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conferred on to them when the company is insolvent, but is not necessarily in
liquidation.
The position of Malaysian fraudulent trading and insolvent trading requires a special
mention here because of the deficiencies they inherited from the old English and
Australian law. In 2004 there was a case which dealt specifically with fraudulent
trading and, to date, there are only three cases on section 304(1). Two of these cases
involve actions being brought by an individual creditor who wished to enforce
judgment granted against the insolvent company. Another case involved a company
taking action against its director for fraudulent trading and for breach of director‘s
duty under section 132. 255
To date, section 303(3) has never been used to impose liability on directors,
rendering it useless. This is because civil liability in this section depends on a
criminal conviction in section 304(3). Hence, creditors would have to depend on the
prosecution of the action under section 304(3) before they have the right to
compensation. Even when there is a prosecution against the director, there is no
guarantee that conviction will ensue and since liability depends on successful
conviction, creditors are left without any redress.
Another aim of imposing liability on directors is to ensure that they are responsible
and accountable for their actions. Creditors, as well as members of the public, will
benefit from it because, in order to avoid liability, directors will maximise their
efforts to manage the company so that it is profitable. Even though the duty to
prevent insolvent trading is mostly a civil liability, there is still a deterrent element
which is in the interests of the public. For example, courts in the UK can, on their
own initiative, refer directors who are liable under section 214 for disqualification
under the Companies Directors Disqualifications Act 1986. (This topic will be
explored in the next section). Likewise in Australia, the Australian Securities and
255 Kawin Industrial Sdn Bhd (in liquidation) v Tay Tiong Soong [2009] 1 MLJ 723.
370