The case of Stacks Furnishing Ltd v Shergill is a notable example of legal disputes arising in the context of corporate insolvency. This case highlights key principles regarding the duties and obligations of directors during financial distress, the treatment of company assets, and the rights of creditors.

The case is significant for insolvency practitioners as it addresses several critical aspects of insolvency law and offers practical guidance on their responsibilities.

Litigation finance, funding arrangements and insurance allow insolvency practitioners to pursue claims on behalf of their clients whilst reducing financial risks. At Annecto Legal, we can assist clients by helping them secure funding and insurance for insolvency cases.

Stacks Furnishing LTD v Shergill

Starting as a market trader, Balvinder Shergill went on to manage several companies, predominantly in the furniture sector. Two of his earlier ventures operated under the trading name Houghton Furnishing. After these businesses ceased trading, Mr. Shergill became a director of five other companies.

According to ICC Judge Greenwood, “[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.”

The judgment in Stacks Living Ltd & Ors v Balvinder Shergill & Anor [2025] EWHC 9 (Ch) arose from claims brought by the joint liquidators of two insolvent companies, Stacks Living Ltd and Staffs Furnishing Ltd, both wound up in 2018 following petitions by Stafford Borough Council for unpaid national non-domestic rates on trading premises in Stafford. Mr. Shergill owned and controlled both companies, but between July 17, 2018, and October 19, 2018, Miss Miranda Smith was the sole appointed director of Staffs.

However, Mr. Shergill continued managing and operating Staffs as a de facto director during that period. A liability order was secured against Staffs on September 21, 2018, and Miss Smith resigned before the winding-up petition was presented on November 1, 2018.

Mr. Shergill and Miss Smith, who had been in a domestic partnership since 1987 and had two children, were central to the companies’ operations. Both businesses operated as furniture retailers with little distinction between them. While the respondents described Staffs as the successor to Stacks, the liquidators characterised the relationship as a “phoenix” arrangement, with Staffs taking over Stacks’ failed business before itself failing.

The liquidators brought several claims:

Fraudulent Trading
Against Mr. Shergill under Section 213 of the Insolvency Act 1986, alleging he carried on business intending to defraud creditors, particularly HMRC and the Council.

Wrongful Trading
Against both Mr. Shergill and Miss Smith under Section 214 of the Insolvency Act 1986, arguing they either knew or should have known that Staffs had no reasonable prospect of avoiding insolvent liquidation and failed to take necessary steps to mitigate losses to creditors.

Misfeasance and Breach of Duty
Against both respondents for improper payments, including:

• Unjustified withdrawals and payments benefiting Mr. Shergill personally,
• Payments made by Staffs after the winding-up petition, void under Section 127 of the Insolvency Act 1986,
• Payments benefiting Miss Smith during her directorship.

The respondents contested the claims, relying in part on Section 1157 of the Companies Act 2006, which provides relief for honest and reasonable conduct. Miss Smith emphasised her limited involvement, citing her appointment’s circumstances and her reliance on Mr. Shergill.

ICC Judge Greenwood ultimately ruled in favour of the liquidators. Both the fraudulent trading and wrongful trading claims succeeded; a rare outcome given the evidentiary challenges these claims often face. The court found that Mr. Shergill acted with actual dishonesty and moral blame, knowingly operating the companies in a way designed to defraud creditors, including repeating a pattern of phoenixing businesses. Miss Smith, though less involved, was also held liable for her inaction during her directorship.

The court ordered compensatory contributions from both respondents to the companies’ assets. The judgment serves as a critical precedent for insolvency practitioners, potentially encouraging more claims under Sections 213 and 214 where evidence supports them.

Insolvency litigation funding options

Litigation funding, the assignment of claims and/or ATE insurance can play a pivotal role in assisting insolvency practitioners (IPs) in meeting their obligations. Insolvency practitioners involved in insolvency litigation can make use of the following methods:

After-the-event (ATE) legal insurance – ATE insurance is generally used to protect from adverse costs risks & Security for Costs requirements. After-the-event (ATE) legal expenses insurance is perhaps best thought as a similar to a ‘swap’. For either no upfront fee or a small upfront fee, the insurer takes on all of the risk of the potential adverse costs award.

The claimant has swapped their obligation to pay the defendants in the event of a loss, with the obligation to pay the insurer in the event of a win. This ‘swap’ is generally an attractive swap as the client is likely to be in a better financial position following a win than following a loss. Also, the payment to the insurer will only be a percentage of the adverse costs rather than the whole amount.

Third party litigation funding – In some cases, third party litigation funders may be willing to provide funding for a claim in exchange for a share of any financial settlement or damages awarded. This option can be attractive when there are no funds to pursue a strong case. ATE insurance is often used in conjunction with this type of funding.

Assignment of litigation – Some types of disputes can be assigned to a third party, usually for an upfront payment and a share of recoveries (after costs). This model can be useful on smaller cases when the ATE and CFA model would not deliver value. But giving up control can sometimes be costly, especially on larger claim disputes.

How can Annecto Legal assist?

When handling insolvency matters, insolvency practitioners are obligated to explore all options available in such cases. At Annecto Legal, we assist a wide range of clients in finding the appropriate insolvency litigation funding, assignment options and after-the-event (ATE) insurance.

Annecto Legal regularly assists licensed insolvency practitioners who are involved in dealing with insolvency and wrongful trading matters. If you are in the process of bringing or defending an insolvency dispute and want to find out whether we can assist in helping you fulfil your obligations and secure the right deal, then contact Annecto Legal now.