Application for a declaration that the director has been engaged in fraudulent trading

Document Cited authorities (15) Cited in Related
AuthorMark Watson-Gandy
Pages351-362
Chapter 24


Application for a Declaration that the Director has been Engaged in Fraudulent Trading

OBJECTIVE

The court has the power on the application of the liquidator or administrator1to make a declaration that a person has been knowingly a party to the carrying on of the business of the company with intent to defraud, and may order that he is liable to make a contribution in a sum the court fixes to the company assets.2

The application can be made against any person who was a knowing party to the fraudulent trading.3To rely on this provision it is necessary therefore to plead and prove dishonesty.4The section has extra territorial effect and may be used to recover assets wherever they may be situated.5

A single instance of fraudulent activity in respect of one creditor suffices to constitute fraudulent trading.6Any compensation ordered goes to the general funds in the hands of the liquidator or administrator rather than to compensate an individual creditor. This is the case even though the nature of the contribution is compensatory rather than punitive.7The company is only treated as carrying on business up to the time when the winding up petition was presented.8

APPLICATION

The application is by application (on Form IAA).

The application must recite the nature of the declaration sought and the grounds for bringing the application.9

1Section 246ZA of the Insolvency Act 1986.

2Section 213 of the Insolvency Act 1986.

3Banque Arabe Internationale d’Investissement SA v Morris [2002] BCC 407.

4Atkinson v Corcoran [2011] EWHC 3484 (Ch).

5Jetivia SA v Bilta (UK) Ltd [2015] UKSC 23.

6Morphitis v Bernasconi [2003] EWCA Civ 289, [2003] BCC 540.

7Morphitis v Bernasconi [2003] EWCA Civ 289, [2003] BCC 540.

8Carman v Cronos Group SA [2005] EWHC 2403 (Ch), [2006] BCC 451.

9Rule 1.35(2) of the Insolvency (England and Wales) Rules 2016.

352 Corporate Insolvency Practice

The application should be returnable to the registrar in the Companies Court or to the district judge in a Chancery District Registry or county court with insolvency jurisdiction.

The respondent should be the person who was a knowing party to the fraudulent trading against whom relief is sought.10

COURT FEES

Where fresh proceedings need to be brought, a court fee of £280 is payable.11If

the application can be made as part of exisiting proceedings and the application is on notice to other parties, a court fee of £155 is payable.12Where the application is made by consent or without notice in existing proceedings, a court fee of £50 is payable.13

SERVICE

The application will need to be filed at court and served on the respondent as soon as practicable after it is filed and in any event, unless it is necessary to apply without notice or on short notice, at least 14 days before the date fixed for the hearing.14

The usual rule is that, subject to any other express provision, the application must be served at least 14 days before the date fixed for the hearing.15However, the court does have power, in cases of urgency, to hear an application immediately with or without notice to the other parties.16

Service may be effected personally17or by post in accordance with the rules on postal service under Part 6 of the CPR.18Service on a person may be effected by service on that person’s solicitor, if they are authorised to accept service on that person’s behalf.19

10Banque Arabe Internationale d’Investissement SA v Morris [2002] BCC 407.

11Paragraph 3.5 of Schedule 1 to the Civil Proceedings Fees Order 2008.

12Paragraph 3.12 of Schedule 1 to the Civil Proceedings Fees Order 2008.

13Paragraph 3.11 of Schedule 1 to the Civil Proceedings Fees Order 2008.

14Rule 12.9(3) of the Insolvency (England and Wales) Rules 2016.

15Rule 12.9(3) of the Insolvency (England and Wales) Rules 2016.

16Rule 12.10(1) of the Insolvency (England and Wales) Rules 2016.

17Rule 1.44 of the Insolvency (England and Wales) Rules 2016.

18Paragraph 1(2) of Schedule 4 to the Insolvency (England and Wales) Rules 2016.

19Rule 1.40 of the Insolvency (England and Wales) Rules 2016.

THE FIRST HEARING

At the first hearing, the registrar or district judge will give directions as to whether points of claim and defence are needed and for the filing of evidence. He may also require the application to be served on other people. He may give directions as to whether witnesses are to attend for cross examination. The first hearing will be unrobed and is likely to be in chambers.

EVIDENCE

No evidence needs to be filed before the first hearing, although it is useful to do so in order that the court can have some measure of the issues it will be dealing with. The application will, however, need in due course to be supported by a witness statement by the liquidator or administrator. This will need to address:

ƒ the order he seeks;
ƒ the date the company was incorporated;
ƒ the registered office of the company;
ƒ the nominal share capital of the company;
ƒ the issued share capital of the company;
ƒ the objects of the company;
ƒ the date upon which the petition to wind up the company was presented;
ƒ the date upon which the company went into liquidation;
ƒ that he was appointed as liquidator of the company;
ƒ the date upon which he was appointed as liquidator;
ƒ details of the trading that is being criticised;
ƒ particulars of why the trading was fraudulent;
ƒ...

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