Section 2 Power for administrator to bring claim for fraudulent or wrongful tradingI1

In Part 7 of the 1989 Order, after Article 208 insert—

“Administration: penalisation of directors etc

Fraudulent trading: administration

208ZA.

(1)

If while a company is in administration it appears that any business of the company has been carried on—

(a)

with intent to defraud creditors of the company or creditors of any other person, or

(b)

for any fraudulent purpose,

paragraph (2) has effect.

(2)

The High Court, on the application of the administrator, may declare that any persons who were knowingly parties to the carrying on of the business in the manner mentioned in paragraph (1) are to be liable to make such contributions (if any) to the company’s assets as the Court thinks proper.

Wrongful trading: administration

208ZB.

(1)

If while a company is in administration it appears that paragraph (2) applies in relation to a person who is or has been a director of the company, the High Court, on the application of the administrator, may declare that that person is to be liable to make such contribution (if any) to the company’s assets as the Court thinks proper; but this is subject to paragraph (3).

(2)

This paragraph applies in relation to a person if—

(a)

the company has entered insolvent administration,

(b)

at some time before the company entered administration, that person knew or ought to have concluded that there was no reasonable prospect that the company would avoid entering insolvent administration or going into insolvent liquidation, and

(c)

the person was a director of the company at that time.

(3)

The High Court must not make a declaration under this Article with respect to any person if it is satisfied that, after the condition specified in paragraph (2)(b) was first satisfied in relation to the person, the person took every step with a view to minimising the potential loss to the company’s creditors as (on the assumption that the person had knowledge of the matter mentioned in paragraph (2)(b)) the person ought to have taken.

(4)

For the purposes of paragraphs (2) and (3), the facts which a director of a company ought to know or ascertain, the conclusions which the director ought to reach and the steps which the director ought to take are those which would be known or ascertained, or reached or taken, by a reasonably diligent person having both—

(a)

the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company, and

(b)

the general knowledge, skill and experience that that director has.

(5)

The reference in paragraph (4) to the functions carried out in relation to a company by a director of the company includes any functions which the director does not carry out but which have been entrusted to the director.

(6)

For the purposes of this Article—

(a)

a company enters insolvent administration if it enters administration at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the administration;

(b)

a company goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up.

(7)

In this Article “director” includes a shadow director.

(8)

This Article is without prejudice to Article 208ZA.

Proceedings under Articles 208ZA and 208ZB

208ZC.

Article 179 applies for the purposes of an application under Article 208ZA or 208ZB as it applies for the purposes of an application under Article 177 but as if the reference in Article 179(1) to the liquidator were a reference to the administrator.”.

In Article 178 (wrongful trading)—

Articles 208ZA to 208ZC (as inserted by subsection (1)) and the amendments made to Article 178 by subsection (2) apply in respect of the carrying on of any business of the company on or after the date on which this section comes into operation.