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as he can show that he honestly believes that his act is for the benefit of the
company. 223
The provision on fraudulent trading was first introduced in the Companies Act 1929
(UK) as a result of the Greene Committee‟s finding on the likelihood that the
floating charge holder, who was in control of the company which was on the verge
of liquidation, would realise his security ahead of other creditors. 224 The fraudulent
trading provision was one of the devices aimed at fraudulent and dishonest directors
and promoters. 225 The provision imposed both civil and criminal liability on the
persons who were carrying on the company‟s business with intent to defraud
creditors. 226 The difficulty with this provision in terms of implementation was that
the liquidator has a high standard of burden of proof and this provision was limited
to only situations where the company was in liquidation.
Australia inherited the same problem because it adopted the same provision. The
fraudulent trading provision was first enacted in Queensland and later followed by
other states. 227 Although Australia later developed its own legislation which had
separate provisions on criminal offences and civil liability in respect of directors
incurring debts in insolvent companies, the basis of the provisions remained similar
to the UK. The Act stipulated that enforcing civil liability against the director would
depend on his conviction for the related criminal offence. 228 The problem with this
requirement was the high standard of proof in criminal offences and this could be
difficult to discharge. 229 Consequently, the civil liability provision was seldom used
223 Re Smith & Fawcett Ltd [1942] 1 All ER 542, Re W. & M. Roith Ltd [1967] 1 W.L.R 432.
224 Cork Report n 74 above at [92].
225 Holdsworth A History above n147 at 60.
226 Ibid at [1758].
227 ALRC R45 above n95 at [278].
228 Ibid, at [279]
229 Ibid.
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