In Next Generation Holdings Ltd & Ambon Brokers Ltd (formerly AFL Insurance Brokers Ltd) v Alec Finch & Robert Finch [2026] EWCA Civ 1015, the Court of Appeal overturned a £7.1m trading losses award against two former directors of a Lloyd's wholesale broker, holding that a fraudster is not automatically liable for all trading losses their concealment allowed to accumulate where those losses arose in the ordinary course of business.

Background: The Finch family and the AFL fraud

Alec Finch and his son Bob ran AFL Insurance Brokers, a wholesale broker placing risk into the Lloyd's market. Between 2011 and 2017, the pair used client money to fund trading expenses (funding the firm's bills) and then covered it up.

A 58% stake in the business was then sold to Next Generation Holdings in September 2017 for just over £2.1m. The falsified financial records ensured that the business looked ‘healthy’ from the outside, but the reality was very different. 

How the scheme was concealed - and discovered

The fraudulent transactions came to the surface in 2020, and Next Generation Holdings Ltd brought claims against the Finches for fraudulent misrepresentation and AFL brought claims for dishonest breaches of directors’ duties under the Companies Act 2006 section 172(1) and for unlawful conspiracy.

The evidence presented to the judge was damning. It included back and forth emails between the pair agreeing to use client money when the business had insufficient funds to meet expenses. One key email was then signed off with "this email will self-destruct in 5 minutes".

What the High Court decided

The trial judge awarded AFL £7.1m in trading losses, reasoning that the Finches' fraud masked AFL's true financial position and allowed it to keep trading and racking up losses it would not otherwise have incurred. Because the fraud enabled the losses, the judge said it was a cause of them.

Interestingly, the trial judge declined to award AFL the £3.5m client money shortfall, on the basis that it was AFL itself that spent the money, so the loss belonged to the clients not to AFL.

What the Court of Appeal decided

The Court of Appeal threw out the trading losses award. Its reasoning, in short:

• Directors do not owe a duty to stop their company trading at a loss or whilst insolvent.
• The correct test is not simply ‘but for the fraud, would these losses have occurred?’ This is too wide. The loss must flow directly from the breach.
• The Finches' actual breach was misappropriating client money and hiding it. It was not mismanaging the business. The trading losses came from how the business performed commercially, not the fraud itself.

However, the Court of Appeal held that AFL's liability to restore the £3.5m to the client accounts was a direct loss caused by the Finches, and awarded it in full, along with the investigation costs.

The £7.1m trading losses award was replaced with £3.6m, representing the client money restoration liability plus investigation costs. AFL therefore did not need to hand back proceeds from the later sale of parts of its business, as that sale was found to be too remote from the original wrongdoing.

The FCA's response

The Financial Conduct Authority (FCA) also weighed in and banned Alec Finch and Robert Finch from performing regulated financial services functions in the UK. The FCA commented that they had "concealed the misuse of client money and overstated the firm’s financial position, leaving AFL burdened with a significant client money deficit". However, no financial penalties were imposed after receiving evidence this would have caused financial hardship. 

Judgment’s impact: Causation, direct loss and trading losses in fraud claims

The decision clarifies causation in fraud cases: a fraudster must repay misappropriated money in full but is not automatically liable for all trading losses their concealment allowed to accumulate, if those trading losses occurred in the ordinary course of business. That distinction will matter to anyone litigating against dishonest directors in FCA-regulated firms.

For practitioners, the practical takeaway is twofold: a client money deficit in a regulated firm can be recovered in full as a direct loss, but ordinary trading losses, even if a fraud kept the business alive long enough to incur them, will not automatically be recoverable.