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engaging in „insolvent trading‟, they do not benefit the creditors, for they will not
be able to recoup losses from those directors. 211
The provision which dealt with insolvent trading as opposed to fraudulent trading
was first introduced in section 303(3) of the Uniform Companies Act 1961. It
seems that the insolvent trading provision in Australia is an extension of fraud as
it falls within the principle of Derry v Peak 212 as shown in Orkin Bros Ltd v
Bell. 213 The Supreme Court of South Africa held it was an implied representation
when the directors or officers of limited companies order goods from a merchant
that they believe the company will probably be able to pay, and, if they know that
there is no likelihood of payment and no means of payment, they have committed
fraud. 214 Similar decisions had been made in English cases in which purchasing
goods without intending to pay was a fraud. 215 The same theme appeared in the
English case of R v Jones, 216 where it was held a person going into a restaurant
and ordering a meal without any means or intention of paying was guilty of
obtaining goods on credit by fraud.
However, it was initially made a criminal offence for "any person who was
knowingly a party to the contracting of a debt when there are no reasonable or
probable grounds or expectations of the company being able to pay the debt."
Therefore, creditors had to rely on the Director of the Public Prosecutor to take
action under the section. In addition, the standard of proof required was the
criminal standard; beyond reasonable doubt, which contributed to the difficulty of
enforcing the section.
211 Ibid, at [280].
212 (1889) 14 App Cas 337.
213 (1921) T.P.D 92, Supreme Court of South Africa (Transvaal Provincial Division).
214 Orkin Bros Ltd v Bell(1921) T.P.D 92, Supreme Court of South Africa (Transvaal Provincial
Division).
215 Ferguson v Carrington (1829) 9 Barn. & Cr. 59; Load v Green (1846) 15 Mees &W 216.
216 (1898) 1 Q.B. 119.
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