Re Patrick and Lyon Ltd
Fraudulent trading requires actual dishonesty, involving real moral blame, according to current notions of fair trading.
Facts
Patrick and Lyon was a company that became insolvent and went into liquidation. The liquidator alleged that the directors had continued to carry on the company's business with intent to defraud its creditors, and applied for an order that the directors be personally liable for the company's debts, on the ground that they had carried on its business with intent to defraud creditors.
Legal principle
Maugham J held that the directors were not liable for fraudulent trading. He said that the words defraud and fraudulent purpose connote actual dishonesty involving, according to current notions of fair trading among commercial men, real moral blame. The directors had acted foolishly, but there was no evidence that they had acted dishonestly. The narrowness of fraudulent trading led to the introduction of wrongful trading in section 214 of the Insolvency Act 1986.
Related cases on company charges, insolvency and disqualification
- Agnew v Commissioner of Inland Revenue (Re Brumark Investments Ltd) [2001] UKPC 28, [2001] 2 AC 710
- Re Bank of Credit and Commerce International SA (No 8) [1998] AC 214
- BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL plc [2013] UKSC 28, [2013] 1 WLR 1408
- Re Continental Assurance Co of London plc [2007] 2 BCLC 287
- Re Lo-Line Electric Motors Ltd [1988] Ch 477
- Re MC Bacon Ltd [1990] BCLC 324
- Morris v Bank of India [2005] EWCA Civ 693
- Re Panama, New Zealand and Australian Royal Mail Co (1870) LR 5 Ch App 318
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