Next Generation Holdings Limited & Anor v Alec Finch & Anor

A director does not, without more, owe a fiduciary duty to prevent a company from trading at a loss or while insolvent. The wrongful-trading regime in section 214 of the Insolvency Act 1986 does not itself create such a duty.

For tortious damages, and for equitable compensation for a fiduciary breach not involving misapplication of trust property, a loss must be legally attributable to the breach. A mere but-for connection is insufficient. Where directors cause a company to misapply client money, the directly caused loss is the company’s liability to restore the trust fund. Underlying trading losses are not recoverable merely because concealment allowed the business to continue trading.

Next Generation Holdings Limited acquired a majority shareholding in Ambon Brokers Limited from Alec Finch in 2017. Ambon Brokers and its purchaser alleged that Alec Finch and Robert Andrew Finch had misused client money, concealed the resulting deficit through false accounting, and induced the share purchase by fraud.

After a three-week trial, the High Court found the Finches liable for fraudulent misrepresentation, breach of warranty, breach of directors’ duties and unlawful means conspiracy. It awarded Ambon Brokers damages that included pre- and post-acquisition trading losses: [2023] EWHC 2383 (Ch).

Permission was granted on one issue only: whether those trading losses were caused in law by the proved wrongdoing.

The appeal was allowed in part. Snowden LJ, with whom Peter Jackson and Bean LJJ agreed, held that the award to Ambon Brokers for trading losses had been based on an erroneous approach to causation.

1. The Finches’ relevant wrongdoing was causing Ambon Brokers to misappropriate client money held on trust and concealing that conduct by false accounting. It was not a breach of fiduciary duty merely to cause the company to trade at a loss or while insolvent. Section 172(1) of the Companies Act 2006 imposed no such general duty. Nor did section 214 of the Insolvency Act 1986 make continued insolvent trading unlawful or create a direct duty to cease trading.

2. The trial judge had treated the client-money deficit as a proxy for trading losses and had reasoned by analogy with wrongful trading. That approach failed to identify the necessary connection between the actual breaches and each head of loss. Legal causation does not make a defendant liable for every consequence that would not have occurred but for the wrongdoing. Liability is ordinarily confined to loss within the scope of the duty and attributable to what made the conduct wrongful.

3. The company’s pre-sale trading losses arose from its underlying commercial transactions, not directly from the Finches’ misconduct. The direct consequence of the misuse of client money was instead Ambon Brokers’ equitable liability to restore £3,510,000 to the client-money accounts. Post-sale trading losses were likewise generated by the underlying business. Continued concealment merely provided the opportunity for the company to keep trading.

4. The investigation costs of £158,135 were directly attributable to the wrongdoing and were recoverable. The proceeds of the 2021 sale of parts of the business did not flow directly from the wrongdoing and were not to be credited against the compensation. The court substituted damages or equitable compensation of £3,668,135 for £7,114,167 in trading losses, reducing Ambon Brokers’ total damages to £5,525,436.02.

• Court of Appeal (Civil Division): Allowed the appeal in part and substituted compensation for the directly caused liability to restore client money and investigation costs: [2026] EWCA Civ 1015 .
• High Court, Business and Property Courts, Business List (ChD): Following a three-week trial, found the Finches liable and awarded damages that included trading losses: [2023] EWHC 2383 (Ch) .