Fraudulent and wrongful trading of directors under Act XXV of 1995

Abstract

The provisions on fraudulent trading and wrongful trading were introduced by Act XXV of 1995, better known as the Companies Act, 1995. Such relatively new legislation has not yet had the occasion of being judicially examined by our courts. This thesis, therefore, relies rather heavily on the comparative study of these provisions in other legislations. Considerable detail is given to the legislative history of these concepts which had primarily emerged under English company law. In the writer's opinion, it is through such meticulous observation of the evolution of fraudulent and wrongful trading that, both their strong points, as well as their inadequacies emerge. Although the introduction of wrongful trading was intended as an alternative to fraudulent trading, the utility of the latter section has been examined in so far as it distinguishes the fraudulent director from the negligent one. An overview of other legislations, in particular the Irish, South African and that of New Zealand, which have opted to complement the fraudulent trading provision with that of reckless trading has also be examined for comparative purposes. This thesis has pondered on the Maltese position prior to the Companies Act, 1995, with the specific intention of pointing out any similar remedies which may have been available to a company creditor against directors acting either in bad faith or negligently. The focus lies, inevitably, on the legislative development which was brought about by the new Companies Act in order to cater for a more sophisticated and modern trading community. The writer did not intend to dwell on the previous position, but merely to allude to the need for reform. The aim of this thesis was to study the growth of the provisions on fraudulent and wrongful trading in other legislations. Emphasis is given, in particular, to the judicial interpretation which developed in foreign courts. The overview of this study may serve as guidance in the adaptation of this provision in our legal system and as an indication of their impact on company law in Malta.