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section on fraudulent trading 236 in the Companies Act 1948 contained both civil and
criminal elements and,, as previously, the court had always focused on the criminal
aspect of the provision and insisted that the liquidator discharge a high burden of
proof. 237 This could have resulted in deterring the liquidator from bringing many
potential cases to court and the delinquent directors being able to escape liability. 238
When the Cork Committee was appointed, provisions on creditors‟ protection had
been identified as one of the areas which needed reform. 239 In making
recommendations, the committee emphasised that the new law must strike a balance
between the rights of an honest prudent businessman and the rights of creditors to
recover their money. 240
236 Malaysia also inherited the same defects in section 304(1) of the Malaysian Companies Act 1965,
the usage of the words „intent to default creditors of the company or creditors of any other person
or for any fraudulent purpose," resulting in the court using beyond reasonable doubt as the
standard of proof. The standard of proof for fraud in civil cases in Malaysia is beyond reasonable
doubt - Saminathan v Pappa [1981] 1 MLJ 121, Eastern & Oriental Hotel (1951) Sdn Bhd v
Ellarious George Fernandez [1989] 1 MLJ 35, Lee Wai Fay v Lee Seng Ein [2005] 4 MLJ 701.
237 Re Patrick Lyon [1933] Ch 786 at 790-791 to establish intent it has to be shown “actual dishonesty
involving according to current notions of fair trading among commercial men, real moral blame.”
238 Cork Report n 74 above at [1776].
239
Ibid at [241]; The complaints received by the Committee in respect of the inadequacy of creditor‟s
protection in the law included:
a) the unsatisfactory positions regarding parent‟s company liability for the debt of an insolvent
subsidiary;
b) the law of fraudulent preference which imposes a high burden on the liquidator;
c) the inadequacy of the fraudulent trading provisions to constraint dishonest and delinquent
directors; and
d) the inadequacy of the law prohibiting directors of failed companies from becoming directors
of another company too soon after their failures in previous companies.
240 The committee proposed that there should be two separate provisions on director‟s liability and
suggested that the criminal aspect should be retained in the fraudulent trading provision, and a
new civil provision on trading in an insolvent company known as wrongful trading should be
introduced. However, the recommendation that fraudulent trading should not contain a civil
element was not adopted. The provision on fraudulent trading retained both the civil and criminal
element though they are now dealt with in two separate sections, namely section 213 of the UK
Insolvency Act 1986 which deals with civil liability, while section 458 of the UK Companies Act
1985 covers criminal liability. A new wrongful trading provision which is also a civil liability is
governed under section 214 of the UK Insolvency Act 1986.
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