17.Reckless_trading.pdf

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The officers can be held liable for the debts of the
company where it appears that they were knowingly
a party to the carrying on of business of the
company in a reckless manner
An officer shall be deemed
to knowingly have been a
party to reckless trading if
The person was a party to carrying out
the business and regarding that person’s
skills, knowledge and experience it was
reasonable to expect them to have known
the consequences of their actions
The person was a party to the contracting of
a debt and did not honestly believe that the
company would be able to pay it back
Not necessary to prove fraud in an
action for reckless trading
Not collective responsibility on the board – a case
has to be proven against each separate director
The law requires knowledge/imputed knowledge
that the director’s action would cause loss to
creditors – worry/uncertainty not enough
The directors must know of an obvious and
serious risk of loss/damage to others, and ignore
it/be careless/indifferent to the consequences
Example: company trading while insolvent
Only company officers
can be found liable
Directors
Secretaries
Shadow directors
Auditors
Liquidators
Liability
Company officers
Reckless
trading
Re Hefferons Kearns Ltd
(1993)
established
principles in relation to
reckless trading:
The Test
Re Doherty Advertising
Ltd (2006)
Receivers
Only civil law sanctions
The Sanctions
Re Eastland Warehousing
Ltd (2003)
Purpose of the offence of reckless
trading is to protect the public
from unsuitable officers rather
than punish the officers
Disqualification orders also
may be imposed
A person held liable in the civil court
will be responsible for the debts of
the company without limit

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