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trading at a deficit. 64 In other words, as soon as the company‟s accounts indicate
deficit figures, it is a reasonable ground for directors to „suspect‟ that the
company may be insolvent. 65 Hence, they have to act cautiously and any action
on their part to resuscitate the company at that point by incurring debts could
open them to liability.
Directors in New Zealand confronting a similar situation, may still be able to
engage in trading without incurring liability as long as it does not create
substantial risks to creditors. The term „substantial risks‟ mentioned in the
reckless trading provision implies a higher threshold compared to mere suspicion
in Australia. In the UK, the condition that the directors had knowledge or ought
to have had knowledge to conclude that there was no reasonable prospect for the
company to avoid insolvent liquidation, seems to indicate that substantial risk
alone is not sufficient, but knowledge is also essential.
10.3 Duty of Directors under the UK Law
The directors‟ liability for fraudulent trading in the UK was originally stated in
section 275 of the Companies Act 1929. 66 The provision was later amended and
incorporated in section 332 of the Companies Act 1948. 67 Section 332 of the
1948 Act maintained the provision in section 275, except in relation to who can
be made liable. 68 The original version in section 275 imposed liability on
„directors whether past or present‟ whereas section 332 applied to „any person‟.
The Cork Committee, which was responsible for reviewing the UK insolvency
law, found several deficiencies in respect of fraudulent trading in the Companies
Act 1948. The section comprised both civil and criminal liability and there was a
64 Austin above n34 at [20-120] and T.E Cooke and Andrew Hicks 'Wrongful Trading-Predicting
65 Ibid.
Insolvency' (1993) JBL 338 at 340-342.
66 Cork Report above n5 at [1758].
67 Cork Report above n5 at [1775].
68 Ibid.
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