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CHAPTER 10 DIRECTORS’ DUTY TO PREVENT COMPANY
10.1 Introduction
INSOLVENT TRADING
The first effort to address the issue of errant directors was initiated by the Greene
Committee 1 in the UK. The proposed fraudulent trading section was originally
consolidated in section 275 of the UK Companies Act 1929 and later contained in
section 332 after the Act was replaced in 1948. 2 The aim of introducing the
provision was to prevent directors who used their position and knowledge to buy
goods on credit from taking security over those goods. 3 The directors who held
the floating charges then sought to enforce the security by appointing a receiver
and taking the goods out of the reach of other creditors when the company was on
the verge of liquidation. 4
The fraudulent trading provision remained in the UK legislation until 1986, when
the Insolvency Act was introduced. The Cork Committee, which was appointed
to review insolvency law, suggested that civil liability for fraudulent trading
should not be retained, but the suggestion was not taken up. 5 Consequently, civil
liability for fraudulent trading is currently governed by section 213 of the
Insolvency Act 1986 and its criminal aspect is in section 993 of the Companies
Act 2006. The Committee also proposed the introduction of a new provision
called „wrongful trading‟ which covers situations where no fraud or dishonesty
are involved. 6
1 The Greene Committee Report Cmnd 2657 (1926) [ The Greene Committee].
2 Andrew Keay Companies Directors’ Responsibilities to Creditors (Routledge-Cavendish,
London, 2007) at ch 3.
3 The Greene Committee above n1 at [61-62].
4 Ibid.
5 Report of the Review Committee on Insolvency Law and Practice (Cmnd 8558, 1982) at [1779]
[Cock Report].
6 Ibid, at [1777-1779].
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