View/Open - Research Commons - The University of Waikato

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