ACCA F4 - Corp and Business Law (ENG)

352 22: Fraudulent and criminal behaviour  Part H Governance and ethical issues relating to business

6.5.3 Fraud and deception

The Insolvency Act 1986 makes it a criminal offence to conceal or fraudulently remove company assets

or debt – including falsifying records. It is also an offence to dispose of property that was acquired on

credit that has not been paid for.

6.5.4 Defrauding creditors

Once a winding up commences, the Insolvency Act 1986 makes it an offence to make a gift of, or transfer

company property, unless it can be proved there was no intent to defraud creditors.

6.5.5 Misconduct during a liquidation

A company officer may be liable for a number of offences due to their misconduct. These include:

 Not identifying company property to the liquidator

 Not delivering requested books and papers to the liquidator

 Not informing the liquidator if identified debts do not turn out to be debts

6.5.6 Falsification of company books

The destruction, mutilation, alteration or falsification of company books is an offence under the

Insolvency Act 1986.

6.5.7 Omissions

It is an offence under the Insolvency Act 1986 to omit material information when making statements

concerning a company's affairs.

6.6 Examples: offences in relation to winding up

The standard expected of a listed company director would be higher than for the director of a small

owner-managed private company.

Halls v David and Another 1989

The facts: The directors sought to obtain relief from liability for wrongful trading by the application of the

Companies Act 2006. This stated that in proceedings for negligence, default, breach of duty or breach of

trust against a director, if it appears that he has acted honestly and reasonably the court may relieve him

wholly or partly from liability on such terms as it sees fit.

Decision: The Companies Act 2006 is not available to excuse a director from liability.

Re Produce Marketing Consortium Ltd 1989

The facts: Two months after the case above, the same liquidator sought an order against the same

directors this time, that they should contribute to the company assets (which were in the hands of the

liquidator) since they had been found liable for wrongful trading.

Decision: The directors were jointly and severally liable for the sum of £75,000 plus interest, along with

the costs of the case. The judge stated that the fact that wrongful trading was not based on fraud was not

a reason for giving a nominal or low figure of contribution. The figure should, however, be assessed in the

light of all the circumstances of the case.

This case was significant for creditors, since the assets available for distribution in a winding up will

(potentially) be much increased by a large directors' contribution. It serves as a warning to directors to

take professional advice sooner rather than later.