Wrongful & Fraudulent Trading
1. Fraudulent Trading:
a. S. 213, Insolvency Act 1986
b. Criminal Offence: S. 993, Companies Act 2006
c. ‘Intent to defraud’:
i. ‘real dishonesty according to current notions of fair trading’ (Re
Patrick)
ii. Extensive trading when clear company could not meet its debts (Re
William)
iii. Company life intentionally prolonged in the knowledge that liabilities
would not be met (Carman)
iv. Issuing statements to support its subsidiary was not fraudulent (Re
Augustus)
o Letters of comfort have no contractual effect but hold a moral
responsibility only (Kleinwort)
v. Not fraudulent trading where directors tried to circumvent rules while
insolvent by setting up a new company and transferring assets and
liabilities (Morphitis)
o S. 216, Insolvency Act: prohibition of directors of a company
from being involved for 5 years in the management using
same/similar name
vi. Difference between fraudulent transaction (e.g. misled about age,
capacity and delivery of a vehicle) vs fraudulent trading (Murray-
Watson)
vii. Taking advanced payments from creditors, knowing it could not repay
debts (Re Gerald Cooper)
d. Punitive element?
i. Yes (Re William)
ii. No (Bernasconi)
e. Who may be liable?
i. Company’s secretary may be liable for fraudulent trading (Re
Maidstone)
ii. Fraudulent trading can apply against a creditor who refrained from
pressing repayments knowing that the business was being carried on
in fraud (Cooper Chemicals)
iii. Employee turning a blind eye to fraudulent conduct (Morris)
iv. Knowledge of fraudulent purpose where assisting insolvent
companies in a missing trader fraud (Alpha Sim)
f. Contribution measured:
i. Apportion degree of loss between different defendants according to
level of involvement in their conduct (Re Overnight)
g. Extra-territorial effect:
i. Includes international elements; English court involved when an
English company is winding up, claims worldwide jurisdiction (Jetivia v
Bilta)
2. Wrongful Trading:
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1. Fraudulent Trading:
a. S. 213, Insolvency Act 1986
b. Criminal Offence: S. 993, Companies Act 2006
c. ‘Intent to defraud’:
i. ‘real dishonesty according to current notions of fair trading’ (Re
Patrick)
ii. Extensive trading when clear company could not meet its debts (Re
William)
iii. Company life intentionally prolonged in the knowledge that liabilities
would not be met (Carman)
iv. Issuing statements to support its subsidiary was not fraudulent (Re
Augustus)
o Letters of comfort have no contractual effect but hold a moral
responsibility only (Kleinwort)
v. Not fraudulent trading where directors tried to circumvent rules while
insolvent by setting up a new company and transferring assets and
liabilities (Morphitis)
o S. 216, Insolvency Act: prohibition of directors of a company
from being involved for 5 years in the management using
same/similar name
vi. Difference between fraudulent transaction (e.g. misled about age,
capacity and delivery of a vehicle) vs fraudulent trading (Murray-
Watson)
vii. Taking advanced payments from creditors, knowing it could not repay
debts (Re Gerald Cooper)
d. Punitive element?
i. Yes (Re William)
ii. No (Bernasconi)
e. Who may be liable?
i. Company’s secretary may be liable for fraudulent trading (Re
Maidstone)
ii. Fraudulent trading can apply against a creditor who refrained from
pressing repayments knowing that the business was being carried on
in fraud (Cooper Chemicals)
iii. Employee turning a blind eye to fraudulent conduct (Morris)
iv. Knowledge of fraudulent purpose where assisting insolvent
companies in a missing trader fraud (Alpha Sim)
f. Contribution measured:
i. Apportion degree of loss between different defendants according to
level of involvement in their conduct (Re Overnight)
g. Extra-territorial effect:
i. Includes international elements; English court involved when an
English company is winding up, claims worldwide jurisdiction (Jetivia v
Bilta)
2. Wrongful Trading:
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