Companies Act, 1990
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Civil liability of persons concerned for fraudulent or reckless trading of company. |
138.—The Principal Act is hereby amended by the insertion after section 297 of the following section— | |
“297A.—(1) If in the course of winding up of a company or in the course of proceedings under the Companies (Amendment) Act, 1990 , it appears that— | ||
(a) any person was, while an officer of the company, knowingly a party to the carrying on of any business of the company in a reckless manner; or | ||
(b) any person was knowingly a party to the carrying on of any business of the company 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 receiver, examiner, liquidator or any creditor or contributory of the company, may, if it thinks it proper to do so, declare that such person shall be personally responsible, without any limitation of liability, for all or any part of the debts or other liabilities of the company as the court may direct. | ||
(2) Without prejudice to the generality of subsection (1) (a), an officer of a company shall be deemed to have been knowingly a party to the carrying on of any business of the company in a reckless manner if— | ||
(a) he was a party to the carrying on of such business and, having regard to the general knowledge, skill and experience that may reasonably be expected of a person in his position, he ought to have known that his actions or those of the company would cause loss to the creditors of the company, or any of them, or | ||
(b) he was a party to the contracting of a debt by the company and did not honestly believe on reasonable grounds that the company would be able to pay the debt when it fell due for payment as well as all its other debts (taking into account the contingent and prospective liabilities). | ||
(3) Notwithstanding anything contained in subsection (1) the court may grant a declaration on the grounds set out in paragraph (a) of that subsection only if— | ||
(a) paragraph (a), (b) or (c) of section 214 applies to the company concerned, and | ||
(b) an applicant for such a declaration, being a creditor or contributory of the company, or any person on whose behalf such application is made, suffered loss or damage as a consequence of any behaviour mentioned in subsection (1). | ||
(4) In deciding whether it is proper to make an order on the ground set out in subsection (2) (b), the court shall have regard to whether the creditor in question was, at the time the debt was incurred, aware of the company's financial state of affairs and, notwithstanding such awareness, nevertheless assented to the incurring of the debt. | ||
(5) On the hearing of an application under this section, the applicant may himself give evidence or call witnesses. | ||
(6) Where it appears to the court that any person in respect of whom a declaration has been sought under subsection (1) (a), has acted honestly and responsibly in relation to the conduct of the affairs of the company or any matter or matters on the ground of which such declaration is sought to be made, the court may, having regard to all the circumstances of the case, relieve him either wholly or in part, from personal liability on such terms as it may think fit. | ||
(7) Where the court makes any such declaration, it may— | ||
(a) give such further directions as it thinks proper for the purpose of giving effect to that declaration and in particular may make provision for making the liability of any such person under the declaration a charge on any debt or obligation due from the company to him, or on any mortgage or charge or any interest in any mortgage or charge on any assets of the company held by or vested in him or any company or person on his behalf, or any person claiming as assignee from or through the person liable or any company or person acting on his behalf, and may from time to time make such further order as may be necessary for the purpose of enforcing any charge imposed under this subsection; | ||
(b) provide that sums recovered under this section shall be paid to such person or classes of persons, for such purposes, in such amounts or proportions at such time or times and in such respective priorities among themselves as such declaration may specify. | ||
(8) Subsection (1) (a) shall not apply in relation to the carrying on of the business of a company during a period when the company is under the protection of the court. | ||
(9) This section shall have effect notwithstanding that— | ||
(a) the person in respect of whom the declaration has been sought under subsection (1) may be criminally liable in respect of the matters on the ground of which such declaration is to be made; or | ||
(b) any matter or matters on the ground of which the declaration under subsection (1) is to be made have occurred outside the State. | ||
(10) For the purposes of this section— | ||
‘assignee’ includes any person to whom or in whose favour, by the directions of the person liable, the debt, obligation, mortgage or charge was created, issued or transferred or the interest created, but does not include an assignee for valuable consideration (not including consideration by way of marriage) given in good faith and without notice of any of the matters on the ground of which the declaration is made; | ||
‘company’ includes any body which may be wound up under the Companies Acts; and | ||
‘officer’ includes any auditor, liquidator, receiver, or shadow director.”. |