Summary LPC - Legal Practice Course Wrongful and Fraudulent trading.
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LPC - Legal Practice Course
Institution
LPC - Legal Practice Course
A set of notes from a tutorial on Business Law on Wrongful Trading, Fraudulent trading and other aspects of director liability on liquidation and insolvency of a company such as preferences.
Director disqualification is highly problematic for a client, a bank is unlikely to lend money to
somebody disqualified from acting as a director.
S.212 IA 1986- permits liquidator to apply for a court order against directors and others who
breached their duties, if found liable the directors may be liable to contribute to company
assets.
s.213- fraudulent trading. requires intent to defraud creditors.
s.214- wrongful trading- prior to liquidation a director or former director knew or ought to
have concluded there was no reasonable prospect of avoiding liquidation. On application by
liquidator court may order the director or ex-director to contribute to the company’s assets.
Director or ex-director may avoid liability if they can show they took every step with a view to
minimising the potential loss to the company’s creditors as he ought to have taken.
Objective and subjective test for what a director ought to know or conclude or steps he ought
to take.
Whether directors knew or ought to have known. When they knew o ought to have known.
Did they take every step to minimise loss to creditors from that date? If not how much should
they contribute.
s.238 insolvency act 1986- section applies where a company is in administration or in
liquidation and within 2 years of the onset of liquidation there was a transaction at an
undervalue; the company must either have been insolvent at the time or have become so as a
result of the transaction. S.240(2) in the case of a connected person then this will be
presumed. Ss.249 and 435 includes within the definition any director, adult relatives and
related companies.
liquidator or administrator can apply to the court to restore the position to what it would have
been if the company had not entered into the transaction.
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