The Fraudulent Trading Offence: Need for a Relook
Volume 4 Issue 2 (2011)
The main focus of the article is on the effectiveness of the criminal sanctions for fraudulent trading as a creditor protection mechanism. The article begins with an examination of the evolution of the duty of directors towards the creditors of the company. Then it seeks to address the main arguments advanced for and against penalising fraudulent trading. This is followed by an analysis of the fraudulent trading provision in India and UK. The study reveals that the provision has failed to achieve its purpose of punishing rogue managers and lax directors. It points out the flaws in the Indian law and proposes some suggestions to overcome the same. The main questions addressed in this article include: Who has a duty to prevent insolvent trading? When is the duty triggered? When can the company be said to be insolvent? And finally what is the scope of the duty to prevent insolvent trading?