Yes, a single transaction can constitute fraudulent trading under the 2015 Act if it results in damage to creditors and attracts moral blame, regardless of the magnitude or frequency of the fraudulent act.
The official receiver, the liquidator, or any creditor or contributory of the company.
To treat the liabilities or activities of a company as the rights or liabilities or activities of its shareholders.
To look behind the shareholding in the company for some legal purpose.
Directors or other persons who actively engage in the day-to-day management of the company's affairs or exercise some measure of control over its business.
To impose personal liability on members or officers of the company for any loss or damage suffered by third parties who transact business with the company while its directors, members, or officers are in contravention of specified statutory obligations.
Section 1002 of the 2015 Act is critical when a company is in financial distress, as it addresses the liability of directors who shift financial burdens from shareholders onto creditors, attracting legal sanctions for such conduct.
Lifting the veil of incorporation by no means destroys the legal personality of the company.
The court will pierce the corporate veil to do justice by treating a company as identical with the person or persons who control it, especially in cases of fraud, improper conduct, or where the character of the company or the nature of the persons who control it is a relevant feature.
A person commits the offence of fraudulent trading if they are knowingly party to the carrying on of a company's business with intent to defraud creditors or for any other fraudulent purpose.
The courts refused to violate the sacred cannon of limited liability or to do anything inconsistent with the principle of separate personality.
The incorporation of Farrars Ltd had the fundamental effect of separating the business affairs of the company from the personal affairs of the two shareholders.
The penalties for fraudulent trading under the 2015 Act include a fine not exceeding ten million shillings or imprisonment for a term not exceeding ten years, or both.
Chadwick LJ observed that Parliament did not intend for the court's power under Section 1002 to be invoked whenever any creditor of the company has been defrauded in the course of carrying on the business of the company.
Directors may be held liable to contribute to the assets of an insolvent company if they continue to incur liabilities when it should have been apparent that the company would not avoid insolvent liquidation. Their conduct can attract legal sanctions.
The four principles are: dishonesty as an essential ingredient, the mischief sought to be redressed is 'fraudulent trading' generally, the offence can be constituted by a single transaction defrauding one creditor, and it can only be committed by persons exercising some managerial function within the company.
The plaintiff sought an order of the Court to lift the first defendant's veil of incorporation and hold its directors personally liable for its judgment debt.
Section 1002(1) imposes criminal liability for fraudulent trading, stating that if any business of a company is carried on with intent to defraud creditors or for any fraudulent purpose, each person who knowingly participates in carrying on the business in that manner commits an offence.
The law might disregard a company's separate personality to draw its individual members or agents into, and make them accountable for, the legal relationships that the company purportedly entered into.
They were interpreted to imply that a person should be held responsible for 'actual dishonesty involving, according to current notions of fair trading among commercial men, real moral blame.'
It is appropriate to pierce the corporate veil only where special circumstances exist indicating that it is a mere facade concealing the true facts.
The primary aim of section 100 is at the carrying on of a business and not at the execution of individual transactions.
Section 11(1) of the 2015 Act prescribes no statutory minimum as respects the number of persons who may form a private or public company.
The 2015 Act permits registration of a company by one or more persons subscribing their names to a memorandum of association and complying with the requirements of sections 13 to 16.
To establish who, other than the company, is responsible for acts tainted with fraud or other moral blame for which the company, its directors, and officers are jointly and severally liable.
It must be shown to the satisfaction of the court that, on a balance of probability, the business of the company has been carried on with intent to defraud its creditors.
A common element of fraudulent trading is when directors of an insolvent company continue to carry on its business well aware that it is incapable of satisfying its creditors.
Directors can be held liable for a company's debts if they have acted irresponsibly, such as closing their eyes to the reality of the company's insolvency and not making any genuine attempt to address the company's real position.
The case Re Sherborne Associates Ltd established that directors can be held liable if they have acted irresponsibly, such as ignoring the reality of the company's insolvency.
Section 1002 provides a basis for the court to lift the veil of incorporation of a company and justify civil proceedings to recover moneys obtained by directors or officers in fraudulent trading.
Salomon's case demonstrated that upon incorporation under the Companies Act, a company is both an association of its members and a distinct person separate from those members.
A creditor applied for a declaration that the company and its directors were knowingly party to carrying on the company's business with intent to defraud creditors and for other fraudulent purposes.
No, mere silence and omission do not amount to fraud or fraudulent purpose within the meaning of section 1002.
Morgan J observed that if directors continue to carry on business and incur debts when there is no reasonable prospect of the creditors ever receiving payment, it is generally a proper inference that the company is carrying on business with intent to defraud.
No, an officer's failure to stop a company from trading fraudulently, or mere inertia, does not of itself import liability under the Act.
Ringera J observed that the veil of incorporation is not to be lifted merely because the company has no assets or is insolvent. The law provides remedies for such situations.
No, criminal sanctions do not relieve the relevant person from liability in civil proceedings. Any person in breach of statute may be held personally liable in tort in recoverable civil proceedings.
'Carrying on business with intent to defraud creditors' involves dishonesty or criminal intent and attracts criminal sanctions, while 'a fraud on a customer' attracts liability in tort and compensation in civil proceedings.
The court lifts the corporate veil for a specific purpose and does not in any way destroy the recognition of the corporation as an independent and autonomous entity for all lawful purposes.
The money may be treated as part of the company's assets available for distribution among its creditors or refunded to the defrauded creditor or creditors.
One of the primary roles of a liquidator is to collect in and augment the asset pool available for distribution to the creditors.
Section 1002 requires directors to take some action to arrest their company's slide into insolvency and engage in more rigorous monitoring of their company's fiscal health.
Gikonyo J emphasized that the separate corporate personality is a crucial legal innovation, making a company a different person altogether from its subscribers and directors, and it should not be departed from except where the statute or law provides for lifting the corporate veil.
The court must be satisfied that the ingredients of section 1002 have been met and that the acts in issue would attract the prescribed sanctions.
The expression 'party to' indicates participation, taking part in, or concurring in the fraudulent business activities, involving some positive steps.
The corporate veil can be pierced by some other statute if such other statute so provides, as long as such intention is expressed in clear and unequivocal language.
It is a question of both law and fact to be determined on the merits of each case.
Courts could disregard the corporate status of a company and shift liability to the remaining member or members without limitation.
No, according to subsection (2) of section 1002, it is immaterial whether the company has been liquidated or is in liquidation.
It is important to maintain the distinction to ensure that the company's actions, assets, rights, and liabilities are separate from those of the individual shareholders.
Common sense dictates that a business cannot be properly characterized as having a fraudulent purpose when only a single transaction was carried out fraudulently, unless it can be shown that the business was only set up for that purpose.
Valid reasons must exist to justify the court to deny benefits of corporate status.
The court endeavors to discover and recognize the substance or practical realities of a situation behind the legal facade rather than the form.
The plaintiff's prayer was to saddle the director of the company with the debts of the company.
Exceptions have been made where the principle is too flagrantly opposed to justice or convenience, such as in cases of fraudulent and improper design by scheming directors or shareholders.
Courts have lifted the corporate veil to identify and punish persons who misuse the medium of corporate personality for fraudulent and mischievous schemes, in the interest of justice or public interest.
It must be shown that the person is taking some positive steps in carrying on the company's business in a fraudulent manner.
The trial court allowed the dismissal of the suit against the second and third respondents on the grounds that, in the absence of fraudulent intention or purpose, the shareholders of the company were not liable for its debts.
The sections aim to punish fraudulent conduct by the company's directors and officers, establish liability for civil action to augment the assets pool of the insolvent company, and provide the basis for securing injunctive relief and compensation for loss or damage.
Courts might disregard the corporate status in situations where they are of the considered view that injustice would be done in upholding the legal personality of the company and the limited liability of its shareholders.
Havelock J stated that no one can escape liability for their fraud by claiming they are committing it on behalf of someone else and are not personally liable.
Staughton LJ observed that piercing the veil occurs only where what has been done by or to a company is treated as though it were done by or to some other person or vice versa.
Fraudulent trading requires the use of a company to perpetrate the conspiracy, whereas conspiracy to defraud does not necessarily involve a company.
Mabeya J referenced the principle of separate legal personality of a company as enunciated in Salomon v Salomon and Co. Ltd, stating that directors are generally not personally liable on contracts purporting to bind their company.
Innumerable judicial decisions have upheld that when a company is incorporated, its members enjoy distinct legal personality and limitation of liability for the company's debts.
Templeman J stated that carrying on business with intent to defraud creditors occurs if deposits are accepted knowing that the company cannot supply the goods and is insolvent.
Yes, a single transaction can constitute the offence of fraudulent trading, but it does not apply where the offence is based on a fraudulent purpose other than the intent to defraud creditors.
The mischief and consequent injury arising from fraud or abuse of corporate form.
Upon registration, a corporate veil signifies that the company is a separate person distinct from its members and agents.
The court may declare that the person is personally responsible (jointly or severally) for all or any of the debts or other liabilities of the company, without any limitation of liability.
Section 1002 applies where it is shown to the satisfaction of the court that the course of fraudulent trading with the intention of defrauding creditors is the main purpose for which the company's business is conducted.
Because (a) there would be no person to carry out business and be personally liable for the debts of the company during such reduction; (b) the death of an only member does not negate the legal personality of the company; (c) the share of the deceased in the capital of the company devolves upon the personal representative.
It impels directors to act prudently by providing the basis for scrutinizing the real intention or moral inclination of any of the parties involved in transactions.
No, the inability of a creditor to enforce a decree against a company does not constitute sufficient basis for inferring fraudulent conduct on the part of its directors.
The court may grant injunctive relief on application by any aggrieved person in accordance with sections 1003 and 1004 of the Act.
