BLP (26)

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What can a liquidator do?: 1. Look back at the period before insolvency; and
2. bring proceedings for compensation against the directors personally.
For what specific matters can a liquidator bring a claim against the company's directors?: 1. Fraudulent trading
2. Wrongful trading
3. Misfeasance
What section deals with fraudulent trading?: s. 213 IA 1986
What is required of the purpose of proving fraudulent trading?: Intent to defraud
What are the consequences of intending to defraud creditors under s. 213?: 1. Civil liability under s. 213 IA 1986
2. Criminal liability under s. 993 CA 06
For the purpose of proving intent to defraud, what must be proved?: 1. Actual dishonesty;
2. Very high standard;
3. Extremely difficult to prove;
4. Claim for wrongful trading brought instead.
Is there a defenced to a claim of fraudulent trading?: Yes - dishonesty is assessed subjectively, not objectively, so it's based on what the particular person knew or believed.
What is the defence known as for the purpose of proving that a particular person genuinely believed that "things would get better"?: Sunshine defence - what the person actually believed, however unrealistic.
What is the sanction if fraudulent trading is proved?: Court order for director to contribute an amount to the company's assets. That amount is how much the court thinks proper.

Court cannot order punitive element - can only aware for the loss caused to creditors
In addition to requiring a D to contribute to the company's assets if (s)he is found to have defrauded the company, what else is the court likely to order?: Disqualification under s. 10 CDDA 1986
What section deals with wrongful trading?: Section 214 IA 1986
What is the purpose of s. 214 (wrongful trading)?: 1. Lower bar than 213 (fraudulent)
2. Once liquidation is inevitable;
3. D must do everything possible;
4. to minimise the potential loss to creditors.
In terms of standards of behaviour, what will be considered in the context of a claim under s. 214 (wrongful trading) claim?: The reasonableness of the Ds behaviour
Is there any requirement to show intent or dishonesty for the purpose of wrongful trading?: No
What defence might be open to a director accused of wrongful trading? Auth?: The 'every step' defence (s. 214(3)). I.e. the D took every step with a view to minimising the potential loss to the company's creditors.
What will the court look at to determine if a director 'ought' to have concluded that insolvent liquidation was unavoidable?: The 'reasonably diligent person' test (under s. 214(4)) and the 'every step' defence (s. 214(3)).
What test does the court apply for the purpose of determining whether the D acted as a reasonably diligent person?: Objective test (reasonable director); AND
Subjective test (actual director).
Can a director avoid liability for wrongful trading by resigning?: No - s. 214(2) refers to a person who was a director at the relevant time.
What can the court choose to do after having made an order under s. 214 (wrongful trading)?: Make a disqualification order under s. 10 CDDA 1986.
Describe the nature of an order made under s. 214 (wrongful trading)?: The award should be compensatory not penal in nature.
Does the court have an option for the purpose of making an order under s. 214 (wrongful trading)?: The court may apportion liability between directors based on their culpability, by ordering the more culpable to indemnity the less culpable.
What section deals with misfeasance?: s. 212 IA 1986
What new liability or rights does s. 212 create?: None. It simply provides a summary procedure available in liquidation for enforcing rights.
Who can bring a claim for misfeasance?: 1. A liquidator;
2. the official receiver;
3. any creditor or contributory

Auth s. 212 (3)
What can amount to misfeasance?: 1. Misapplication of money or assets of the Co; or
2. Breach of a statutory provision or duty.
For the purpose of misfeasance, what if shareholders have ratified to absolve a director of liability?: Where a company is insolvent or on the bring of insolvency, case law suggests that the effectiveness of shareholder ratification appears doubtful.
Is the option to make disqualify a director available if a finding of misfeasance has occurred?: Yes. The court will consider making an order against a director for unfitness under s. 6 CDDA 1986.
What is the maximum period for disqualification of a director under s. 10 CDDA?: 15 years
For the purpose of an order related to voidable transactions, who is the target of the proceedings?: The beneficiary of the transaction, rather than the directors.
Who can challenge voidable transactions?: A liquidator or administrator
What is considered to be the 'onset of insolvency' for the purpose of administration?: Court procedure: date of filing of application

Out of court procedure: notice of intention to appoint (or if none) appointment.
What is considered to be the 'onset of insolvency' for the purpose of liquidation?: The date of commencement of winding up.

Either:
1. date for resolution for MV or CV winding up; or
2. date of petition for compulsory winding up.
Who can bring a claim regarding transactions at an undervalue?: Liquidator (with consent) or administrator
What is the purpose of provisions related to 'Preferences' in the context of insolvency?: To prevent a creditor obtaining an improper advantage over other creditors at a time when the company is insolvent.
Who can bring a claim related to the giving of a preference?: A liquidator or administrator.
What are the implications if a preference is found to contravene s. 239 IA 1986?: The preference is voidable
For the purpose of a company being 'influenced by a desire to prefer' in the context of preference, what is the test that the court will apply?: Subjective test - the company must have positively wished to put the party in a better position.
What defence is available in relation to preference?: An absence of desire to prefer required under s. 239(5).
A director will not be taken to have given a preference if his intention was purely to continue trading by avoiding the calling in of a particular debt, e.g. the company's overdraft. I.e. a genuine commercial pressure has to be exerted.: Re MC Bacon Ltd
Re MC Bacon Ltd: A director will not be taken to have given a preference if his intention was purely to continue trading by avoiding the calling in of a particular debt, e.g. the company's overdraft.

I.e. a genuine commercial pressure has to be exerted.
Where can you find the provision related to the avoidance of certain floating charges?: s. 245 IA 1986
What is the purpose of the avoidance of certain floating charges?: 1. To prevent an unsecured creditor
2. obtaining a floating charge
3. to secure an EXISTING loan
4. for no new consideration
5. at the expense of the other unsecured creditors
Who can avoid a floating charge?: Only a liquidator or administrator
Re Yeovil Glove Co Ltd: If a floating charge is granted over an overdraft, provided new money is advanced and the old much used up (and replaced with fresh money) - the floating charge will be valid against the entire overdraft. If the old money isn't used up, the floating charge is only valid against the new money advanced.
If a floating charge is granted over an overdraft, provided new money is advanced and the old much used up (and replaced with fresh money) - the floating charge will be valid against the entire overdraft. If the old money isn't used up, the floating charg: Re Yeovil Glove Co Ltd
What rule was applied in Re Yeovil Glove Co Ltd: The rule in Clayton's case - payments into a bank account discharge the earliest advances made by the bank first.
The rule in Clayton's case: Payments into a bank account discharge the earliest advances made by the bank first.
When a floating charge is avoided, what is actually avoided?: Only the security over the assets subject to the floating charge, not the debt itself.
When will a transaction have defrauded creditors under s. 423 IA 1986?: Where there has been a transaction at an undervalue - the first criteria is met. The second is that the intention or purpose was to put assets beyond the reach of creditors or otherwise prejudice their interests (s. 423(3)) IA 1986.
What test is applied for the purpose of s. 423?: Subjective test
What is the relevant time for the purpose of defrauding creditors under s. 423?: No relevant time.
What is the time limit for enforcement for the purpose of transactions at an undervalue?: Always 2 years (regardless of connected persons)

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Number of cards 52

Created By shughes