Being a company director is not like being a movie director. You don’t get to yell “Cut!” when the bills roll in, the records vanish, and the tax authority shows up with the legal equivalent of a flashlight and a stern eyebrow. The UK High Court’s decision in Stacks Living Ltd & Ors v Shergill & Anor (often shortened in commentary to the “Stacks Decision”) is a practical, plain-English warning: director duties don’t disappear just because you’re inactive, informal, or “only on paper.”

In one of those rare insolvency cases where fraudulent trading and wrongful trading claims actually succeeded, the court zeroed in on two themes that should make any director sit up straighter in their chair:

• Liability can attach to both the hands-on controller and the “sleeping” director who does essentially nothing.
• Poor documentation and thin records don’t just look badthey can actively help a liquidator’s case, because courts may draw adverse inferences when explanations are missing.

This article explains what happened, why the decision matters (especially to directors of smaller companies), and what practical steps reduce riskwithout turning your board minutes into a 400-page fantasy novel nobody reads.

What Happened in the Stacks Case

A “two-company shuffle” in a furniture retail business

The case involved two furniture retailers operating from the same premises and trading in broadly the same way. The companies ultimately ended up in compulsory liquidation after unopposed winding-up petitions were presented by a local authority over unpaid National Non-Domestic Rates (business rates). Commentary on the case also highlights significant exposure connected to tax compliance and recordkeeping failures, including issues around PAYE/National Insurance registration. In other words: the companies were not just financially distressed; they were financially distressed with paperwork problemsa particularly combustible combo.

The cast: the controller and the “director in name only”

Most of the operational control sat with Mr. Shergill. There was also a period when Miss Smith was the sole formally appointed (de jure) director of one of the companies, while the business continued to be run in practice by Mr. Shergill as a de facto controller. This split between “who signs the Companies House forms” and “who actually runs the company” is common in small businessesand it’s exactly the kind of arrangement that courts and liquidators scrutinize when things go wrong.

The claims: a triple hit (plus a bonus round)

The liquidators pursued multiple routes to personal liability, including:

• Fraudulent trading (Insolvency Act 1986, s.213) against the main controller.
• Wrongful trading (s.214) against both individuals (in relation to one of the companies), focused on when they knewor should have knowninsolvent liquidation was unavoidable and what steps they did (or didn’t) take after that point.
• Misfeasance / breach of duty style allegations, including unexplained payments, cash withdrawals, and failures to safeguard company assets.
• Void dispositions issues (s.127) were also discussed in commentary, reflecting the risk of payments being challenged after a winding-up petition is presented.

The defendants attempted to rely on statutory relief arguments that can sometimes protect directors who acted honestly and reasonably. The court’s response, in essence, was: honesty is not a magic cloak of invisibility, and inactivity is not a strategy.

Why the Stacks Decision Hit a Nerve

1) Fraudulent trading can be built from a pattern, not a cartoon-villain confession

Fraudulent trading claims are famously difficult. Courts don’t hand them out like participation trophies. That’s why this case stands out: the court was persuaded that the way the business was carried on showed an intent to keep trading while effectively stiffing “involuntary” creditors (like a local authority or tax authority), while still paying the “voluntary” creditors needed to keep the lights on.

The practical takeaway is uncomfortable but important: you don’t need a single dramatic act to create fraud risk. A sustained approachincurring liabilities you don’t realistically expect to pay, repeating the same playbook across company iterations, and failing to back up explanations with recordscan be enough to convince a court that the conduct crossed the line.

2) Wrongful trading is not just for “active” directors

Wrongful trading turns on a key idea: once a director knew (or ought to have concluded) there was no reasonable prospect of avoiding insolvent liquidation, the director must take every step to minimize losses to creditors.

Stacks is a sharp reminder that the “ought to have concluded” piece is not a polite suggestionit’s the court applying an objective standard. If you were appointed as a director, you are expected to do at least the basics: understand what the company does, how it pays its bills, what it owes, and whether it’s heading off a cliff.

In the case commentary, one of the strongest themes is the court’s insistence on an irreducible duty to inform yourself “at least to some extent” about the company’s affairs. In simple terms: you can delegate tasks, but you can’t delegate responsibility.

3) Records are not just adminthey are your reality check (and your defense)

Courts make decisions based on evidence. If the evidence is thin, courts still have to decideand they may draw adverse inferences. In Stacks, commentary highlights the emphasis placed on missing documentation, absent explanations for transactions, and lack of contemporaneous records to justify decisions or payments.

Translation: when your documentation is poor, the court may treat your story like a group chat screenshot that’s missing three key messages. The court can’t see what you “meant,” so it focuses on what you didand what you can prove.

Director Liability, Plain-English Edition

Let’s strip the jargon down to something usable.

Directors have duties in good timesand sharper duties in bad times

Under UK company law, directors owe duties to the company. But when insolvency is on the horizon, creditor interests become crucial. Insolvency law then provides specific tools (like wrongful trading) that can impose personal liability where directors fail to respond appropriately as financial distress becomes unavoidable.

That’s why Stacks matters: it’s not a niche technical dispute. It’s a practical case about what happens when directors:

• continue trading while liabilities mount,
• fail to maintain basic records,
• can’t explain where money went, and
• treat “director” like a title rather than a job.

Relief defenses existbut they are not a free pass

UK law gives courts discretion to relieve a director from liability in some circumstances if the director acted honestly and reasonably and ought fairly to be excused. Stacks illustrates a hard limit: if the conduct involves dishonesty, relief is out. And even if you are personally honest, complete inactivity can still be unreasonable, particularly where even basic steps would have revealed the company’s position.

Similarly, directors sometimes rely on the idea that they took steps to minimize creditor losses. The Stacks commentary suggests the court was not impressed where the evidence of those steps was absent or where the overall conduct contradicted the claim.

Practical Lessons for Directors (Including “Paper Directors”)

If you want a one-sentence takeaway, it’s this: if your name is on the register, your brain needs to be in the building.

Before you accept a directorship, do this 10-minute reality check

1. Ask for current management accounts (or at least bank statements and a simple cashflow summary).
2. Ask what the company owes to tax authorities, landlords, lenders, and key suppliers.
3. Confirm who controls the bank account and who approves payments.
4. Confirm what records exist (accounting system, invoices, payroll records, tax filings).
5. Get clarity on your role: what decisions you’re expected to make, what information you’ll receive, and how often.

If any of those questions get you vague answers, jokes, or “don’t worry about it,” that’s not reassuranceit’s foreshadowing.

The recordkeeping survival kit (aka “How to Avoid Becoming Exhibit A”)

Stacks reinforces a simple truth: you don’t need perfect records, but you do need credible records. For many small companies, the following is enough to dramatically reduce personal risk:

• Monthly cashflow snapshot (what comes in, what must go out, what’s left).
• Creditor list that includes “involuntary” creditors (tax, business rates, regulators).
• Board notes/minutes that show what was considered and why decisions were made.
• Evidence of professional advice (and how you acted on it).
• Clear explanations for payments, especially related-party payments, cash withdrawals, or unusual transfers.

And yes, “board minutes” are called minutes even when the meeting takes an hour. No, this is not a conspiracy by the clock industry.

When trouble hits, focus on creditor-loss minimization

Wrongful trading risk increases when insolvency becomes unavoidable and directors fail to act. Practical steps often include tightening spending, improving visibility of the company’s financial position, stopping non-essential payments, documenting key decisions, and getting appropriate restructuring or insolvency advice early.

Important: This is not legal advice, and directors should get qualified UK insolvency counsel when distress appears. The point is that “doing nothing” is not neutralit is often evidence of breach.

How Liquidators Build These Cases (and Why Missing Explanations Hurt)

Follow the money, then ask: “What was this for?”

In insolvency litigation, liquidators often start with bank statements, receipts, and whatever accounting records exist. If payments can’t be justified as benefitting the company (or, in distress, benefitting creditors), the director may face a steep uphill climb.

Practical commentary connected to Stacks stresses that the burden can effectively shift: if you controlled company money and can’t explain withdrawals or payments, the court may treat that absence of explanation as significant. The takeaway is not “never take a salary.” It’s: make sure every payment has a legitimate basis and a record.

Fraud and misfeasance claims thrive on silence

Silence is not the same as innocence in court. If the company has almost no records, and a director can’t provide credible explanations, the court may infer that the true explanation is not helpful to the director. Stacks is repeatedly described in commentary as a case where the lack of documentation matterednot as a technical detail, but as a key reason the claims succeeded.

What U.S. Readers Should Take Away

If you’re reading this from the U.S., you might be thinking: “We have fiduciary duties toowhat’s special here?” Two things:

• The UK wrongful trading framework is unusually direct. It can impose personal liability for continuing to trade past the point where insolvency is unavoidable without taking every step to minimize creditor loss.
• UK cases can matter for U.S. executives who sit on UK subsidiary boards, act as de facto decision-makers, or accept “honorary” board roles as a favor to a friend or family member.

Cross-border groups sometimes treat subsidiary directorships as administrative. Stacks is a reminder that local law may treat that “admin” role as a serious obligationespecially when the subsidiary is small, informally run, or financially stressed.

A Postscript: Winning the Case vs. Collecting the Money

One more lesson from the broader Stacks saga: even after obtaining judgment, enforcement can get complicatedespecially if a judgment debtor becomes bankrupt. Commentary on the follow-on proceedings discusses how the court considered the interaction between bankruptcy’s effects and enforcement tools like charging orders, including an application route under the Insolvency Act designed to prevent enforcement benefits from being lost purely due to timing.

In other words: accountability doesn’t end at judgment. The “how do we actually recover?” question can become its own mini-series, complete with plot twists and paperwork.

Experiences From the Trenches: What the Stacks Warning Looks Like in Real Life (Approx. )

When people hear “director liability,” they often imagine big corporate scandals, massive boardrooms, and someone dramatically resigning while reporters shout questions. In day-to-day insolvency work, it’s usually far less cinematicand far more familiar. The Stacks Decision resonates because it reflects patterns that show up again and again in smaller, closely held businesses.

First pattern: the “favor directorship.” Someone is asked to become a director because the real controller is busy, disqualified, traveling, or simply doesn’t want their name on the paperwork. The pitch is always friendly: “You won’t have to do anything.” That sentence is basically the opening line of a legal horror story. The job title itself creates responsibilities. If you don’t ask for information, don’t review accounts, don’t check whether taxes are being handled, and don’t understand what the company owes, you’re not protected by your ignoranceyou’re exposed by it.

Second pattern: the shoebox accounting system. In healthier businesses, the shoebox is metaphorical. In distressed businesses, it’s sometimes literal. Records exist, but they’re scattered: a few bank statements, a handful of receipts, maybe an old spreadsheet with columns like “stuff” and “other stuff.” When insolvency hits, the director suddenly tries to rebuild a story about why certain payments were made. The problem is that courts don’t decide cases based on reconstructed memories and good intentions. They decide cases based on evidence. If there’s no contemporaneous record showing why money moved, it becomes much harder to argue the movement was properespecially if the payments look personal or unusual.

Third pattern: paying the “loud” creditors and ignoring the “quiet” ones. In many small businesses, directors keep paying the suppliers who can stop deliveries tomorrow, while unpaid tax and rates are treated like background noise. The business limps along, hoping for a turnaround. The issue is not the hope. The issue is the moment hope stops being reasonable. In the UK, once directors knowor should knowthere’s no reasonable prospect of avoiding insolvent liquidation, the duty to minimize creditor losses becomes the center of gravity. Paying only the creditors needed to keep trading can look, from the outside, like trading at the expense of everyone else.

Fourth pattern: “minutes” written after the fact. Some companies only start documenting decisions once trouble arrives. Suddenly, there are beautifully formatted “board minutes” that read like a novel written by a committee of cautious lawyers. Courts can spot that vibe. A short, honest note made at the timewhat the cash position was, what liabilities were due, what advice was received, what options were considered, and why a decision was madeoften carries more credibility than a polished document created months later to defend a lawsuit.

The practical lesson from Stacks, viewed through these real-world patterns, is not “be perfect.” It’s “be real.” Be informed. Be curious. Ask basic questions. Keep basic records. And if you’re being offered a directorship with the promise that you can sleep through it, remember: the court may be happy to wake you up laterat the worst possible time.

Conclusion

The Stacks Decision is a wake-up call because it combines three uncomfortable truths: fraudulent trading can be proven from a sustained course of conduct, wrongful trading can catch even inactive directors, and missing records can make a bad situation much worse. For directors, especially in smaller businesses, the safest path is not complicated: understand the finances, document key decisions, treat tax and public liabilities seriously, and get professional advice early when distress appears.

Disclaimer: This article is for general informational purposes only and is not legal advice. Director liability is highly fact-specificconsult qualified counsel for guidance on your situation.