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discretion to order the director‘s liability to pay more than the losses suffered by
creditors who have been defrauded within the meaning of the section.
Lord Denning in Re Cyona Distributors Ltd 138 commented that section 332 was
deliberately framed in wide terms so as to enable the court to bring fraudulent
persons to book. If a man has carried on the business of a company fraudulently, the
court can make an order against him for the payment of a fixed sum. The Master of
the Rolls then stated that the sum may be compensatory or it may be punitive. 139 The
decision signified that the court had wide discretion to determine the amount, which
could be varied depending on the purpose of awarding the remedy.
Nevertheless, in Re Gerald Cooper Chemicals Ltd 140 the application was made
under section 332 by a creditor and the court warned that in making a decision the
respondent should not be placed in double jeopardy by the possibility of further
action by a liquidator under the same section. It can be presumed from the court‘s
decision that despite the nature of their wrongful act, directors must not be subjected
to liability more than they are liable to pay. In other words, the punishment meted
out to a director should be proportionate to his culpability or dishonesty. This issue is
now a moot point in the UK since section 213 of the Insolvency Act 1986 came into
force as it empowers only a liquidator to bring a fraudulent trading action. The
current civil fraudulent trading section has shifted its focus from punishing directors
to compensating creditors.
This can be seen in Morphitis v Bernasconi and others, 141 where the court
concluded that the power to grant an order under the section did not include a
138 [1967] Ch 889 at 902.
139 Lower v Traveller [2005] 3 NZLR 479 at 498.
140 [1978] Ch 262 at 268.
141 [2003] Ch 552 at 579.
341