In Next Generation Holdings Ltd, Ambon Brokers Limited (Formerly AFL Insurance Brokers Limited) v Finch [2026] EWCA Civ 1015, the Court of Appeal considered directors’ duties, causation and loss in claims against the directors of an insurance broker (“AFL”) for breach of their duties under s.172(1) of the Companies Act 2006 and unlawful means conspiracy.
The Finches had caused AFL to misappropriate funds, totalling £3.5 million, from its client money accounts. AFL had used those monies to fund AFL’s trading expenses and losses. As a result, AFL had been able to continue trading for some 3 years, whereas it would otherwise have ceased trading in 2014. After the fraud was discovered, AFL restored the £3.5 million to its client accounts.
AFL issued proceedings against the Finches in 2020.
At first instance, the High Court had held that the Finches had breached their s.172(1) duties by causing the misappropriation and were liable for trading losses suffered by AFL from the time at which it would have ceased trading but for the directors’ breaches of duty.
However, the Court of Appeal confirmed (in a judgment handed down on 31 July 2026) that causing a company to trade whilst the company is insolvent or loss-making is not, of itself, a breach of a director’s s.172(1) duties. Further, the Court held that the directors’ breaches of duty provided the opportunity for, but did not (in a legal sense), cause AFL’s trading losses.
More controversially, the Court held that AFL had nonetheless suffered loss because it was liable to restore the monies which it had misappropriated from its client accounts, and awarded AFL the sum of £3.5 million (amongst other sums).
As is explained further below, this aspect of the decision is inconsistent with an earlier judgment of the Court of Appeal – Afan Valley Ltd v Lupton Fawcett LLP [2026] EWCA Civ 2.
Facts of the case
The Second Claimant (“AFL”) was an FCA-registered insurance broker. Under Chapter 5 of the FCA’s Client Assets Sourcebook, AFL was required to hold client monies on trust in client accounts (separately from AFL’s own money). It was established at trial that between 2011 and 2017, the Finches improperly caused sums totalling £3.5 million to be withdrawn from AFL’s client money accounts to meet AFL’s business expenses and trading losses and caused false entries to be made in the company’s accounting records to cover this up ([2026] EWCA Civ 1015, [12]).
In 2017, Alec Finch sold 58% of the share capital in AFL to the First Claimant (“NGHL”). The trial judge found that the sale was induced by fraudulent misrepresentations made by the Finches ([2026] EWCA Civ 1015, [14]).
The misappropriations from the client accounts came to light in 2020. Thereafter, AFL raised monies in shares and took a loan in order to repay the missing funds. Parts of AFL’s business were then sold and the remainder wound-down ([2026] EWCA Civ 1015, [16]).
AFL and NGHL issued proceedings against the Finches in 2020:
- NGHL brought a claim against AFL for fraudulent misrepresentation.
- AFL brought claims against the Finches for dishonest breaches of their duties under section 172(1) of the Companies Act 2006 and for unlawful means conspiracy. AFL argued that but for the Finches’ breaches of fiduciary duty and/or conspiracy. AFL would have ceased trading by the end of June 2014 and would not have incurred further trading losses after that date, nor the costs of borrowing and recapitalisation to enable it to repay the monies taken from the client account ([2026] EWCA Civ 1015, [21]).
Both claims were successful in the High Court. In relation to AFL’s claim: HHJ Johns KC found that the Finches had breached their duties under s.172(1) of the Companies Act 2006 (to act in the manner in which they considered, in good faith, would be most likely to promote the success of AFL) by using client money to pay AFL’s expenses and liabilities.
AFL’s claim against the Finches for unlawful means conspiracy also succeeded.
The appeal to the Court of Appeal concerned the damages awarded to AFL ([2026] EWCA Civ 1015, [30]).
The findings made by the High Court in relation to that aspect of the claim are set out below.
The damages award in the High Court
HHJ Johns KC’s findings in relation to causation and loss merit close attention. In summary, HHJ Johns KC held that:
- AFL’s trading losses in the period from 2014 – 2017 (and thereafter) flowed directly from the Finches’ wrongdoing as that wrongdoing masked the fact that AFL was not a profitable company and enabled it to continue to trade and make losses. The wrongdoing was therefore a cause of the loss, not simply the occasion for it.
- AFL was therefore entitled to recover its trading losses (in the total sum of £7.1 million).
- AFL had to give credit for the sum it received from the sale of parts of its business ([2023] EWHC 2383 (Ch), [153] – [167]).
- AFL was not entitled to recover the amount the Finches had caused it to misappropriate from its client accounts. HHJ Johns KC said: “The sum of £3,500,000 was … said to be a loss of AFL. I was unable to agree with that insofar as that sum was approached as the amount wrongly taken from the client money account and used by AFL. It seemed to me that money which had been taken wrongly by AFL and spent by AFL could not be regarded as a loss to AFL. It was instead a loss to those properly entitled to that money, being the insurance creditors” ([2023] EWHC 2383 (Ch), [149]).
Crucially, the High Court did not find that the trading losses had been a consequence of any wrongdoing by the Finches in the management of AFL’s business ([2026] EWCA Civ 1015, [51]).
The appeal
The Finches were granted permission to appeal on the ground that the High Court had erred in holding that AFL’s trading losses had been caused by the Finches’ fraud.
The Court of Appeal unanimously upheld the appeal. The only reasoned judgment was given by Snowden LJ, who held as follows:
- “directors do not, without more, owe fiduciary duties not to cause their company to trade at a loss. Nor, without more, do they owe fiduciary duties not to cause or allow their company to trade whilst insolvent” ([2026] EWCA Civ 1015, [35]).
- In a claim for equitable compensation for a breach of fiduciary duty (which does not involve the misapplication of trust property), the court must ask “whether the loss claimed flowed directly from the breach and was attributable to it” ([2026] EWCA Civ 1015, [50]). “But for” causation is insufficient ([2026] EWCA Civ 1015, [47] and [54]).
- AFL’s trading losses did not flow directly from the Finches’ breaches of duty (which included misappropriation of client monies but did not include causing AFL to continue to trade when it was loss-making or insolvent); instead, the profits and losses of AFL “resulted from the way the company conducted its underlying business” ([2026] EWCA Civ 101554]).
- However, the Finches’ breaches of duties caused loss to AFL, in the form of its liability to restore the £3.5 million taken from the client money accounts (together with the costs of investigating the wrongdoing) ([2026] EWCA Civ 1015, [61]).
- It was not “relevant” that AFL’s shareholders had invested and raised money to enable AFL to meet its liability to restore the misappropriated funds to the client accounts ([2026] EWCA Civ 1015, [56]).
- Moreover, the sale of parts of AFL’s business was not legally caused by the Finches’ wrongdoing ([2026] EWCA Civ 1015, [56]).
- The appeal would be allowed but (a) the original damages award would be substituted for damages/equitable compensation for a sum of £3.6 million (representing AFL’s liability to restore the £3.5 million taken from the client money accounts and the cost of investigating the Finches’ wrongdoing) and (b) AFL was not required to give credit for sums it obtained on the sale of parts of its business ([2026] EWCA Civ 1015, [62]).
Discussion
As set out above, the Court of Appeal ruled that causing a company to trade whilst loss-making or insolvent is not of itself a breach of a director’s s.172(1) duty to act in the company’s best interests.
This aspect of the decision is unsurprising. It has previously been observed, in the context of wrongful trading claims against directors under s.214 of the Insolvency Act 1986, that “Directors may properly take the view that it is in the interests of the company and of its creditors that, although insolvent, the company should continue to trade out of its difficulties” (see e.g., Manolete Partners Plc v Robin Josh Lewis Ellis [2020] EWHC 1674 (Ch), [318] – [319]).
What is more surprising, however, is the Court’s decision to award AFL £3.5 million in damages, representing the monies which the Finches caused AFL to misappropriate from its client accounts, which AFL used in its business and which AFL was liable to (and did) restore to its client accounts.
There is very little reasoning to support this aspect of the judgment.
It is well established that, generally, in claims in tort or for breach of contract, a claimant must give credit for gains it has obtained as a result of the defendant’s breach of duty.
This rule was applied in a claim for equitable compensation for a director’s breach of fiduciary duty in Barrowfen Properties Limited v Patel [2025] EWCA Civ 39. The Court of Appeal in Next Generation Holdings also appeared to proceed on the basis that the rule was, in principle, applicable to AFL’s claim for equitable compensation ([56]).
This is in keeping with obiter remarks made by Lord Leggatt in Stanford International Bank Ltd (in liquidation) v HSBC Bank plc [2022] UKSC 34, [58] – [76]).
In light of all this, it is unclear why the Court of Appeal in Next Generation Holdings found, without more, that the liability to restore the £3.5million constituted a loss to AFL in circumstances where, as a result of the Finches’ breach of fiduciary duty, AFL had obtained a sum of £3.5 million for use in its business.
Indeed, the decision is in tension with the reasoning of a differently-constituted Court of Appeal in Afan Valley Ltd v Lupton Fawcett LLP [2026] EWCA Civ 2 in January this year, and that of James Morgan KC in Scenic International Group Ltd v Adenaike [2024] EWHC 2791 (Ch).
In Afan Valley, the claimant company alleged that Lupton Fawcett had failed to advise it investment schemes which the claimant promoted were unlawful. The claimant maintained that properly advised, it would not have received some £68 million from investors and would not therefore have incurred s.26 FSMA liabilities to investors to return their payments to them. In the High Court, the claim was struck out on the basis that the claimant had sustained no loss.
The Court of Appeal upheld this ruling, holding that:
“In assessing damages for the (alleged) legal wrong done to the Claimants one has to compare the position they are in fact in with the position they would have been in had the wrong not taken place. That means comparing (i) the scenario in which the Schemes proceeded, the Claimants received £68m and are exposed to a potential liability to repay the £68m (the actual position); and (ii) the position in which the Schemes did not proceed, the Claimants received nothing in and had no liability under s. 26 FSMA (the position that the Claimants say they would have been in had Lupton Fawcett advised that the Schemes were CISs). It therefore seems self-evident that when comparing the two one has to take into account the fact that although the Claimants are now said to be exposed to a liability to pay £68m which they would not have been, they have also had £68m in which they would not have received; and (subject to the further arguments advanced by the Claimants on this appeal) that means that the Claimants are no worse off in this respect” (Afan Valley, [53]).
Similar reasoning was employed by James Morgan KC (sitting as a deputy high court judge) in a claim against a director for breach of fiduciary duty in Scenic International Group Ltd v Adenaike [2024] EWHC 2791 (Ch). In Scenic International, the claimant company acted as an employer of workers supplied by employment agencies to customers (Scenic International, [11]). The employment agencies paid workers’ wages to the company, and the company was, in turn, responsible for deducting PAYE/NIC and paying the relevant amounts to HMRC. The company received a fee from the employment agencies for its services (which were subject to VAT). The company fraudulently evaded output VAT (due on payments made to it by the employment agencies) and PAYE/NICs from 2017 to 2023. In 2023, HMRC assessed the claimant’s liability for unpaid VAT and PAYE/NICs at approximately £5.6 million.
The claimant brought a claim against its director for breach of his fiduciary duties under sections 171 to 175 of the Companies Act 2006. The Court found that, by causing the company to fraudulently evade VAT and PAYE/NICs, the director had breached his s.172(1) duty to act in the best interests of the claimant company) (Scenic International, [58] – [60]).
The claimant sought to recover its £5.6 million liability to HMRC ([69]). The court held that “the incurring of that liability did not, of itself, cause the Company loss. It was part of a series of transactions that involved it receiving equivalent assets in the form of payments from the employment agencies” (Scenic International, [71]) (emphasis added).
The import of the reasoning in Afan Valley and Scenic International is that where the receipt of monies gives rise to a corresponding liability to pay/repay those sums, that liability will not, of itself, constitute a loss.
Why should this approach not also apply in a case where a director’s breach of fiduciary duty has caused the company to misappropriate (and use for its own benefit) monies belonging to third parties and incur a corresponding liability to repay those sums?
Unfortunately, the Court of Appeal in Next Generation did not grapple with this question.
The Finches acted in person (and it is unclear what, if any submissions, were made to the Court on the issues discussed in this article).
© Melody Hadfield, 4 New Square Chambers, 17 August 2026.
This article is not intended as a substitute for legal advice.
