Fran, Gram and Hen registered a private limited company Ire Ltd in January 2005 with a share capital of ￡300, which was equally divided between them, with each of them becoming a director of the company.
Although the company did manage to make a small profi t in its fi rst year of trading, it was never a great success and in its second year of trading it made a loss of ￡10,000.
At that time Fran said he thought the company should cease trading and be wound up. Gram and Hen, however,were insistent that the company would be profi table in the long-term so they agreed to carry on the business, with Fran taking less of a part in the day-to-day management of the business, although retaining his position as a company director.
In the course of the next three years Gram and Hen falsifi ed Ire Ltd’s accounts to disguise the fact that the company had continued to suffer losses, until it became obvious that they could no longer hide the company’s debts and that it would have to go into insolvent liquidation, with debts of ￡100,000.
Required:
Advise Fran, Gram and Hen as to any potential liability they might face as regards:
(a) fraudulent trading, under both criminal and civil law; (5 marks)
(b) wrongful trading under s.214 of the Insolvency Act 1986. (5 marks)