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A similar issue was raised in the English case of Re Purpoint Ltd 177 ; a wrongful
trading case, where the company had no capital base and its assets were either
purchased by bank loans or acquired by hire purchase. Vinelott J expressed
doubts as to whether a reasonable, prudent director would have allowed the
company to commence trading at all, but refused to conclude that the director
ought to have known the company was doomed from the start. To do that, the
judge reasoned, would have been to impose too high a standard.
Although these two cases are subjected to two different statutes, it can be
concluded that the court in Re Group Hub Ltd (in liq); The PC Company Ltd v
Sanderson 178 was very strict in its interpretation and as a result could have
deterred new businesses from forming. The UK court in Re Purpoint, 179 on the
other hand, indicated the court‟s willingness to give the company an opportunity
to trade to profitability, and only when it became apparent that was not the case
did it impose liability on its director.
It also reflects the courts‟ attitude in the two jurisdictions in relation to the
perception of a company as a vehicle to take business risks. In Re Wait
Investment Ltd (in liq), 180 directors who arranged for unconditional purchase of
property of substantial value without arranging for finance and without any
reasonable grounds to believe that they would be able to obtain the loan, were
held to be liable for reckless conduct when the company in question did not have
any assets or capital.
The literal interpretation of the section was illustrated in Fatupaito v Bates 181
where the court held that the wording of section 135 "appears to impose a
stringent duty on directors to avoid substantial risks of serious loss to creditors
177 (1991) BCLC 491 at 498.
178 Unreported case HC Hamilton, CP 18-00, 1 November 2001; Priestley J.
179 (1991) BCLC 491.
180 [1997] 3 NZLR 96.
181 [2001] 3 NZLR 386 at 401.
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