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discovered that the director had engaged in fraudulent trading. However, it is also
possible for a company to commence proceedings under section 304(1) of the
Companies Act 1965 as shown in Kawin Industrial Sdn Bhd (in liquidation) v Tay
Tiong Soong 154
In LMW Electronics Pte Ltd v Ang Chuang Juay & Ors, 155 during the subsistence of
the creditor‘s civil action against the company it was found that directors had
unlawfully dissipated the assets and funds of the company. Subsequently, the
creditor was left with a mere paper judgment. The creditor then commenced an
action under section 304(1) to make the directors personally liable for the judgment
sums obtained for unpaid goods. The court, after finding that fraud existed, ordered
the directors to be jointly and severally liable for the judgment sums. This case
illustrated the situation when section 304(1) has been invoked "in any other
proceedings against the company," when fraudulent trading was discovered during a
civil action against the company. From the few cases being brought before the court,
it seems section 304(1) has been used by creditors as means to enforce unsatisfied
judgment sums against directors when the company is insolvent.
The position in New Zealand is not much different from that in the UK and
Malaysia. This can be seen in Mason v Lewis, 156 where the court held that the
standard approach in quantifying the amount of contribution under section 301 starts
by looking at the deterioration in the company‘s financial position between the date
of the breach and the date of liquidation. In analysing the relationship between
section 301 and section 135, the court observed that it is important not to conflate the
two sections because they deal with two separate issues. Section 135 is concerned
with liability, while section 301 is the appropriate relief. Further, when deciding on
director‘s liability for reckless trading under section 135, the court has to apply an
154 [2009] 1 MLJ 723.
155 [2010] 1 MLJ 185.
156 [2006] 3 NZLR 225 at 241.
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