Page 287 - Microsoft Word - 00 Prelims.docx

Corporate and fraudulent behaviour
Fraudulent and wrongful trading
Fraudulent trading
Definition The company’s business is
carried on with intent to
defraud creditors and other
persons or for fraudulent
purpose.
The offence may be criminal or
civil and could involve just a
single transaction.
Note: there is a high burden of
proof involved in proving
dishonesty.
Who is liable? Any persons knowingly party to
the carrying on of the business.
This applies to persons taking
the decisions or playing an
active part in the business.
Consequences Must contribute to the
company’s assets on a winding
up: s.213 IA86. Up to 15 years’
disqualification under the
Company Directors
Disqualification Act 1986
(CDDA86). Fine and/or
imprisonment for up to 10 years:
s.993 CA06.
Wrongful trading
On winding-up it appears to the
court that the company has
gone into insolvent liquidation
and, before the start of the
winding up, a director knew or
ought to have concluded there
was no reasonable prospect
that company could avoid
insolvent liquidation and did
not take sufficient steps to
minimise potential loss to
creditors: S.214 Insolvency Act
1986 (IA86).
Is a civil offence.
Directors and shadow directors.
Standard applied is that of a
reasonably diligent director
taking the steps expected of a
reasonable director.
Contribute to company’s assets.
Up to 15 years’ disqualification
under CDDA86.
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