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and is not limited to directors only. Further the action can be taken under the section
if it ‘appears the business has been carried on with intent to defraud creditors or any
person or for fraudulent purposes.’ Cases have indicated that the word appear
connotes lower standard of proof namely a balance of probabilities and not the
criminal standard of beyond reasonable doubt, despite the provision contains both
criminal and civil liability.
The imposition of liability under the section is broader because it is not confined
when the company is in liquidation only unlike the UK fraudulent trading. Earlier
detection of fraud and ability to invoke the section without prior winding up is an
advantage to creditors because the likelihood of being defrauded and consequently
incurring losses. In contrast, in the UK, the section can only be invoked when the
company has been wound-up which is sometimes too late to prevent losses to
creditors. Hence, the provision should be retained although for clarity purposes there
should be a separation between civil and criminal liability. This is despite courts
ability to distinguish the difference of standard of care applicable to civil and
criminal cases.
As for insolvent trading, section 303(3) of the Malaysian Companies Act 1965
imposes liability on ‘any officer of the company who was knowingly a party to the
contracting of a debt had, at the time the debt was contracted, no reasonable or
probable ground of expectation, …of the company being able to pay the debt’. This
provision is based on the Australian Uniform Companies Act 1961-2.
The insolvent trading provision can be used against any officer of the company
which is wider than the UK, New Zealand and Australia provisions which are limited
to directors. It is appropriate that liability should be extended to any officers of the
company who has knowledge of the act and not only on directors because it will
promote better governance of the company. The current law does not require the
company to be insolvent before it can be used and therefore it can work as preventive
measures to minimize further loss. In addition, directors are not required to take
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