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the business with intent to defraud and when directors know by carrying on the
business, creditors‟ rights will be prejudiced.
10.3.1.4 Fraudulent Trading under Section 993 Companies Act
2006
Fraudulent trading under section 993 of the Companies Act differs from that in
section 213 in certain aspects. First, section 993 carries criminal liability and,
therefore, the person who breaches this section will be subjected to imprisonment
not exceeding ten years, or a fine or both. 119 Second, the section has a wider
application because it is not limited to situations where the company is in
liquidation only 120 . The interpretations of the section are similar to its civil
provision because the wording of the section is identical, but the standard of
proof in the criminal standard is that of proof beyond reasonable doubt.
10.3.2 Wrongful Trading under Section 214 Insolvency Act 1986
The wrongful trading provision in section 214 was introduced as a result of the
recommendations made by the Cork Committee. The aim of the section is to
impose liability on directors who fail to protect creditors when the company is
insolvent. It contains preventative elements, since directors have a duty to ensure
wrongful trading does not occur when the company is insolvent. Nevertheless,
the requirement that the section can only be invoked when the company is in
liquidation limits its effectiveness.
The duty is imposed on the basis that when the company is insolvent, the
company is trading with creditors‟ money and therefore the duty should shift
from shareholders to creditors. This is because directors are only liable if the
company is in liquidation, which means it is already too late to salvage the
119 Section 993(3) (a) of the UK Companies Act 2006.
120 Section 993(2) of the UK Companies Act 2006.
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