Fraudulent trading

Carrying on business with intent to defraud creditors, although a single act could be enough.

This is both a civil and criminal matter. The liquidator can take civil proceedings and the Crown can bring a criminal prosecution.

Any persons knowingly parties to the carrying on of the business can be sued: this is not limited to directors: (I.A. s.213).

Wrongful trading

Where a director allows his company to continue incurring credit at a time when he knows or ought to know that there was no reasonable prospect of the company avoiding insolvency liquidation, he can be ordered to pay compensation to the company representing the additional credit incurred.

This is a civil matter and only a liquidator can bring the claim. It applies also to shadow directors. There is a defence of taking every step to minimise loss to creditors.

Preference

Where a company does anything or allows anything to be done which puts a creditor (or guarantor) in a better position in the event of an insolvent liquidation than he would otherwise have been: (I.A s.239).

Where the creditor is not connected with the company, a preference claim can only be brought where the transaction occurred within six months before the start of the liquidation.

The period is two years where the creditor is a connected person. In that case, preference is presumed and the burden of proof is on the creditor to show that he has not received a preference.

Transaction at undervalue

An administrator or liquidator can apply to the court to unravel a transaction at an undervalue. The test is whether the company receives payment for an asset or where the payment was significantly less than the value of the asset.

Such a transaction can be attacked if it takes place within two years before the start of the liquidation or administration and the company was insolvency at all times or became so as a result.

Setting aside floating charges

Where a floating charge is given by the company within 12 months before the on-set of insolvency (or two years with a connected person) it will be invalid except to the extent that value was given for it.

Misfeasance/breach of duty

Directors owe duties to the company. Where a director has been in breach of duty, and the company goes into liquidation the liquidator may bring a claim in misfeasance to compel the director to repay, restore or account for the company’s money or property concerned: (I.A. s.212).

This section applies to any person who has taken part in the management of the company and is not limited to the company’s registered directors.

Transactions defrauding creditors

Where a director has entered into a transaction at an undervalue with the intention of putting assets beyond the reach of a person who is making a claim against him.

The court can make whatever order it sees fit to restore the position to what it would have been had the transaction never occurred (I.A. s.423).