aropa
Albert and Chang, full time executive directors of ABC Garage Ltd can be found liable under s 136 of Companies Act 1993 for reckless trading and incurring obligation that cannot be performed.
Firstly the tentative nature of the Memorandum of Understanding is indicative of the uncertainty of the project and thus the high risk present by investing in it. Nevertheless both directors honestly thought the project would greatly benefit the company if the opportunity was materialized and therefore it can be considered as a legitimate risk. However with the declining business environment and the negative loss reported by the Japanese manufacturer, deciding to continue on with the project in addition with the tentative nature of the MoU was an extremely reckless decision from the director’s part. The directors at that point should have stopped the project. But by increase the company’s borrowings and engaging in additional contractors to carry out interior works at the four locations, it was clear the executive directors did not have any facts on reasonable grounds to conclude that they would be able to pay obligation as it falls due especially at a time when business was showing a falling trend in revenue. Since all elements of s 136 are present as outlined in Peace and Glory Society Ltd v Samsa, it can be held that both Albert and Chang are personally liable for trading in a reckless manner that increased the risk on creditors.
Another relief available to creditors is under s 301, (c) of the act where in case of liquidation due to directors the court can order the directors to pay money the court thinks is right to the creditors.
In the case of Basil who was the non-executive director of the company can be found liable for breach of s 135 for allowing the business of the company to be carried on in reckless manners which led to liquidation of the business. Although he cautioned the other directors against going ahead with the interior works he took no action to stop
Firstly the tentative nature of the Memorandum of Understanding is indicative of the uncertainty of the project and thus the high risk present by investing in it. Nevertheless both directors honestly thought the project would greatly benefit the company if the opportunity was materialized and therefore it can be considered as a legitimate risk. However with the declining business environment and the negative loss reported by the Japanese manufacturer, deciding to continue on with the project in addition with the tentative nature of the MoU was an extremely reckless decision from the director’s part. The directors at that point should have stopped the project. But by increase the company’s borrowings and engaging in additional contractors to carry out interior works at the four locations, it was clear the executive directors did not have any facts on reasonable grounds to conclude that they would be able to pay obligation as it falls due especially at a time when business was showing a falling trend in revenue. Since all elements of s 136 are present as outlined in Peace and Glory Society Ltd v Samsa, it can be held that both Albert and Chang are personally liable for trading in a reckless manner that increased the risk on creditors.
Another relief available to creditors is under s 301, (c) of the act where in case of liquidation due to directors the court can order the directors to pay money the court thinks is right to the creditors.
In the case of Basil who was the non-executive director of the company can be found liable for breach of s 135 for allowing the business of the company to be carried on in reckless manners which led to liquidation of the business. Although he cautioned the other directors against going ahead with the interior works he took no action to stop