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Criminal penalties can take the form of a monetary penalty, namely a fine, or a restriction of a person‘s liberty in terms of imprisonment, or both. 109 The fine imposed on a person under criminal law is similar to the civil penalty in that it is imposed in accordance with his culpability. However, imprisonment can be imposed only under criminal law sanctions. 11.3.2 Offence of Fraudulent Trading In respect of criminal liability for fraudulent trading, only the UK, New Zealand and Malaysia have provisions on this. 110 Australia has only one, namely the insolvent trading provision which covers both criminal and civil liability; which will be explained later. The consequence of breaching the sections is the same, that is directors will be subjected to either imprisonment or fine or both. 111 It should be noted that the UK section provides a maximum period of time for imprisonment, but not the amount of the fine. 112 This means judges have discretion to decide on the suitable penalty for directors. The New Zealand and the Malaysian Acts, in contrast, specify both the maximum length of imprisonment as well as the quantum of the fine to be imposed. 113 The offence for fraudulent trading is based on directors‘ intention to 109 See examples in the fraudulent trading in 993 of the UK Companies Act 2006; section 588G(3) of the Australian Corporations Act and section 304(5) of the Malaysian Companies Act 1965. 110 See section 993 of the UK Companies Act 2006; section 380 of the New Zealand Companies Act 1993 and section 304(5) of the Malaysian Companies Act 1965. 111 See section 993 of the UK Companies Act 2006; section 380 of the New Zealand Companies Act 1993 and section 304(5) of the Malaysian Companies Act 1965. 112 Section 993(3) of the UK Companies Act 2006- ― A person guilty of an offence under this section is liable- (a) on conviction on indictment, to imprisonment for a term not exceeding ten years or a fine (or both) (b) …" 113 See section 373(4) of the New Zealand Companies Act 1993: ―A person convicted of an offence against any of the following sections of this Act is liable to imprisonment for a term not exceeding 5 years or to a fine not exceeding $2000,000: (f) section 380 (which relates to carrying on business fraudulently)‖ 332
defraud, which implies their culpability. Therefore, the courts must take this factor into consideration when deciding the appropriate penalty. It is acknowledged that the creditors‘ position is not likely to be improved since directors are not making any contributions which will be distributed among them. However, the punishment meted out by the sections may have both deterrent and protective measures. Due to the threat of a custodial sentence, directors will either avoid committing the offence in the first place or perpetrating it again. In addition, it may also serve as a warning to other directors not to commit the act or else suffer the same fate. Consequently, all other parties including creditors, shareholders and member of the public will benefit from it because directors will be cautious and accountable in making decisions. 11.3.3 Civil Responsibility for Fraudulent Trading Under this section, the UK section 213 of the Insolvency Act 1986 will be discussed, together with the Malaysian section 304(1) because only they provide civil liability for fraudulent trading. The juxtaposition of the two sections reveals their similarities, at the same time exposing the huge difference in respect of the effects when the provisions are breached. Section 213 states that those who breach the section "are liable to make such contributions (if any) to the company‘s assets as the courts think proper." Section 304(1), on the other hand, stipulates that the person "shall be personally responsible, without any limitation for all or any of the debts or other liabilities of the company as the Court directs." Section 213 does not explain the extent of contributions a director has to make compared to section 304(1) where a director can be made personally liable for an See also section 304(5) of the Malaysian Companies Act 1965: ―Where any business of the company is carried on with the intent or for the purpose mentioned in subsection (1) every person who was knowingly a party to the carrying on of the business with intent or purpose shall be guilty of an offence against this Act. Penalty: Imprisonment for three years or ten thousand ringgit.‖ 333
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http://researchcommons.waikato.ac.n
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ABSTRACT This study examines the le
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TABLE OF CONTENTS ABSTRACT i ACNOWL
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CHAPTER 5 THEORY OF THE CORPORATION
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7.3.3.3 Distribute its Capital to M
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10.2.5.1 Meaning of Insolvency 10.2
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10.6.2.2 Carrying on of any Busines
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CHAPTER 12 CONCLUSION AND RECOMMEND
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CLC Australian Company Law Cases CL
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Stanford LR Stanford Law Review Ste
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Facia Footwear Ltd (in administrati
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Re Avon Chambers Ltd [1978] 2 NZLR
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Re Produce Marketing Consortium Ltd
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Ultraframe (UK) v Fielding & Ors [2
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Mountford v Tasman Pacific Airlines
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Australia 3M Australia Pty Ltd v Ke
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Linton v Telnet Pty Ltd (1999) 30 A
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Malaysia Abdul Aziz bin Atan v Lada
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Perman Sdn Bhd & Ors v European Com
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Other Jurisdictions Singapore Rahj
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Companies Act 2006 Section 60(3)(c)
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Section 993 Section 993(2) Section
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Insolvency Act 1985 37, 70 Insolven
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Section 251 255 Part II Schedule 6
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Section 52(1) Section 52(2) Section
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Section 272(2) Section 272(2)(a) Se
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Section 385(4)(b) Section 385(4)(b)
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AUSTRALIA Absent Debtors Act (NSW)
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Section 206D(1)(b)(b)(ii) 374 secti
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Section 588FE(2)(a) Section 588FE(2
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section 588H (5) 241 Section 588H(6
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Section 598(3)(b) Section 598(3)(c)
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Bankruptcy Act 1967 MALAYSIA Sectio
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Section 130A(6) 391 Section 131 221
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Companies Regulation 1966 Regulatio
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CHAPTER 1 THE STRUCTURE OF THE THES
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A discussion of directors’ duties
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The far-reaching implication of cor
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2.2.1 The United Kingdom The common
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2.2.3 Australia Australia has been
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CHAPTER 3 LITERATURE SURVEY - AN OV
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shareholders, had failed to mitigat
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was mainly responsible for the chal
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3.3 Interests in the Company-Shareh
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contributed by the shareholders and
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Statutes have attempted to address
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how the matter should be dealt with
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4.2 Development of Corporate and In
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colonies. 14 The emergence of compa
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originally incorporated in order to
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usiness fraud. 42 In 1825, the Bubb
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Companies Act also reveals providin
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Companies Ordinance 1953 of Sabah a
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In 1977, the Cork Committee was app
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the Committee foresaw difficulty du
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operation and termination of a comp
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enforceability of security interest
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procedure, and dispensed with the o
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The creditors‟ protection princip
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shareholders and on personal bankru
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directors as trustees. 162 Members
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4.3.3 Development of Insolvency Leg
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In Australia, the government respon
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appointment of an administrative re
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the current statutes were not effic
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insist on protection to directors i
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and judgment to run the company. 21
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due to the difficulty in obtaining
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The Australian Law Commission in 19
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instead, enacted section 135 253 in
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4.5 Conclusion Malaysia, New Zealan
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CHAPTER 5: THE THEORY OF THE CORPOR
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needs someone to run it on its beha
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The implication of the decision is
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English decisions as guidance and t
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Shareholders who have to incur high
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interests of shareholders by maximi
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situation, directors have a duty to
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concluded purchasing goods from thi
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stipulates directors “may conside
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subsidiary and may continue to pros
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A holding company may use a subsidi
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section 187 of the Australian Corpo
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its holding company), act in a mann
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is just and equitable, to make an o
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Syndicates (NZ) Limited (in liq) 13
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a) Extent to which the Related Comp
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That the management did not differe
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equirement of insolvency and it doe
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The House of Lords in Woolfson v St
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subsidiary. Abdul Malik J held that
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defendant company. During a meeting
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Uniphoenix Corporation Bhd v Raymon
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justice alone is not sufficient; th
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lenders, employees, suppliers and c
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company and as the residual claiman
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The claim that shareholders‟ righ
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particularly lack of effective mana
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management of the companies. Credit
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players‟ interests intertwine wit
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important for directors to build lo
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Despite having included favourable
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at the intersection of a number of
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Directors must weigh any particular
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Directors will also enlist the serv
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Contractarians regard employees in
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terms to their liking, they either
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to boycott the company. 134 The com
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On the other hand, the duty owed to
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and experiences in order to dischar
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CHAPTER 7: A CONCEPTUAL ANALYSIS OF
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Economists divided real capital whi
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the transformation of shares as rea
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the company‟s ability to pay its
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purchase or will not become insolve
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available where special resolution
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The idea that maintaining share cap
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must be satisfied by the company in
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7.4 Conclusion The doctrine of capi
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and once a resolution is passed, to
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The term 'insolvency' has also long
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equivalent to medical negligence ca
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meaning of inability to pay debts.
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It is important to distinguish as t
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long as the accounts give true and
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current assets must be taken stock
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cases the presumption of insolvency
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It is interesting to note in reachi
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CHAPTER 9 THE COMMON LAW DUTIES OF
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Voluntary creditors can be divided
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are not personally liable for any l
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confidence, a trustee who has been
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interests of various parties in the
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overriding duty is to the sharehold
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to look at the directors‟ purpose
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9.3.3 Duty not to Fetter Discretion
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The decisions of the Federal Court
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case, directors should disclose the
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misconception that the case law and
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other reference as to the developme
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Australia and Malaysia have express
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out “ ...the judgment is in the b
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the prospect of success as well as
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judge adopted the principle of iden
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individual trading through a compan
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liability can be imposed on them wh
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liquidators when it is insolvent. C
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CHAPTER 10 DIRECTORS’ DUTY TO PRE
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Malaysia did not make any changes o
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interpretation of these provisions.
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sum of money that is owed or due.
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Hence, action can be brought agains
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Directors in Australia can be held
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to the director to prove that he or
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expect that the company was solvent
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In the case of Secretary of State f
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trading at a deficit. 64 In other w
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maintained in section 213 of the In
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not „a party‟ if he knew that m
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econcile the two judgments with one
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carrying it on (whether because of
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10.3.1.3 For any other Fraudulent P
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company. In this aspect, section 21
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to Australia and New Zealand which
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even though it was evident from the
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the steps taken were with the aim o
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decisions. 150 Therefore, directors
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The Law Commission proposed that th
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to reform the law, namely to reduce
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A similar issue was raised in the E
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The decision was later upheld by th
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10.4.3 Duty in relation Obligation
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fraudulent purpose.” 201 Although
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from the carrying on of the busines
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The first civil version of the inso
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Page 353 and 354: of law of contract. The court must
Page 355 and 356: defendant. 244 Therefore, a directo
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Page 361 and 362: Another defect of the section is in
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Page 365 and 366: 10.6.2 Responsibility for Fraudulen
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Page 371 and 372: The defendant in the case relying o
Page 373 and 374: To date, there have been few cases
Page 375 and 376: ability of the company to pay off i
Page 377 and 378: can be disqualified from taking par
Page 379 and 380: power to do so is an archaic equita
Page 381 and 382: is for a short period of time. This
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Page 387 and 388: 11.2.3 Winding-up Liquidation is a
Page 389 and 390: 11.2.3.1 Effects of Successful Avoi
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Page 393 and 394: 11.2.3.1.2 Recovery from Third Part
Page 395 and 396: ecover the proceeds of sale or to p
Page 397 and 398: order. 83 If the value of the asset
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Page 405 and 406: also be enforced by the company. 11
Page 407 and 408: The court has the power if it think
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Page 413 and 414: Marketing Consortium (No 2) 147 cle
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Page 417 and 418: compensatory. 163 Damages are asses
Page 419 and 420: of causation similar to torts in as
Page 421 and 422: ecause the court considered that it
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Page 425 and 426: 11.3.7.2.3 Duration The court also
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Page 433 and 434: Since section 304(1) originates fro
Page 435 and 436: 11.3.8.2 Problems of Enforcement/Pr
Page 437 and 438: However, extracting promise of inde
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Page 447 and 448: As a result of the recommendations
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The court has to deduce evidence of
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11.4.2.1 Standard of Proof Disquali
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11.4.2.2 Court’s Order Section 6
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of disqualification. 322 However, t
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mitigating factors considered by th
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11.5 Other Remedies 11.5.1 Mareva I
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for under the Act. 348 The action p
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of trust or breach of duty in relat
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CHAPTER 12 CONCLUSION AND RECOMMEND
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The separate legal personality conc
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deemed to be an alien concept to Br
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positive action to minimize losses
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insolvent. In Malaysia, there is no
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BIBLIOGRAPHY BOOKS and ARTICLES AHM
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BENNETT, Howard, 'Late Floating Cha
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COBURN, Niall F, 'Insolvent Trading
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http://ssrn.com/abstract=988944 at
Page 487 and 488:
FISHER, Gregory, LEE , Janet and JO
Page 489 and 490:
GUNASEKARA, Gehan and TOY, Alan, 'L
Page 491 and 492:
HOPT, Klaus J., 'Comparative Compan
Page 493 and 494:
KEAY, Andrew and Murray, Michael, '
Page 495 and 496:
McCHESNEY, Fred S., 'Economics, Law
Page 497 and 498:
OTTOLENGHI, S, 'From Peeping Behind
Page 499 and 500:
ROSS, Mike, Corporate Reconstructio
Page 501 and 502:
SCHWARTZ, Alan, ‗A Normative Theo
Page 503 and 504:
WALTERS, Adrian, 'Void Dispositions
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WORTHINGTON, Sarah, 'Subrogation Cl
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REPLIES TO EXAMINERS APPENDIX 1 Pag
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Page 220-it is asserted that direct
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What are the criteria for determini
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addition it provides incentive for
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See also Secretary of State for Tra
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Most jurisdictions in Australia hav
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