Gibraltar: A Warning To All Directors - Is The New Insolvency Act Relevant To Me?

Last Updated: 27 October 2011
Article by Gemma Arias

The 5th September 2011 saw the dawn of a new era for insolvency practitioners in Gibraltar. Much awaited legislation in the field of insolvency was finally passed and a new regime for both personal and corporate insolvency has been put in place.

The question many may ask is – how is this relevant to me and my practice if I am not insolvent? The answer is that the Insolvency Act 2011(the "Act") is highly relevant, particularly to any business which may be on the brink of insolvency. It is also extremely relevant to any individual or business providing directorship services to any company which may be technically insolvent. It is important to bear in mind that the Act allows the Court to look back as far as two years in some instances to determine whether an act done by the company was an unfair preference or a transaction at an undervalue. Therefore, insolvency does not have to be an imminent possibility for the Act be relevant.

The impact of the Act goes beyond mere insolvencies though. Companies that are looking to borrow money and as therefore granting a floating charge over their assets will have to give some thought to how, in the worst possible case scenario, the matter of insolvency should be handled. The floating charge itself will determine what remedies may be available to creditors in the case of an insolvency.

Below we will analyse one of the many ways in which the Act changes the responsibilities of company directors. This Article will focus on Insolvent Trading, but there are also provisions relating to transactions at an undervalue, fraudulent preferences etc., which will also be very relevant to company directors.

Insolvent Trading

Under the Act the liability for a director in the case of a company nearing insolvency may be quite severe. It goes without saying that if it can be proven that a director has been fraudulently trading it follows that the repercussions are quite severe and may include criminal convictions. This is both reasonable, to be expected and applauded.

The problem is that the director may be guilty of Insolvent Trading (pursuant to section 260 of the Act) without necessarily realising that he is. If a director, prior to the commencement of the liquidation of the company "knew or ought to have concluded" that there was no reasonable prospect that the company would have avoided going into insolvent liquidation, the director may be found to have breached the provisions of the act in relation to insolvent trading and may be ordered by the Court to make a contribution to the company's assets. This is, unless the Court is satisfied that after he first knew, he "took every step reasonably open to him to minimise the loss to the Company's creditors".

This effectively means that if the director ought to have concluded that the company would go into insolvent liquidation, there may be a personal liability on that director to contribute to the company's assets. This is one of the very few instances in law where the Court is permitted to pierce the corporate veil and make the director personally liable for the liabilities of the company.

The test to determine what the director "ought to have concluded" is both a subjective and an objective test. Normally, a subjective test assists the person who is seeking to rely on it, but, in my opinion, this is not the case in this instance. The Act states that the test of what the director ought to have concluded is that which a reasonably diligent person having both:

  1. The general knowledge, skill and experience of a person carrying out the same functions as are carried out by that director in relation to that company; and
  2. The general knowledge, skill and experience that that director has.

You may therefore begin to understand why the subjective element is not particularly helpful in these circumstances. What the Act is effectively saying is that a director is assumed to have the general skill and experience of another director in the same circumstances AND the information and experience which the relevant director has. Effectively this demands a minimum standard of competence from the director of a company. Although no director will be expected to be Warren Buffet, a director will be deemed to have the skill of a reasonably competent director.

This may seem perfectly reasonable but a director cannot fall back and argue that he did not open an attachment to an email (to give but one example), and as a result was unaware of the cash flow situation of a company. If the information was in the director's possession or was readily available to the director it will be deemed that he ought to have known.

Once an Order has been made by the Court pursuant to section 260 of the Act, the Official Receiver may apply to the Court for a Disqualification Order which prohibits the director from providing directorship services for a specified period of time. The consequence of Insolvent Trading are therefore both personal liability and the possibility of a Disqualification Order being made against the director.


Although UK Courts have been unwilling to enforce similar provisions against directors of UK Companies without good cause, the fact remains that these provisions are in place. The Act can be seen to be very creditor friendly as would be expected in cases of insolvency, where the Court is looking to protect the interests of the creditors of the company and not those of the shareholders. Directors should therefore bear these provisions in mind and be alert (though not paranoid!) to the possibility of an insolvent liquidation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions