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econcile the two judgments with one another; the decisions in Re William C
Leith Brothers Ltd 95 was perceived as too broad while in Re Patrick & Lyon Ltd 96
the construction was too rigid. 97 In Re White and Osmond (Parkstone) Ltd 98
(unreported), an attempt was made by the judge to resolve the two divergent
interpretations of the section. The judge distinguished between situations where
there is a genuine belief that the company‟s fortune can be turned around and
where it is very unlikely that the company will succeed; only in the latter will
there be fraudulent trading. 99
Lord Hoffman in Aktieselskabet Dansk Skibsfinansiering v Brothers 100 referred to
both judgments by Maugham J and Buckley J, and opined that fraudulent trading
could not have been limited to situations mentioned by the two judges only, and
whether directors are dishonest or not should be decided on the basis of the facts
of each case. To do otherwise, the judge reasoned, would be a misuse of
authority. 101 Professor Farrar, on the other hand, expressed his view that the
decisions in Re William C Leith Brothers Ltd 102 and Re Patrick & Lyon Ltd 103
95 (1932) 2 Ch 71.
96 [1933] Ch 786.
97 See John Farrar “Corporate Insolvency Law and the Law” (1976) JBL 214 at 224-225
[“Corporate Insolvency”]; Farrar “Fraudulent Trading” above n78; R.C Williams “Fraudulent
Trading” (1986) 4 C&SLJ 14 at 23-24; Keay above n2 at ch 5.
98 Unreported 30 June 1960; See also Keay above n2 at 55.
99 Buckley J stated in his judgment “in my judgment, there is nothing wrong in the fact that
directors incur credit at a time when, to their knowledge, the company is not able to meet all its
liabilities as they fell due. What is manifestly wrong is if directors allow a company to incur
credit at a time when the business is being carried on in such circumstances that it is clear that
the company will never be able to satisfy its creditors. However, there is nothing to say that
directors who genuinely believe that the clouds will roll away and the sunshine of prosperity
will shine upon them again and disperse the fog of their depression are not entitled to incur
credit to help them over the bad time”
100 [2001] 2 BCLC 324 at 332-333.
101 [2001] 2 BCLC 324 at 332-333.
102 (1932) 2 Ch 71.
103 1933] Ch 786.
249