The Court of Appeal has knocked nearly £600,000 off the damages owed by two former directors who raided their insurance brokerage's client money account, ruling that the trial judge went too far by pinning years of the firm's ordinary trading losses on their fraud.
The judgment, handed down on 31 July by Lord Justice Snowden, with Lord Justice Peter Jackson and Lord Justice Bean agreeing, picks up a case Insurance Business UK has already covered, from the high court's original fraud findings through to the FCA's move to ban both men. What's new here is a much narrower, and more useful, answer to a question that comes up in every fraud case: once you've proven someone's a crook, how much of the mess that followed do they actually have to pay for?
None of the underlying facts changed on appeal. Alec Finch and his son Bob ran AFL Insurance Brokers, a wholesale broker placing risk into the Lloyd's market, until Alec sold a 58% stake to Next Generation Holdings in September 2017 for just over £2.1m. His Honour Judge Johns KC found at trial that between 2011 and 2017 the Finches had been dipping into AFL's client money account to cover the firm's own bills, then covering it up with fake accounting entries so the business looked healthy enough to sell. By the time of the sale, the hole in the client account had grown to £3.51m.
That much stood. So did the finding that the Finches deceived the buyer and breached their duties as directors under section 172 of the Companies Act 2006. What got thrown out was Judge Johns's method for working out what AFL itself – the brokerage, as opposed to the buyer – was owed.
Judge Johns had used the size of the client money hole as a stand-in for AFL's trading losses before the sale, then piled several more years of post-sale losses on top. His logic: the whole rotten setup, the reason AFL kept trading instead of folding, came from the fraud. That got him to £7.1m in trading losses alone, on top of the damages already awarded to the buyer.
Lord Justice Snowden wasn't having it, though he didn't disagree with a single fact. Trading losses, he pointed out, are just what happens when a broking business doesn't bring in enough money to cover its costs. That's a normal commercial risk, fraud or no fraud. Nobody had even argued the Finches ran the actual broking business badly. What they did was narrower: take money that belonged to clients and use it to keep the lights on. The direct result of that, the court said, is a duty to pay the money back – not a blank cheque for every loss the company racked up afterwards.
Think of it like the difference between driving without a licence and driving badly. An unlicensed driver doesn't have to pay for every crash that happens on their watch, only the ones their driving actually caused. Ignoring the client money rules is the 'no licence' bit here. AFL's trading losses were more like bad weather: they'd have shown up whoever was behind the wheel.
The trial judge had borrowed his approach from wrongful trading cases under section 214 of the Insolvency Act 1986, where directors can be made to pay up if they kept a company trading after insolvent liquidation became a sure thing. The Court of Appeal said that comparison just doesn't work here. AFL never went into an insolvency process, and section 214 doesn't stop directors trading while insolvent; it only bites if things go wrong later and they carried on anyway.
The judgment leans hard on the supreme court's 2022 ruling in BTI 2014 LLC v Sequana SA, which says directors only have to start thinking about creditors once insolvency is known or likely, and even then, trading on isn't automatically wrong. Nobody had argued the Finches breached that 'creditor duty', so the court said it was wrong to charge them as if they had.
Using the ordinary rules on legal causation, the kind laid out in SAAMCO and the older Court of Appeal case of Galoo v Bright Grahame Murray, Lord Justice Snowden decided AFL's trading after the sale, including a genuinely profitable 2020, had nothing to do with the earlier fraud once new management took over. The fraud gave AFL 'the opportunity' to keep going instead of collapsing in 2014, the court said, but an opportunity isn't the same as a cause.
Once the disputed trading-loss figures were stripped out, the court settled on £3,668,135: the £3.51m client money hole itself, plus £158,135 AFL spent investigating the fraud, which the judges accepted was a direct result of the wrongdoing. AFL also doesn't have to hand back credit for the £2.85m it later made selling parts of the business, since the court decided that sale was too far removed from the original fraud to count against the award.
Net result: AFL's damages drop by £598,994, taking the total owed to the brokerage and Next Generation Holdings jointly to £5,525,436.02. The separate award to Next Generation Holdings, for being tricked into buying the shares in the first place and later having to pump capital into AFL, isn't touched by any of this.
This ruling is only about the civil damages fight between AFL and its old directors. It doesn't touch the FCA's own action against the Finches. Back in July, the FCA said it planned to ban both men from financial services, on the back of the same high court findings, for failing to act with honesty and integrity. Therese Chambers, the FCA's joint executive director of enforcement and market oversight, said at the time that the Finches were 'the driving force behind every part of this serious fraud'. Neither man was fined; both showed a penalty would cause serious financial hardship, though the FCA said it would otherwise have hit Alec Finch with £121,200 and Robert Finch with £169,800.
None of that's final yet either. Both Finches have taken their decision notices to the upper tribunal, so the FCA's findings are still provisional until that plays out. There is no public hearing date, and it isn't clear whether anyone plans to push this Court of Appeal ruling any further. Given how fresh the judgment is, it's worth checking BAILII or the tribunal's own listings closer to the time, in case anything has moved on.
The interesting bit here isn't the size of the numbers, it's the logic underneath them. The court has drawn a much sharper line than usual between two things fraud cases tend to lump together: money stolen in breach of trust, which a wrongdoer just has to pay back, and the everyday losses of a struggling business, which the law won't pin on a fraudster unless there's a genuinely direct link.
That distinction has legs well beyond this one case. AFL's collapse comes down to the same failure that keeps cropping up in Insurance Business UK's coverage of client money problems at other broking firms: not keeping client premium separate from the firm's own cash, which CASS 5 of the FCA handbook exists to stop. Whenever that surfaces – whether through insolvency, an acquisition gone wrong, or the regulator stepping in – this ruling gives buyers, insurers and administrators a much clearer idea of what they can actually claim once the fraud is out in the open, and what just has to be chalked up as bad luck that happened to arrive at the same time.
A client money hole is recoverable in full. The years of trading losses that came after it might not be. If due diligence turns up a misappropriation, don't assume every bad year that follows can be blamed on the fraudster – you need a direct link, not just a 'well, it wouldn't have happened otherwise'.
Keep warranty claims split from the start. Lumping client money restitution and ordinary trading losses into one number, which is what happened at trial here, is exactly the kind of thing a court can cut down on appeal.
New management doesn't rewrite the past, but it does draw a line under it. The court treated the change of control at AFL as the moment responsibility for how the business traded afterwards passed away from the old directors – worth keeping in mind when mapping out the timeline of a claim after a deal.
