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Discuss: The law relating to Fraudulent Trading and the consequences for the directors if the fraudulent claim against them is successful.

The Directors of Eggs company decsribed as a very successful company have an action for fraudulent trading pending against them.

The Articles of Association of Eggs Company 9.7,state that "The company will indemnify Directors against any liability incurred whilst acting as directors of the company, including (but not lilmited) to any liability arising from negligence, default or breach of duty or trust, such fines imposed against a Director in relation to proceedings brought against him/her and/or any legal expenses incurred by a Director in defending any claim whatsoever".

I would like help with;
1. The law relating to Fraudulent Trading

2. The consequences for the directors if the fraudulent claim against them is successful.

3. Whether the Directors can rely on Article 9.7 for Eggs Company to indemnify them for Court costs.

4. Whether the Directors can rely on Artice 9.7 that Eggs Company will indemnify them for legal expenses incurred in defending the claim.

The difficulty for me is that it does not appear as if Eggs Company has gone in to receivership, so there seems to be no liquidation or winding up of the company. I would be able to ansew this essay if the company was in liquidation.

Solution Preview

1. The law relating to Fraudulent Trading
Under section 304 of the Company Act 1965, where it appears that any business of the company has been carried on with intent to defraud creditors or for any fraudulent purpose, the court may declare that any person who was knowingly a party to the carrying on of the business in the manner will be personally liable for the debts or other liabilities of the company. This is regardless that a company is a legal entity and it is a different legal person from it directors and shareholders

2. The consequences for the directors if the fraudulent claim against them is successful.
The directors and other officers of a company which continues to trade while it is insolvent (that is, unable to pay its debts) may ...

Solution Summary

Here is just a sample of what you'll find in this solution:

"A director may in certain circumstances obtain protection against such liability, and his/her company may indemnify him/her for legal expenses incurred in defending the claim if the relevant act is disclosed to the..."

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