View/Open - Research Commons - The University of Waikato

tendency of the court to insist on the higher criminal standard. 69 A liquidator or
creditor who wished to bring an action under fraudulent trading had to be able to
prove „dishonesty‟ which was one of the main elements of fraud, in order to
succeed. 70 The insistence by the court on proving dishonesty was due to the
criminal element of the section and this had hindered actions from being brought
to courts. 71
The Cork committee also found that the section was inadequate to provide
compensation in situations where the person involved was not dishonest, but
merely reckless or negligent. 72 In other words, the emphasis on dishonesty was
essential to punishing the offender, but it was not appropriate for civil
compensation because creditors could not recoup their losses. 73
The Cork Committee made two proposals in respect of the fraudulent trading
provision; namely, the criminal elements of the section should be maintained and
the introduction of a new civil liability called „wrongful trading‟ should be
introduced. 74 As a result of the recommendations, a new wrongful trading
provision was enacted in section 214 of the Insolvency Act 1986 and section 213
of the Insolvency Act 1986 deals with fraudulent trading. The legislature,
however, did not follow the recommendation that fraudulent trading should only
be applicable to criminal liability. The civil aspect of fraudulent trading is
69 See for example the decision of Pennycuick V-C in Re Maidstone Buildings Provisions Ltd
[1971] 3 All ER 363 at 369 where the judge referred to the Halsbury’s Law of England (3 rd
ed.) p415 , para 631 “It is a general rule that penal enactments are to be construed strictly, and
not extended beyond their clear meaning. At the present day, this general rule means no more
than that if, after the ordinary rules of construction have first been applied, as they must be,
there remains any doubt or ambiguity, the person against whom the penalty is sought to be
enforced is entitled to the benefit of the doubt.‟
70 Cork Report above n5 at [1776].
71 Ibid.
72 Ibid, at [1777].
73 Ibid.
74 Ibid, at [1778].
244