Fraudulent trading and misfeasance principles allow personal liability, fixed-sum charging, and repayment orders against a director.
Continued trading while the director knew there was no reasonable prospect of creditors being paid was treated as sufficient to infer intent to defraud creditors, exposing him to personal liability under the winding-up provisions. The court also treated the liability as capable of being fixed at a definite sum and charged against the director's debenture interest or security. On the misfeasance claims, the director was found liable on the evidence for excessive remuneration, unlawful payments, repayments to himself after insolvency, and the bank overdraft, as well as goods and money handled as receiver's manager, with repayment ordered to the liquidator together with interest.
Issues: (i) whether the company had carried on business with intent to defraud creditors so as to attract personal liability of the director under section 275(1) of the Companies Act, 1929; (ii) whether the Court could make a declaration fixing a definite sum and impose a charge on the director's debenture under section 275(2); and (iii) whether the director was liable for the several misfeasance claims arising out of excessive remuneration, unlawful payments, repayment to himself, and the bank overdraft.
Issue (i): whether the company had carried on business with intent to defraud creditors so as to attract personal liability of the director under section 275(1) of the Companies Act, 1929.
Analysis: The company continued trading and incurring debts when the director knew there was no reasonable prospect of those debts being paid. From that knowledge and the continued trading, the necessary inference of intent to defraud creditors was drawn. The director knowingly persisted in trading in order to protect his own position and without regard to the creditors.
Conclusion: The issue was answered in the affirmative, and the director was held personally liable under section 275(1).
Issue (ii): whether the Court could make a declaration fixing a definite sum and impose a charge on the director's debenture under section 275(2).
Analysis: The provision was treated as punitive in nature and as contemplating a declaration in respect of an ascertained amount. The Court held that a declaration limited to a definite sum was appropriate and that the statute permitted the liability to be made a charge on a debt or charge held by the director. In the circumstances, a sum of 6,000 was fixed and the liability was directed to be charged on the debenture held by the director.
Conclusion: The Court held that such a declaration and charge could be made, and they were made in this case.
Issue (iii): whether the director was liable for the several misfeasance claims arising out of excessive remuneration, unlawful payments, repayment to himself, and the bank overdraft.
Analysis: The Court accepted the claims on the evidence. The director had been overpaid salary, had caused unlawful dividends to be paid out of capital, had been repaid sums to himself after the company became unable to meet its debts, and had procured repayment of the overdraft of a bank debt for which he stood guarantor. He was also held accountable for the goods removed while acting as manager for the receiver and for the money collected in that capacity.
Conclusion: The misfeasance claims succeeded, and the director was ordered to pay the specified sums to the liquidator with interest.
Final Conclusion: The proceeding resulted in a substantial declaration of personal liability against the director for fraudulent trading, together with orders for repayment of misapplied company funds and related sums.
Ratio Decidendi: Where company trading is continued with knowledge that there is no reasonable prospect of creditors being paid, intent to defraud creditors may be inferred, and the court may fix a definite sum and charge that liability on the director's interest or security under the winding-up provisions.
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