“(1) If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, the following has effect. (2) The court, on the application of the liquidator may declare that any persons who were knowingly parties to the carrying on of the business in the manner above-mentioned are to be liable to make such contributions (if any) to the company's assets as the court thinks proper.”
“We think that the subsections should be extended so as to apply not only to directors but also to other persons who were knowingly parties to the frauds… ”
“(1) If in the course of the winding up of a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the court on the application of the official receiver, or the liquidator or any creditor or contributory of the company, may, if it thinks proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct.”
“The court, on the application of the liquidator, may declare that any persons who were knowingly parties to the carrying on of the business in the manner above mentioned are to be liable to make such contributions (if any) to the company’s assets as the court thinks proper.”
“If any business of a company is carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, every person who is knowingly a party to the carrying on of the business in that manner commits an offence.”
“… can be committed only by persons who exercise some kind of controlling or managerial function within the company.”
“The expression “parties to the carrying on of the business” is not, I think, a very familiar one, but so far as I can see, the expression “party to” must on its natural meaning indicate no more than “participates in,” “takes part in” or “concurs in.”
“Counsel for the liquidator does not, I think, contend that the expression “party to” covers everyone who has notice that the business of the company is being carried on fraudulently. That contention, if it were right, would lead to impossible results. But what he does say — I think this is the substance of his argument — is that Mr. Penney in his position as secretary and financial adviser of the company and also member of the firm of the company’s auditors owed a duty to the company to give them certain advice and that his omission to give that advice rendered him a party to carrying on the business of the company. I find it impossible to accept that contention. Whatever duty Mr. Penney may have owed to the company, I do not think mere omission to give advice could be regarded as amounting to being a party to carrying on the business of the company.”
“… is aimed at the carrying on of a business... and not at the execution of individual transactions in the course of carrying on that business. I do not think that the words “carried on” can be treated as synonymous with “carried out,” nor can I read the words “any business” as synonymous with “any transaction or dealing.”
“Mr Evans-Lombe submitted in the alternative that the respondents could not knowingly be parties to the carrying on of the business of the Cooper company with intent to defraud creditors of the Cooper company because they had no power of management or control over the carrying on of the business, and did not themselves assist in the carrying on of the business. I agree that a lender who presses for payment is not party to a fraud merely because he knows that no money will be available to pay him if the debtor remains honest. The honest debtor is free to be made bankrupt. But in my judgment a creditor is party to the carrying on of a business with intent to defraud creditors if he accepts money which he knows full well has in fact been procured by carrying on the business with intent to defraud creditors for the very purpose of making the payment. Mr. Evans-Lombe said truly that section 332 creates a criminal offence and should be strictly construed. But a man who warms himself with the fire of fraud cannot complain if he is singed.”
“As against the individual, the individual defendant, the prosecution have to prove first that he took an active part in carrying on the business. That is the first thing. They then have to prove that in doing so he had an intention to defraud creditors and thirdly they have to prove that he was acting dishonestly.”
“In the present case it was open to the jury to find, if not inevitable that they would find, that whoever was running this business was intending to deceive or was actually deceiving Jacob into believing that he would be paid in 28 days or shortly thereafter, when they knew perfectly well that there was no hope of that coming about.”
“… a finding that someone has done an act which can be described as carrying on some business of the company and that in doing so he had an intent to defraud. Equally, the words “any business of the company has been carried on … for any fraudulent purpose” must mean that someone carrying on the business had a fraudulent purpose in doing so. Once this condition has been satisfied, the court may impose personal liability on any persons who were knowingly “party to” the carrying on of the business “in manner aforesaid”
“The only point with which I am concerned is whether section 332 can form the basis for imposing liability on a parent company otherwise than as accessory to fraudulent trading by the persons who actually carried on the business of the subsidiary. In my judgment it cannot. The language of the section is clear and unambiguous.”
“(1) On the proper construction of the words of the statute, some controlling or managerial function is required to bring a defendant within section 458. The jury were never so directed. (2) Once it is conceded that not all those working for a company fall within section 458, if there is an issue as to whether or not a particular defendant comes within the words of the statute, the jury should be given clear, simple guidance as to the meaning of “party to the carrying on of the business of the company” and how they should approach their decision on the facts of the particular case. (3) The case was opened and argued on the basis that the appellant had a managerial role. The passage in the summing-up “participating, or taking part or concurring in the actual trade which is involved in the business of the particular company” widened the scope of the offence. This could have been avoided if the judge had invited counsel to address him on the law before beginning his summing-up. In the event, his departure from the basis upon which the case had been presented was a material irregularity.”
“In our view, section 458 is designed to include those who exercise a controlling or managerial function, or who, in Lord Lane's phrase, are “running the business”
“The only question that arises is whether Wright, despite not being a director or employee of either, was in fact assisting in the carrying on of the business. There was clear evidence that in the case of “U.K.” he was, viz, (i) in dealing with and on behalf of the company with DCC, (ii) in seeking further finance for the company and (iii) in persuading a major creditor to postpone legal action against the company which, if proceeded with, would have led to its collapse. If this had happened, neither of its subsidiary companies could have continued trading. Although the case was weaker on counts 14 and 15, when the manner in which the group operated is looked at, there is little practical distinction between Wright's involvement in all three.”
“It has long been a well established principle to be applied in the consideration of Acts of Parliament that where a word of doubtful meaning has received a clear judicial interpretation, the subsequent statute which incorporates the same word or the same phrase in a similar context, must be construed so that the word or phrase is interpreted according to the meaning that has previously been assigned to it.”
“a person cannot fall within section 213(2) unless he exercised a controlling or managerial function within the company concerned, and that as there is no allegation in the points of claim in their original form or as amended that BAII had any managerial function or any control over the business of BCCI within that company the claim is bound to fail.”
“In my judgment, it is not arguable that these activities, if established, could not result in BAII falling within section 213(2) merely because it was not performing a managerial or controlling function within BCCI.”
“… as a matter of ordinary language, the ambit of s. 213(2) is not limited to those who perform a managerial or controlling role within the company concerned. Although I accept that the language of s. 213(2) is a little unusual, it appears to me that the concept of being ‘parties to the carrying on’ by a company of a type of business, or of a business in a certain way, is not limited to the person who actually directs or manages the business concerned. If anything, it is a more natural reference to people who are not employed by the company at all, but who are third parties to the company.”
“With to (formerly also in): a person who is concerned in an action or affair; a participant; an accessory.” (Emphasis added)
“… that that is not a good reason for preventing a liquidator from pursuing a person who actively and dishonestly assisted, and/or benefited from, the company in adopting a dishonest course of conduct, which predictably led to lenders to, or shareholders of, the company being defrauded.”
“Where, as here, civil and criminal liability are the creation of statute, and knowledge (“knowingly”) is an essential ingredient of statutory liability, the starting point must be the language, context and policy of the legislation considered against the background of general legal principles.”
“It is well settled that the section creates no new liabilities, but only provides a simpler procedure for the recovery of property or compensation in a winding up.”
“The issue before the court in each case was effectively whether there was evidence that, or an effective direction to the jury that there must be a finding to the effect that, the defendant had managed or controlled the business rather than being a mere employee of the business.”
“All three cases involve consideration of a defendant who was employed by, or acted for, a company carrying on activities which were caught by the equivalent of s. 213(1)…. I do not consider that these cases assist BAII’s argument because they were concerned each with the position of an employee or consultant of the company.”
“In my judgment, just as an employee of the company who was merely carrying out orders does not fall within s. 213(2) whereas somebody who orchestrates, organises or can seize [control?] of the business concerned does fall within the section, so a company or other entity which carries on (so far as it is concerned) a bona fide business with the company, does not fall within s. 213(2), but a company which is involved in, and assists and benefits from, the offending business, or the business carried on in an offending way, and does so knowingly and, therefore, dishonestly does fall or at least can fall within s. 213(2).”
“There are a number of difficulties with this passage. First, an employee who “sells shares he knows are worthless” is clearly dishonest, whether acting under direction (as to which there is no reference in Miles) or not. It was for that reason that the Court of Appeal in Miles stated that Miles could have been charged with an offence under the Theft Act or with conspiracy. The reason why that (ex hypothesi) dishonest individual did not commit the s.458 offence was because he was not engaged in the “carrying on of the business”, something which required the exercise of a managerial function. Secondly, Neuberger J’s reasoning makes a false comparison. In the first part, he contrasts someone who exercises managing responsibility with someone who does not, and in the second, someone with a dishonest state of mind and someone without one. The first part of this judicial equation is concerned, in criminal terms with actus reus and the second with mens rea.”
“… I am by no means convinced that even if Mr Adkins’ formulation is correct that that would mean that the claim should be dismissed. It seems to me that the allegations made against BAII are such that it could be said that BAII operated as agent for, or in some other way acted for BCCI, in particular in relation to the matter concerning Independent, in a manner which meant that in the loose sense it had some controlling or managerial function.”
“For my part, I would accept that a business may be found to have been carried on with intent to defraud creditors notwithstanding that only one creditor is shown to have been defrauded, and by a single transaction. The Cooper Chemicals case is an example of such a case. But, if (which I doubt) Templeman J intended to suggest that, whenever a fraud on a creditor is perpetrated in the course of carrying on business, it must necessarily follow that the business is being carried on with intent to defraud creditors, I think he went too far. It is important to keep in mind that the precondition for the exercise of the court's powers under section 332(1) of the 1948 Act—as under section 213 of the 1986 Act—is that it should appear to the court “that any business of the company has been carried on with intent to defraud creditors of the company”
“Mr Potts also submitted that in order to establish liability under s 213, it was necessary to prove that SBI, through its officers and agents, was dishonest. This, he submitted, is an essential element of liability under s 213, which stems from the references in the section to the business of the company having been carried on with an intent to defraud. Those words obviously do connote actual dishonesty, and in the case of BCCI this is admitted. But in the case of a secondary party, sought to be made liable under s 213(2), all that is in terms required is that that party should have knowingly participated in the carrying on of the business with intent to defraud. It is difficult to see how, in practice, a conscious decision to participate in transactions which are known to be fraudulent does not constitute dishonesty, and for that reason I prefer to concentrate on the question whether SBI did in fact know what it was doing.”
“97. Before dealing with the rival arguments on the policy of s.213, we remind ourselves that both civil liability to pay compensation and criminal sanctions may be imposed on any person who is knowingly a party to fraudulent trading. Both types of liability extend beyond the company which actually carried on its business with intent to defraud creditors and its directors to “outsiders”, meaning individuals and corporate third parties who have knowingly been parties to the fraudulent trading in question.” “100. It is accepted that “outsider” companies can be made liable under s.213, provided that it is established they were “knowingly” parties to the fraudulent trading.”
“In our judgment Patten J was correct in his analysis of the policy of s.213. Compensation of those who have suffered loss as a result of the fraudulent trading is the paramount purpose of the provisions imposing civil liability to contribute to the loss suffered.”
“The application of s.213 requires a special rule of attribution in order to make its self evident policy effective. The policy is to make those who have been parties to fraudulent trading liable to compensate the creditors of the fraudulent company.”
“… the severing of criminal and civil liability for fraudulent trading means that there is no question of any conclusion, in principle or on particular facts, as to civil liability affecting the basis on which criminal liability is assessed.”
“The section provides a remedy against any person who has knowingly become a party to the carrying on of that company’s business with a fraudulent purpose. The persons against whom the provision is directed are thus (a) parties to a fraud and (b) involved in the carrying on of the now-insolvent company's business. Many British companies, including Bilta, trade internationally. Modern communications enable people outside the United Kingdom to exercise control over or involve themselves in the business of companies operating in this country. Money and intangible assets can be transferred into and out of a country with ease, as the occurrence of VAT carousel frauds demonstrates.”
“The substance of the section 213 allegation is that the appellants were party to a conspiracy to defraud Bilta in the context of a wider VAT fraud, that they were parties to the conduct of Bilta’s business to that end, and that Jetivia obtained the proceeds of that fraud. If Bilta’s liquidators establish those allegations after trial, we think it is likely that the court would decide to exercise its jurisdiction under section 213 of IA 1986 against the appellants, their foreign residence notwithstanding.”
“We therefore conclude, not without some hesitation, that there is a principle stated in general terms that a subsequent court is not bound by a proposition of law assumed by an earlier court that was not the subject of argument before or consideration by that court. Since there is no direct Court of Appeal authority to that general effect we should indicate why we think the principle to be justified.”
“Subsequent authorities have clearly established that the suggestion which attracted the Court of Appeal in Joscelyne v Nissen is a correct approach and that a court is not bound by a proposition of law which was not the subject of argument because it was not disputed in an earlier case (even if that proposition formed part of the ratio decidendi of the case).”
“With that, I turn to Mr Foxton, QC's article, which is – unsurprisingly, given the author – compellingly and clearly written. However, despite the critique of the decisions recording a wide approach, I am unpersuaded that that approach is clearly wrong. Indeed, given the fact that a defendant must participate knowingly in order for section 213 to bite, I see the force in Templeman J's dictum that “a man who warms himself with the fire of fraud cannot complain if he is singed”
“… surely must have been to enable the court to remove the protection of the no liability system…. Now, however, in England the word “persons” has been substituted for “directors”, a step which doubtless makes such an explanation of the provision much less cogent, if any longer tenable, in the country of its origin.”
“Liability extends to anyone who knew of the fraudulent intent or purpose or part of it; and was party to the acts impugned or any of them. These will commonly be the active directors of the company, but no formal connection with it is in fact necessary.”
“A person cannot be made amenable under the section unless he has actively participated in the management of the company. To impose liability on a shareholder it must be shown that he took part in making management decisions which were intended to defraud creditors. A third party who knowingly participates in an act of fraudulent trading committed by a company’s directors (for example, a creditor of the company who accepts payment of his debt out of money which he knows its directors have obtained by fraud) may be compelled personally to restore the money so applied by means of an order under the section: In re Cooper Chemicals Ltd.”
“In Hardie v Hanson, Menzies J described the Australian equivalent of s.213 as “full of difficulties”
“(1) The general effect of an order by the court for restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register. (2) The company is not liable to a penalty under section 453 or any corresponding earlier provision (civil penalty for failure to deliver accounts) for a financial year in relation to which the period for filing accounts and reports ended– (a) after the date of dissolution or striking off, and (b) before the restoration of the company to the register. (3) The court may give such directions and make such provision as seems just for placing the company and all other persons in the same position (as nearly as may be) as if the company had not been dissolved or struck off the register.”
“(1) The extent of the fiction created by a deeming provision is primarily a matter of construction of the statute in which it appears. (2) For that purpose the court should ascertain, if it can, the purposes for which and the persons between whom the statutory fiction is to be resorted to, and then apply the deeming provision that far, but not where it would produce effects clearly outside those purposes. (3) But those purposes may be difficult to ascertain, and Parliament may not find it easy to prescribe with precision the intended limits of the artificial assumption which the deeming provision requires to be made. (4) A deeming provision should not be applied so far as to produce unjust, absurd or anomalous results, unless the court is compelled to do so by clear language. (5) But the court should not shrink from applying the fiction created by the deeming provision to the consequences which would inevitably flow from the fiction being real. As Lord Asquith memorably put it in East End Dwellings Co Ltd v Finsbury Borough Council[1952] AC 109 , 133: “The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.””
“11. The [Companies Act 2006 ] effected a significant change in the statutory framework. Prior to that, and for many years, successive Companies Acts had distinguished between two different routes to a judicial restoration of a dissolved or struck off company. 12. The first, which originated in 1900 and thereafter appeared successively insection 242 of the Companies (Consolidation) Act 1908 ,section 295 of the Companies Act 1929 ,section 353 of the Companies Act 1948 andsection 653 of the Companies Act 1985 , conferred on the court a power in defined circumstances, though exercisable for up to 20 years after dissolution, to order the restoration to the register of a company previously struck off by the Registrar of Companies. The effect of such an order was stated as being that the company is “deemed to have continued in existence as if its name had not been struck off”. 13. The other, which originated in 1907 and thereafter appeared successively insection 223 of the 1908 Act ,section 294 of the 1929 Act ,section 352 of the 1948 Act andsection 651 of the 1985 Act , conferred on the court a general power, though exercisable only within two years of the date of dissolution of the company, to “make an order … declaring the dissolution to have been void”
“…the effect of the deeming provision was to validate retrospectively what had happened while the company was dissolved, so that once the restoration order was made the company was to be regarded as never having been dissolved.”
“… indicate that the deeming is directed towards the doing or undoing of “incidents, which if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it” or “consequences which followed from the company having been struck off or dissolved”
“In my judgment these authorities reflect a line between direct and secondary consequences.”
“[115] Ultimately and despite some discomfort about the position in relation to situations such as automatic forfeiture, I have reached the conclusion that this line between direct and indirect consequences is the line which the statute and the authorities indicate needs to be drawn. The deeming provision will have very wide application indeed. It will be (as it has been in the authorities) taken to undo the automatic consequences of a removal from the register or dissolution which is later undone in circumstances to which the deeming provision applies. [116] But there will be situations where consequences arise which are not automatic. A lease will become forfeit not because of the fact of the dissolution, but because, either consequent on that dissolution or independently of it, the lessee does not pay its rent. A contract will be repudiated for a similar reason and that repudiation will be accepted—as happened in the Contract Facilities Ltd case[2002] EWHC 2939 (QB) . Or, as in this case, a contractual party will have a choice as to whether to terminate a contract simply because of the removal from the register. The termination will not flow from, or be automatically a consequence of dissolution. It will occur where the party decides to make that decision and takes the step necessary to bring about that termination. Such consequences are, in my view, outwith the deeming provision.”
“I cannot possibly proceed on the basis that TFS would have lost at trial. Nor can I say that simply because the Settlement contained certain provisions, a consequence of making those concessions was that costs should be paid by TFS.”
“As regards pre-settlement costs, the proper starting point is that there should be no order as to costs, and that each party should bear their own. That is because I cannot decide who would have won because there was no determination, and the Settlement does not assist.”
“This is an appeal brought with leave of the single Lord Justice from the county court in relation to costs. As such, it is overcast, from start to finish, by the heavy burden faced by any appellant in establishing that the judge’s decision falls outside the discretion in relation to costs conferred upon him under rule 44.3(1) of theCivil Procedure Rules 1998 . For reasons of general policy, namely that it is undesirable for further costs to be incurred in arguing about costs, this court discourages such appeals by interpreting such discretion very widely.”
“However the approach is expressed, I consider that these authorities show that an appellate court will be even more reluctant than in the case of a costs order after a contested hearing to interfere with a costs order made at the request of the parties after they have settled the substantive issues between them.”
“The judge has a discretion to decline to do what the parties ask him to do. If, on the one hand, the action is for damages, it will be relatively easy for the judge to tell from the size of the settlement sum and from the litigation history (offers, payments in and so on) how the costs should be borne. As I have already said, it would be relatively unusual for the parties themselves not to agree on the costs of such cases. In more complex cases, however, involving a number of issues and claims for discretionary equitable relief, the costs position is much more difficult for the judge to resolve without actually trying the case.”
“The outcome will normally be different in cases where the consent order does not involve the claimant getting all, or substantively all, the relief which he has claimed. In such cases the court will often decide to make no order for costs, unless it can without much effort decide that one of the parties has clearly won, or has won to a sufficient extent to justify some order for costs in its favour. Thus the fact that the claimant has succeeded in obtaining part of the relief he sought may justify his recovering some of his costs, for instance where the issue on which the claimant succeeded was clearly the most important and/or expensive issue. But in many such cases the court may consider that it cannot fairly award the claimant any costs because, for instance, it is not easy to assess whether the defendants should have their costs of the issue on which the claimant did not succeed, and whether that would wipe out the costs which the claimant might recover in relation to the issue on which he won.”
“I would accept the argument that, where the parties have settled the claimant's substantive claims on the basis that he succeeds in part, but only in part, there is often much to be said for concluding that there is no order for costs.”
“there is a general “salutary” rule that costs follow the issue rather than the “event”
“At first sight the present case was one in which the judge would have been entitled – indeed, I would say well advised – to decline to make any order as to costs. The claimant had obtained judgment (by consent) for less than one third of the amounts which it had been claiming in the application for summary judgment. There was nothing which enabled the judge to decide whether the claimant had been willing to settle at less than the amount claimed because it accepted that it could not prove the amount of Funds in Use on which the claim was based or because it accepted that the liability of each defendant was capped at the£100,000 limit. It is pertinent to keep in mind that the defendants had accepted, on the pleadings, that they were each liable up to£100,000 to the extent that the claimant could prove loss in that amount. It was impossible – as it seems to me – to say that one party had obviously won and the other party had obviously lost.”