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Articles Banking, Finance & Financial Services 6th Dec 2018

The rule against reflective loss

The rule against reflective loss: A will o’ the wisp? A clown? Or finally pinned down?

Imagine a company has been dishonestly asset-stripped by one of its directors. The assets have gone into his own pocket. The company is wound up. The shareholders and creditors have little hope of recovering much from it. The obvious next step is to pursue the director. But the shareholders cannot recover the loss in value of their shareholding against him; that claim is barred by the rule against reflective loss. Is a claim by an unsecured creditor who is not a shareholder similarly barred? In Garcia v Marex Financial Limited [2018] EWCA Civ 1468, the Court of Appeal held that it was.

Rachel Tandy examines how it reached that decision, and the wider implications for the finance industry.

This article was first published in Butterworths Journal of International Banking and Financial Law and forms part of an ongoing series being written by members of the Henderson Chambers Banking, Finance and Consumer Credit group.

 

 


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