly feel exposed. Is carrying on trading a bold commercial decision, or a breach of duty waiting to happen?

The Court of Appeal’s decision in Next Generation Holdings Ltd, Ambon Brokers Limited (Formerly AFL Insurance Brokers Limited) v Finch [2026] EWCA Civ 1015 gives some welcome breathing space. It confirms that running a company at a loss, or even while insolvent, is not automatically a breach of directors’ duties. What matters is whether there has been an actual breach, and whether that breach truly caused the loss being claimed.

However, directors shouldn’t be lured into a false sense of security. A director can still be held accountable for breach of duties as was the case here, as the directors’ subsequent actions and response to the insolvent situation was wrongful and resulted in an order for over £3m in damages.

What are directors’ duties?

Directors’ duties in England and Wales are set out in sections 171 to 177 of the Companies Act 2006. In short, they explain how directors are expected to act when running a company. These include, for example, a duty not to act in conflict with the company and to act in its best commercial interests.

That may sound straightforward, but in practice these duties can be difficult to pin down. It is impossible to forecast every action, omission or motive that could occur in the course of business and where they would fall in relation to duties.  Even the courts have acknowledged that there are areas of uncertainty. For example, in BTI 2014 LLC v Sequana SA and Others [2022] UKSC 25, the Supreme Court discussed the uncertainty around section 173 at length, but stopped short of rewriting or providing any further clarification.

If a director does breach those duties, that director may be held accountable and personally liable. ‘Limited liability’, which so many rely on is superseded by accountability. The director may have to compensate the company for losses, account for any profit they made as a result of the breach, or restore property they benefited from. In some cases, the court can also order additional remedies to stop further breaches occurring or to put things right.

It is easy to see why directors may feel uneasy. The rules are important, but they are not always crystal clear. That makes it all the more important for directors to keep an eye on developments and understand what the latest cases mean for them in real life.

The Finch case: what happened?

One key duty, under section 172(1), is for directors to act in good faith and in the interests of the company. This often comes up when a business is struggling financially, particularly where there are concerns about insolvency or continued trading at a loss.

In a recent decision, Next Generation Holdings Ltd, Ambon Brokers Limited (Formerly AFL Insurance Brokers Limited) v Finch [2026] EWCA Civ 1015, the Court of Appeal gave directors some helpful clarity. Snowden LJ made clear that:

“directors do not, without more, owe fiduciary duties not to cause their company to trade at a loss. Nor, without more, do they owe fiduciary duties not to cause or allow their company to trade whilst insolvent”

The court also explained that, where a company claims compensation for a breach of duty, it must show a close enough link between the breach and the loss suffered. If the loss was not caused by the breach, or is too remote of a link, the claim will not succeed.

That is an important point. The decision does not give directors a free pass, but it does confirm that running a loss-making or insolvent company is not automatically a breach of duty. There needs to be more: a specific breach, and a loss that flows from it.

This follows other recent attention on section 172(1). In Saxon Woods Investments Limited and Others -v- Francesco Costa [2026] UKSC 21, the Supreme Court confirmed that a director’s conduct, as well as their motivations, can be considered when deciding whether they have acted in good faith.

What should a director be doing?

So, while Finch is not a dramatic rewrite of the law, it is a welcome reminder that context matters. Directors will be judged by what they have done, why they did it, and whether any claimed loss was properly connected to an actual breach of duty.

One common failure, especially by SMEs who don’t often have the support of a corporate infrastructure, is not maintaining records of decision making and board minutes or sole director resolutions. These can be evidential of your motives, conduct and reasoning, which can help justify a course of action taken and demonstrate your compliance with duties. Without this, there is often a lack of evidence and more sweeping conclusions could be drawn.

Directors’ duties can still feel like a legal maze, but cases like Finch make the path a little clearer. For directors, that means greater certainty. For advisers, it provides a stronger basis for explaining the risks and defending claims where the facts do not support an automatic breach.

Need some guidance?

If you are unsure about your duties as a director, or you are concerned that a director may have breached their duties within your company, or how to keep appropriate minutes and records, Wilson Browne’s Corporate Team can help.

Our corporate team advises businesses at every stage of their journey, from day-to-day decision-making to more complex disputes.

To speak to our team and get clear, practical advice, call 0800 088 6004 and book a free initial call today.