Debut Homes Ltd (in liquidation) v Cooper

Debut Homes had unfinished properties, no further bank funding and more liabilities than assets. Mr Cooper chose to complete and sell the remaining homes. He believed this would produce a better overall result than stopping immediately.

The problem was visible in the forecasts. Completing the sales would generate GST that Debut could not pay. The strategy improved some secured positions and reduced guarantees, but it did so while leaving Inland Revenue with a substantial new shortfall.

The Court held that Mr Cooper breached the duties in sections 131, 135 and 136 of the Companies Act. A director's belief that the plan reduces overall loss does not justify a course that knowingly creates obligations the company cannot meet.

The liquidators' appeal succeeded and the High Court's compensation orders were restored.

Mr Cooper's plan was not presented as a gamble for a dramatic recovery. It was a wind-down intended to finish existing projects and reduce the total deficiency. That commercial intention did not answer the statutory duties.

The Court focused on what the plan required Debut to do along the way. The company would incur GST obligations from property sales despite knowing it could not pay them. Completing the work shifted the loss between creditors and improved positions connected with secured debt and guarantees. A director cannot choose that result simply because the overall deficit may be lower.

The distinction is important for small companies. A responsible-looking completion plan can still be unlawful if it depends on one group of creditors funding the outcome without agreement.

One warning sign does not decide liability by itself. Together, they tell the board that continued trading needs a new, evidence-based decision and usually independent professional input.