Fraudulent Trading and the Protection of Company Creditors: The Current Trend in Company Legislation and Judicial Attitude

Abstract

Directors owe their duties primarily to the company. Those duties shift to the creditors whenever the company is in dire financial straits. The directors are required in such a situation to ensure that the affairs of the company are conducted in such a manner as would not put in jeopardy the recovery by the creditors of debts owed to them by the company. Company statutes in different jurisdictions seek to ensure that the directors adhere to this principle by making provisions against fraudulent trading. The difficulties associated with the proof of various elements of the offence as provided in the statutes have compelled the Parliament in some jurisdictions to incorporate a civil element into the apparently criminal provisions with a view to easing the burden of proof and invariably the punishment for the offence of fraudulent trading. The courts' interpretations of the various criminal elements of the provisions and other developments of the law in different jurisdictions, especially in the United Kingdom, South Africa and Lesotho, are examined with a view to ascertaining how best those provisions could be employed to afford adequate protection to the creditors in the modern corporate world.