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Malaysia did not make any changes on this area and still retains the fraudulent
trading provision which is a replica of the UK Companies Act 1948. It also
maintains the insolvency provision adopted from Australia. The Malaysian
Corporate Law Reform Committee (CLRC) had the opportunity to make changes
in 2004 but did not propose any amendments to the section. Also, the
circumstances as to when directors are held to be personally liable are different in
each jurisdiction. It should be noted that the legislation started by imposing
criminal liability with the main focus of punishing the person responsible. In the
succeeding period, the focus shifted to compensating those who suffered losses,
particularly the creditors who are most affected by the directors‟ action. This
change indicates the recognition that other parties in the company also require
protection from the company.
The first section of this chapter will provide comparative analyses of the three
systems, particularly of the elements to be proven in proceedings against
directors. Issues on remedies and the consequences of breaching the sections will
be examined in the next chapter. The section will look at each jurisdiction in
detail and see how the courts interpret the sections. The last section will explore
the Malaysian law in respect of the duty to prevent insolvent trading, and make
suggestions whenever necessary.
10.2 Comparative Aspects
Directors can be subjected to personal liability if they fail to prevent the company
from engaging in insolvent trading. In the UK, the provision which imposes such
an obligation on directors is known as „wrongful‟ trading, 10 „reckless‟ trading 11
(in New Zealand), and „insolvent‟ trading 12 (in Australia). The three provisions
generally impose a duty on directors to prevent companies from engaging in
business activities when the company is insolvent, although the elements which
trigger off such a duty differ from one another.
10 Section 214 of the UK Insolvency Act 1986.
11 Section 135 of the New Zealand Companies Act 1993.
12 Section 588G of the Australian Corporations Act 2001.
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