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CPA1L8 7 ersonal LlablllLy of Members ulrecLors and Cfflcers

1 ersonal llablllLy
71 naLure of personal llablllLy
A company as a legal person shall be solely responslble for all Lhe debLs and
obllgaLlons whlch lL lncurs or assumes ALLempLs have been made from Llme Lo Llme
Lo make Lhe members (and noLably Lhe parenL company of lLs subsldlarles) llable for
Lhe debLs and obllgaLlons of Lhe companles LhaL Lhey conLrol A slmllar poslLlon can
be found ln dlrecLors or offlcers exposure Lo llablllLles of Lhe companles for whom
Lhey acL
1here are occaslons when sLaLuLes make members and dlrecLors responslble for Lhe
acLs of Lhe companles or oLherwlse make Lhem llable for Lhe companles debL
obllgaLlons ln glven slLuaLlons ln a sense Lhese can be vlewed as a klnd of excepLlon
Lo Lhe prlnclple of separaLe legal enLlLy when Lhe corporaLe vell ls llfLed or plerced by
sLaLuLes1he courLs are frequenLly called upon Lo lnLerpreL and glve effecL Lo Lhe
sLaLuLes ln lnLerpreLlng a sLaLuLe Lhe courLs may adopL a purposlve approach Lo glve
effecL Lo Lhe obvlous lnLenLlon of Lhe sLaLuLes and Lo redress Lhe mlschlef
2 ersonal llablllLy of members
72 LlmlLed llablllLy
1he aLLracLlveness of uslng a llmlLed company for Lhe purpose of carrylng on buslness
ls Lhe prlvllege whlch a company may confer on lLs members ln Lhe evenL of a
company llquldaLlon le members llablllLy ls llmlLed Lo Lhe unpald amounL of Lhe
shares whlch Lhey have subscrlbed or Lhe amounL whlch Lhey have guaranLeed Lo
conLrlbuLe ln a llquldaLlon 1hese are Lhe mlnlmum amounL for whlch Lhey are llable
as a conLrlbuLory under secLlon 170
73 1ransacLlons of dormanL companles
ersonal llablllLy wlll be lmposed on shareholders of a company whlch has soughL a
'dormanL' sLaLus and whlch enLers lnLo a relevanL accounLlng LransacLlon
subsequenLly le a LransacLlon whlch ls requlred by secLlon 121 Lo be enLered lnLo Lhe
companys books of accounL oLher Lhan paymenL of prescrlbed fees ln clrcumsLances
where Lhey know or oughL Lo have known abouL Lhe relevanL accounLlng LransacLlon
secLlon 344A(6)(b)
74 Crlmlnal llablllLy
Where a company commlLs a crlmlnal offence lLs conLroller may also be gullLy of Lhe
llke offence1 WhllsL llablllLy of such a naLure ls sLaLuLe made lL ls lnvarlably
appllcable Lo dlrecLors who acLually run Lhe company so LhaL lL can effecLlvely be
argued LhaL Lhe dlrecLor caused Lhe company Lo commlL Lhe wrong As companles
are generally consldered as operaLlng lndependenLly of Lhelr members Lhe
clrcumsLances where Lhe members are made sLaLuLorlly llable for Lhe corporaLe
wrong are uncommon ln any evenL sLaLuLes whlch seek Lo lmpose llablllLy or
responslblllLy on members when Lhe companles Lhey own have commlLLed crlmlnal
wrongs normally requlre a heavy and subsLanLlal lnvolvemenL on Lhe parL of Lhe
members lor example ln Lhe Money Lenders Crdlnance2 Lhe SecurlLles and luLures
Crdlnance3 and Lhe Companles Crdlnance4 Lhe sLaLuLory offences lmposed on Lhe
companles wlll equally be appllcable Lo members who acLually manage Lhe
73 unlawful dlsLrlbuLlon
Where Lhere ls an unlawful dlsLrlbuLlon made ln conLravenLlon of arL llA Lo a
member and aL Lhe Llme of Lhe dlsLrlbuLlon Lhe member knows or has reasonable
grounds for bellevlng LhaL lL ls so made he ls llable Lo repay lL Lo Lhe company
secLlon 79M
76 CollaLeral llablllLy/guaranLee
lrom Llme Lo Llme shareholders of a company may be called upon Lo guaranLee Lhe
conLracLual obllgaLlon of Lhe companles whlch Lhey conLrol or Lhe companles due
performance of cerLaln obllgaLlons1hls may be Lhe case when Lhe shareholders (as
well as dlrecLors) are requlred Lo execuLe a personal guaranLee ln supporL of a
corporaLe loan or Lhe granLlng of a lease ln favour of Lhe company
WheLher Lhe conLracLual documenL glves rlse Lo a debL obllgaLlon wlll depend on Lhe
documenL lLself arenL companles are frequenLly requlred Lo slgn and execuLe
guaranLees Lo supporL credlL exLended by lenders Lo Lhelr subsldlarlesSuch forms of
guaranLee may be vlewed Lo be mosL undeslrable as Lhelr exlsLence obllges Lhe
parenL companles Lo make dlsclosure by way of noLes Lo Lhelr accounLs as a
conLlngenL llablllLy 1o avold any adverse lnference arlslng from unnecessary
dlsclosure parenL companles may choose Lo offer or provlde a leLLer of comforL Lo
Lhe flnanclers/lenders Lo lnduce Lhem Lo make Lhe loan/advance 1he sLaLemenL of
comforL glven by Lhe parenL companles may noL be lnLended Lo be a conLracLual
promlse oLher Lhan a represenLaLlon of facL glvlng rlse Lo a moral responslblllLy on
Lhe parL of Lhe parenL companles buL no more lL ls a maLLer of lnLerpreLaLlon of Lhe
parLlcular sLaLemenL as Lo wheLher lL glves
rlse Lo a legally blndlng relaLlon klelnworL 8enson LLd v Malaysla Mlnlng Corp 8hd
1989 1 All L8 7833
3 ersonal llablllLy of dlrecLors and offlcers
77 naLure of llablllLy
ln a normal case a dlrecLor acLlng as an agenL for a company and havlng proper
auLhorlLy delegaLed by Lhe company Lo acL ln a parLlcular LransacLlon does noL lncur
any personal llablllLy ln cerLaln slLuaLlons sLaLuLory lnroads are made whereby a
dlrecLor may be lmposed such personal llablllLy for whlch Lhe company wlll oLherwlse
be solely responslble Such personal llablllLy may Lake Lhe form of an absoluLe or
sLrlcL llablllLy lmposed by sLaLuLe CLhers may arlse because of Lhe fallure on Lhe parL
of Lhe dlrecLor Lo comply wlLh cerLaln prescrlbed sLandards or proceduresln yeL
some oLher cases a dlrecLor may be held llable because he falls Lo aLLaln Lhe
sLandard expecLed of hlm or because Lhe company brlngs abouL a prohlblLed
consequence under hls conLrol or wlLh hls acqulescence 1he clrcumsLances ln whlch
a dlrecLor may be held llable for corporaLe debLs or wrongs are varlous and Lhe
followlng are Lhe more commonly found examples buL Lhey are by no means
78 LlablllLy for mlsdescrlpLlon
lnaccuraLe descrlpLlon of company ln a conLracL
Where a conLracL lnaccuraLely descrlbes a company Lhe company ls sLlll enLlLled Lo
enforce Lhe conLracL lf lL ls clear LhaL Lhe lnLenLlon ls Lo name LhaL company 8lrd
Co London LLd v 1homas Cook Son (8ankers) LLd 19372 All L8 222 Slnce a
company can be ldenLlfled by lLs buslness place of buslness dlrecLors and
shareholders lL seems LhaL Lo descrlbe Lhe company wlLh preclslon ls noL a condlLlon
for Lhe valldlLy of Lhe conLracL l ColdsmlLh (Slcklesmere) LLd v 8axLer 1970 Ch 89
Powever where lL ls unclear as Lo whaL name ls lnLended Lhe documenL wlll noL be
effecLlve uavles v Llsby 8ros LLd 1961 1 WL8 170
ersonal llablllLy for mlsdescrlpLlon of company name
SecLlon 93(1)(c) requlres every company Lo sLaLe lLs name ln leglble characLers ln
lnLer alla all conLracLs deeds bllls of exchange promlssory noLes endorsemenLs
cheques and orders for money or goods purporLlng Lo be slgned by or on behalf of
Lhe company and ln all conslgnmenL noLes lnvolces recelpLs and leLLers of credlL of
Lhe company SecLlon 93(3) lmposes personal llablllLy on Lhe offlcer of a
company or anyone acLlng on lLs behalf who falls ln such cases Lo sLaLe Lhe
companys name ln leglble characLers
ersonal llablllLy ls lmposed noL only on Lhe person who slgns Lhe documenL wlLh Lhe
mlsdescrlpLlon of Lhe company name buL also on Lhe person who auLhorlses Lhe
slgnaLure Clvll Servlce CooperaLlve SocleLy LLd v Chapman (1914) 30 1L8 679 1hls ls
Lhe case even lf Lhe slgnaLory has no knowledge of Lhe lmproper execuLlon 1he
raLlonale for lmposlng personal llablllLy ls Lo ensure LhaL Lhe ldenLlLy of Lhe company
ls properly drawn LlablllLy ls also lmposed on Lhose who auLhorlse an unslgned order
for goods on behalf of a company Cshkosh 8 Cosh lnc v uan Marbel lnc LLd (1989)
8CLC 307 Powever a responslble offlcer who glves a general auLhorlsaLlon Lo slgn
and execuLe Lhe documenL wlLhouL Lhe companys correcL name does noL sufflce for
personal llablllLy Lo arlse and hls knowledge of Lhe use of Lhe speclflc form wlLhouL
Lhe companys name ls necessary !ohn Wllkes (looLwear) LLd v Lee lnLernaLlonal
(looLwear) LLd 1983 8CLC 444
1he followlng examples are from declded cases ln whlch Lhe companys name was
noL sLaLed ln leglble characLers wlLh Lhe resulL LhaL Lhe slgnaLory was held Lo be
personally llable for Lhe companys debL

Anderson 8lalr (roperLy uevelopmenL) LLd' was wrongly sLaLed as 'Messrs
Anderson 8lalr' ScoLLlsh newcasLle 8rewerles LLd v 8lalr eLc 1967 SL1 72

Mlchael !ackson (lancy Coods) LLd' was wrongly sLaLed as 'M !ackson (lancy Coods)
LLd' uurham lancy Coods LLd v Mlchael !ackson (lancy Coods) LLd 1968 2 C8 839

L 8 Agencles LLd' was wrongly sLaLed as 'L 8 Agencles LLd' Pendon v Adelman
(1973) 117 S! 631

where 'LLd' was omlLLed from Lhe companys name 8rlLlsh Alrways 8oard v arlsh
19792 Lloyds 8ep 3616

where Lhe Lrade name 'lLaldeslgn' was used lnsLead of Lhe company name 'Marlanl
and Coodvllle LLd' Maxform SpA v Marlanl 1981 2 Lloyds 8ep 347

where Lhe flrms name 'Penwoods' was used lnsLead of Lhe companys name
'LlberLas (Andrles SLreeL) (roprleLary) LLd' noLwlLhsLandlng LhaL Lhe company was
Lhe proprleLor of Lhe buslness Abro v SofLex MaLLress (Le) LLd 1973(2)u CLu

1he 8asLllle SyndlcaLe LLd' was mlsnamed as 'Cld arls and 8asLllle SyndlcaLe LLd' by
addlng words Lo Lhe name nassau SLeam ress v 1yler (1894) 70 L1 376

8 C AssoclaLes (London) LLd' was mlsdescrlbed as '8 C AssoclaLes LLd' 8arber
nlcholls LLd v 8 C AssoclaLes (London) LLd (1981) 132 nL! 1076

where 'SA unllsLed Sec MarkeL Lxchange (Le) LLd 1/A uSM lnvesLmenLs' was used as
Lhe name drawn on Lhe cheque lnsLead of lLs Lrue name of 'SouLh Afrlcan unllsLed
SecurlLles MarkeL Lxchange (Ly) LLd' LpsLeln v 8ell Crs (1997) (1) SA 483

slgned cheques whlch bore companys accounL number buL noL lLs name 8asfan[an
lsLachlo roducers CooperaLlve v 8elss 1970 8CLC 3328
ln deLermlnlng wheLher a parLlcular name saLlsfles secLlon 93(3) secLlon 94 provldes
LhaL Lhe use of Lhe followlng descrlpLlon of a company shall noL be regarded as
lnadequaLe or lncorrecL

Lhe abbrevlaLlon 'Co' or 'Coy' ln lleu of Lhe word 'Company'9 or vlce versa

Lhe abbrevlaLlon 'LLd' ln lleu of Lhe word 'LlmlLed'10 or vlce versa

Lhe abbrevlaLlon 'Pk' or 'Pk' ln lleu of Lhe words 'Pong kong' or vlce versa

Lhe symbol '' ln lleu of Lhe word'and' or vlce versa

any Lype or case of leLLers spaces beLween leLLers accenLs or puncLuaLlon marks
whlch are noL Lhe same as Lhose appearlng ln Lhe name of Lhe company
A defence Lo Lhe llablllLy lmposed under secLlon 93(3) ls avallable ln Lhe followlng

when Lhe mlsdescrlpLlon of Lhe companys name was caused or lnserLed by Lhe
plalnLlff who ls Lhen responslble for Lhe correcLness of Lhe name uurham lancy
Coods LLd v Mlchael !ackson (lancy Coods) LLd 1968 2 C8 839

when Lhe name of Lhe company was merely mlsspelL and Lhe persons deallng wlLh
Lhe company knew LhaL Lhey were deallng wlLh a llmlLed company and wlLh LhaL
parLlcular company !enlce LLd v uan 1993 8CLC 134911

where llablllLy arose from Lhe order for Lhe supply of a servlce as opposed Lo goods
for example elecLrlclLy LasL Mldlands LlecLrlclLy 8oard v CranLham 1980 CL? 271

where Lhe company Lraded under lLs new name before Lhe cerLlflcaLe of
lncorporaLlon on change of name was lssued ln clrcumsLances where Lhere had been
sufflclenL dlsclosure of Lhe agenLs prlnclpal by Lhe use of a Lrade name or where Lhe
conLracL had been made wlLh an undlsclosed buL exlsLlng prlnclpal wlLh Lhe exlsLlng
lncorporaLlon number vlc Spence AssoclaLes v 8alchln (1990) SL1 1012

where Lhose who auLhorlsed Lhe LransacLlons were unaware of Lhe use of Lhe wrong
name and who should noL be Laken Lo have auLhorlsed Lhe form of documenL
wlLhouL Lhe companys name or lLs correcL descrlpLlon !ohn Wllkes (looLwear) LLd v
Lee lnLernaLlonal (looLwear) LLd 1983 8CLC 444

where a blll was drawn on a company ln lLs correcL name as a drawee buL Lhe name
was glven lncorrecLly ln Lhe accepLance uermaLlne Co LLd v AshworLh (1903) 21 1L8
lL ls no defence Lo Lhe llablllLy lmposed under secLlon 93(3) lf

Lhe name of Lhe company was sLaLed lncorrecLly boLh as drawee and as accepLor buL
Lhe companys correcL name could have been ascerLalned by Laklng words from boLh
lncorrecL names ALkln v Wardle (1889) 3 1L8 734

Lhe plalnLlff ofLen referred Lo Lhe company by Lhe wrong name so LhaL Lhe plalnLlff
should be esLopped from asserLlng noncompllance where Lhe name on Lhe
documenL was sLaLed lncorrecLly by Lhe defendanL 8arber nlcholls LLd v 8 C
AssoclaLes (London) LLd (1981) 132 nL! 1076

Lhe companys name was sLaLed lncorrecLly ln Lhe documenL by Lhe plalnLlff buL Lhe
slgnaLory musL have reallsed lL Maxform SpA v Marlanl 1981 2 Lloyds 8ep 34

Lhe oLher parLy was noL mlsled by Lhe mlsdescrlpLlon ScoLLlsh and newcasLle
8rewerles v 8lalr (1967) SL1 72
79 LxecuLlon of negoLlable lnsLrumenLs
8elaLlonshlp wlLh company descrlpLlon and presumpLlon ln favour of Lhlrd parLy
Compllance wlLh secLlon 93(3) does noL mean LhaL slgnaLorles are lmmune from
personal llablllLy ln respecL of bllls of exchange and promlssory noLes secLlon 33 of
Lhe Companles Crdlnance sLaLes LhaL Lhey wlll be consldered Lo have been made
accepLed or endorsed on behalf of a company lf made accepLed or endorsed ln Lhe
name of by
on behalf of or on accounL of Lhe company by any person acLlng under lLs
SecLlon lmposlng llablllLy
SecLlon 26 of Lhe 8llls of Lxchange Crdlnance provldes LhaL
Where a person slgns a blll as drawer endorser or accepLor and adds words Lo hls or
her slgnaLure lndlcaLlng LhaL he or she slgns for or on behalf of a prlnclpal or ln a
represenLaLlve characLer he or she ls noL personally llable Lhereon buL sub[ecL Lo
secLlon 26A Lhe mere addlLlon Lo hls or her slgnaLure of words descrlblng hlm or her
as an agenL or as fllllng a represenLaLlve characLer does noL exempL hlm or her from
personal llablllLy
under secLlon 26A lL ls provlded LhaL
A person who makes accepLs or endorses a blll for ln Lhe name of on behalf of or
on accounL of a company shall noL be llable ln respecL of LhaL maklng accepLance or
endorsemenL where on a proper consLrucLlon of Lhe blll as a whole LhaL maklng
accepLance or endorsemenL ls a maklng accepLance or endorsemenL of LhaL
lL ls noL easy Lo deLermlne wheLher ln parLlcular clrcumsLances Lhe slgnaLory of a
llmlLed company ls slgnlng ln a represenLaLlve capaclLy WhaL maLLers ls wheLher Lhe
slgnaLory has aL Lhe Llme of slgnlng lndlcaLed LhaL Lhe slgnlng ls on behalf of a
prlnclpal or ln a represenLaLlve characLer
Lxamples where llablllLles arlse
lL ls noL good enough Lo quallfy Lhe slgnaLure by descrlblng Lhe slgnaLorys capaclLy
as an agenL ersonal llablllLy wlll be assumed lf Lhe slgnaLory slgns ln any of Lhe
followlng ways

slgnaLorys name ulrecLor of A8C Co LLd

slgnaLorys name AgenL of A8C Co LLd

slgnaLorys name resldenL of A8C Co LLd or

slgnaLorys name Chalrman of A8C Co LLd
Lxamples where no llablllLles wlll arlse
ln conLrasL Lhe slgnaLory wlll be slgnlng ln a represenLaLlve capaclLy and wlll Lhus
assume no llablllLy lf he slgns as

slgnaLorys name for and on behalf of A8C Co LLd

slgnaLorys name slgnlng as Lhe agenL of A8C Co LLd

slgnaLorys name per pro A8C Co LLd or

slgnaLorys name for A8C Co LLd
Case auLhorlLles
ln kwok Wlng v MayLex 1radlng Co (1977) PkL8 149 Lhe dlrecLor of a company
slgned cheques above Lhe word 'dlrecLor' and Lhe cheques bore Lhe lmpresslon of
Lhe rubber sLamp of Lhe company on whose accounL Lhe cheques were drawn lL was
held LhaL Lhe poslLlon and
quallfled manner ln whlch Lhe slgnaLory placed hls slgnaLure showed LhaL Lhe
slgnaLure was Lo auLhenLlcaLe Lhe lmpresslon of Lhe companys sLamp 1he
lmpresslon and Lhe slgnaLure LogeLher formed Lhe 'composlLe slgnaLure' of Lhe
1he kwok Wlng case has slnce been relnforced by secLlon 26A of Lhe 8llls of Lxchange
Crdlnance ln approachlng a problem llke Lhls Lhe courL wlll consLrue Lhe blll as a
whole Lo deLermlne wheLher Lhe slgnaLure ls LhaL of Lhe company
1he kwok Wlng case was approved and followed by Lhe CourL of Appeal ln Lark
lnLernaLlonal llnance LLd v Lam klm Marlsa L/a kam Sang Co Crs 2000 4 PkC 688
ln whlch !usLlce 8ogers v referred Lo Lhe [udgmenL of Solomon ! ln nlcolaldes v
Penwood Son SouLLer Co (1938) 1u 390 (clLed by Pugglns !A ln Lhe kwok Wlng
case) concernlng Lhe raLlonale for Lhe recognlLlon of corporaLe composlLe slgnaLures
Solomon ! sald aL page 394
8uL Lhe companys sLamp ls more complex and forblds Lhe name of Lhe company Lo
sLand alone 1he supporL of a dlrecLors slgnaLure ls necessary Lo compleLe Lhe
slgnaLure of Lhe company ln Chapman v SmeLhursL (1909) 1 k8 927 Lhls klnd of
slgnaLure was called a composlLe slgnaLure When Lhe companys sLamp had been
lmposed on Lhe bllls and before Lhe defendanL slgned hls name Lhe accepLances
were lncompleLe buL Lhey were Lhose of Lhe company parLlally compleLed 1he
sLamped words applled only Lo Lhe company and were ln no sense descrlpLlve of Lhe
defendanL As soon as Lhe defendanL had wrlLLen hls name on Lhe doLLed llne Lhe
accepLance was compleLe because Lhe composlLe slgnaLure of Lhe company was
Lhereby compleLed 1he form of slgnaLure ls Lherefore lnconslsLenL wlLh lLs belng LhaL
of Lhe defendanL and conslsLenL only wlLh lLs belng LhaL of Lhe company 1he
sLamped porLlon of Lhe composlLe slgnaLure could only belong Lo Lhe company Lhe
wrlLLen porLlon was added also belonglng Lo Lhe company ln Lhe person of lLs offlclal
1o converL lL lnLo Lhe defendanLs personal slgnaLure would be Lo conLradlcL lLs
A slmllar approach was adopLed ln Lhe uk declslon ln 8ondlna LLd v 8ollaway Shower
8llnds LLd Crs 19861 All L8 364 where Lhe courL held LhaL for Lhe purpose of
flxlng personal llablllLy Lhe blll should be consldered ln lLs enLlreLy ln parLlcular Lhe
prlnLed chequeform whlch sLaLed Lhe companys name and whlch conLalned Lhe
companys accounL number was clearly lndlcaLlve of Lhe dlrecLors noL slgnlng ln Lhelr
personal capaclLy14
710 LlablllLy ln LorL
Ceneral 8ule
ln general a dlrecLor ls noL llable for any corporaLe wrong 1hls was emphaslsed by
Slade L! ln C Lvans and Sons LLd v SprlLebrand LLd 1983 1 WL8 317
where he sald aL page 329 ' a dlrecLor of a company ls noL auLomaLlcally Lo be
ldenLlfled wlLh hls company for Lhe purpose of Lhe law of LorL however small Lhe
company may be and however powerful hls conLrol over lLs affalrs' ln Lhe end
accordlng Lo Slade L! lL ls always a quesLlon of facL and one has Lo examlne wlLh care
whaL parL Lhe dlrecLor plays personally ln regard Lo acLs complalned of when lL ls
soughL Lo make hlm llable for Lhe companys LorLs Powever where dlrecLors have
Lhemselves dlrecLed or procured Lhe commlsslon of Lhe LorL such as by glvlng
lnsLrucLlons for Lhe commlsson of a LorL he may be llable for lL even lf Lhe LorL was Lo
be LreaLed as Lhe acL of Lhe company 8alnham Chemlcal Works LLd (ln llq) v
8elvedere llsh Cuano Co LLd 1921 AC 463 per Lord 8uckmasLer aL 476 erformlng
8lghL SocleLy LLd v Clryl 1heaLrlcal SyndlcaLe LLd 1942 1 k8 1 per ALkln L! aL p 1413
711 negllgenL mlssLaLemenL and assumpLlon of llablllLy
ln relaLlon Lo negllgenL advlce or mlssLaLemenL glven by a dlrecLor or an offlcer on
behalf of Lhe company lL ls a quesLlon of pollcy lf he should be held personally llable
ln Lhe new Zealand CourL of Appeal case of 1revor lvory LLd v Anderson 1992 2
nZL8 317 negllgenL advlce was glven by Lhe prlnclpal shareholder of a company
Lhough Lhe consulLancy conLracL for Lhe provlslon of experL advlce was made wlLh
Lhe company1he flndlng by Lhe Lrlal [udge LhaL Lhe prlnclpal shareholder and
managlng dlrecLor was llable was reversed on appeal for Lhe reason LhaL no
assumpLlon of responslblllLy for advlce was made on a personal basls 1he facL LhaL
one Lrades Lhrough a company and causes Lhe acL or omlsslon Lo be done does noL
sufflce and Lhe degree and klnd of personal lnvolvemenL should be sufflclenL enough
Lo make Lhe LorLlous acL hls own
1he 1revor lvory case was approved ln Lhe more recenL case of Wllllams v naLural Llfe
PealLh loods LLd 1998 2 All L8 377 ln Lhls case a company offered a franchlse Lo
oLhers on operaLlng a healLh food shop 8rochures and deLalled flnanclal pro[ecLlons
were provlded 1hough preconLracLual negoLlaLlons were conducLed by Lhe
companys employee on Lhe companys noLepaper Lhe companys managlng dlrecLor
(who was also a prlnclpal shareholder) was malnly lnvolved ln Lhe producLlon of
flnanclal pro[ecLlons for Lhe poLenLlal franchlsee1he franchlse buslness was a fallure
and Lhe company was dlssolvedln an aLLempL Lo make Lhe dlrecLor llable based on
hls assumpLlon of personal responslblllLy boLh Lhe Lrlal [udge and Lhe CourL of
Appeal held Lhe dlrecLor personally llable for loss due Lo negllgenL mlssLaLemenL buL
Lhe Pouse of Lords found LhaL Lhe managlng dlrecLor had never assumed personal
responslblllLy for glvlng Lhe advlce and so was noL llable 1he lssue as observed by
Lord SLeyn was 'wheLher Lhe prlnclpal ls a company or a naLural person someone
acLlng on hls behalf may lncur personal llablllLy ln LorL as well as lmposlng vlcarlous
or aLLrlbuLed llablllLy upon hls prlnclpal' Pls Lordshlp proceeded on Lhe lssue ln Lhe
followlng manner

Lo esLabllsh personal llablllLy under Lhe prlnclple of Pedley 8yrne whlch requlres
Lhe exlsLence of a speclal relaLlonshlp Lhere musL have been an assumpLlon of
responslblllLy such as Lo creaLe a speclal relaLlonshlp wlLh Lhe dlrecLor or employee
hlmself '

1he LouchsLone of llablllLy ls noL Lhe sLaLe of mlnd of Lhe defendanLAn ob[ecLlve
LesL means LhaL Lhe prlmary focus musL be on Lhlngs sald or done by Lhe defendanL
or on hls behalf ln deallngs wlLh Lhe plalnLlff Lhe prlmary focus musL be on
exchanges whlch cross Lhe llne beLween Lhe defendanL and Lhe plalnLlff

where Lhe personal llablllLy of Lhe dlrecLor ls ln quesLlon Lhe lnLernal
arrangemenLs beLween a dlrecLor and hls company cannoL be Lhe foundaLlon of a
dlrecLors personal llablllLy ln LorL 1he lnqulry musL be wheLher Lhe dlrecLor or
anybody on hls behalf conveyed dlrecLly or lndlrecLly Lo Lhe prospecLlve franchlsees
LhaL Lhe dlrecLor assumed personal responslblllLy Lowards Lhe prospecLlve

lL ls lmporLanL Lo make clear LhaL a dlrecLor of a conLracLlng company may only be
held llable where lL ls esLabllshed by evldence LhaL he assumed personal llablllLy and
LhaL Lhere was Lhe necessary rellance'13
ln deLermlnlng lf Lhe dlrecLor assumes personal llablllLy ln hls provlslon of Lhe
companys flnanclal lnformaLlon ln respecL of a frlendly Lakeover Lhe courL ln an
lnLerlocuLory proceedlngs ln arLeo Croup LLd v Wragg ScoLL 2002 2 Lloyds 8ep
343 aparL from conslderlng Lhe acLual words used by Lhe dlrecLor also consldered
hls conducL and presumably Lhls relaLed Lo hls appearance of confldence and
knowledge abouL hls companys affalrs
ln Andrew Cllver Sons LLd v uouglas (1982) SL1 222 Lhe courL accepLed Lhe
posslblllLy of a conLrlbuLlon clalm where Lhe dlrecLors had negllgenLly supplled Lhe
audlLors wlLh lncorrecL lnformaLlon whlch Lhe audlLors Lhen used ln preparlng Lhe
audlL and whlch were ln Lurn relled upon by a Lhlrd parLy
712 lraudbased LorL
Where ln Lhe course of enLerlng lnLo a conLracL or compleLlng a LransacLlon wlLh a
Lhlrd parLy a dlrecLor ls gullLy of fraudulenL mlsrepresenLaLlon or commlLs any oLher
LorL such as decelL he may be held personally llable 8C reeco l (aclflc CoasL) LLd v
8on SLreeL Poldlngs LLd (1989) 60 uL8 30 1hls was recenLly consldered ln 8arlngs lc
(ln llquldaLlon) v Coopers Lybrand (a flrm) 2002 LWCP 461 a case concernlng Lhe
lssue lf a flnance dlrecLor was decelLful ln slgnlng a represenLaLlon leLLer for Lhe
purpose of Lhe companys annual audlL 1he courL reconflrmed Lhe requlremenL of
decelL ln LhaL lL had Lo show LhaL Lhe flnance dlrecLor had slgned Lhe represenLaLlon
leLLer elLher knowlng LhaL Lhe sLaLemenLs ln Lhe leLLers were unLrue wlLhouL an
honesL bellef ln Lhelr LruLh or lndlfference as Lo wheLher Lhey were Lrue or knowlng
LhaL he had no reasonable grounds for maklng Lhe sLaLemenLs wlLhouL an honesL
bellef LhaL he had such grounds or lndlfferenL as Lo wheLher he had or noL
ln SLandard CharLered 8ank v aklsLan naLlonal Shlpplng Corp 2000 1 L1 8 218(CA)
an acLlon was broughL agalnsL a managlng dlrecLor for decelL and Lhe CourL of Appeal
followed Lhe Pouse of Lords declslon ln
Wllllams v naLural Llfe PealLh loods LLd 1998 2 All L8 377 and held LhaL aparL from
Lhe plalnLlffs rellance on Lhe sLaLemenL made by Lhe offlcer Lhere had Lo be an
assumpLlon of responslblllLy so as Lo creaLe a speclal relaLlonshlp beLween Lhe
plalnLlff and Lhe defendanL and LhaL as he was acLlng ln no oLher capaclLy Lhan as a
dlrecLor he was noL personally llable for Lhe fraud he commlLLed for Lhe beneflL of
Lhe company 1he declslon was reversed on appeal 2003 1 8CLC 244 ln whlch Lhe
Pouse of Lords dlsLlngulshed Wllllams v naLural Llfe PealLh loods LLd and held LhaL a
dlrecLor of a company could noL escape llablllLy for decelL on Lhe ground LhaL hls or
her acL had been commlLLed on behalf of Lhe company 1herefore ln Lhe lnsLanL case
Lhe managlng dlrecLor was llable for hls own acL of decelL and any conLenLlon LhaL he
had made Lhe relevanL fraudulenL mlsrepresenLaLlon on behalf of hls prlnclpal
Lhough Lrue was lrrelevanLlurLher Lhe facL LhaL by vlrLue of Lhe law of agency Lhe
managlng dlrecLors represenLaLlon and Lhe knowledge wlLh whlch he made lL would
also be aLLrlbuLed Lo Lhe company would be of lnLeresL ln an acLlon agalnsL Lhe
company buL could noL deLracL from Lhe facL LhaL Lhey were hls represenLaLlon and
hls knowledge AlLhough an agenL mlghL assume responslblllLy on behalf of anoLher
wlLhouL lncurrlng personal llablllLy ln respecL of a negllgenL mlsrepresenLaLlon LhaL
reasonlng could noL apply Lo fraud cases16 ln ualdo Asla !apan Co LLd v 8oLhen
2002 8CC 389 lL was held LhaL alLhough a dlrecLor mlghL be llable ln negllgenL
mlssLaLemenL or decelL lf he assumed personal responslblllLy for a sLaLemenL he
could also be llable as a [olnL LorLfessor wlLh Lhe company lf he auLhorlsed dlrecLed
and procured Lhe decelL
Slmllarly Lhe courL ln noel v oland 2001 2 8CLC 643 held LhaL llablllLy ln decelL dld
noL requlre Lhe exlsLence of a speclal relaLlonshlp beLween Lhe clalmanL and Lhe
alleged LorLfeasor 1he maklng by an agenL of a knowlngly false sLaLemenL relled on
by Lhe person Lo whom lL was made was a LorL on Lhe parL of Lhe agenL and LhaL Lhe
prlnclpal would be llable lf Lhe sLaLemenL was made by Lhe agenL wlLhln Lhe scope of
hls auLhorlLy
713 lnfrlngemenL of lnLellecLual properLy lnLeresL and [olnL LorLfeasor
AparL from Lhe lssue of decelL mlsrepresenLaLlon and negllgenL mlssLaLemenL Lhe
courLs are more prepared Lo hold dlrecLors personally llable for a LorLlous acL of
copyrlghL lnfrlngemenL lf Lhey lnvolve Lhe dlrecLors orderlng or physlcal commlsslon
of Lhe LorL A 8esson LLd v lulleon LLd 1986 lS8 319 1he dlrecLors personal
lnvolvemenL was relLeraLed ln MCA 8ecords lnc v Charly 8ecords LLd 2003 1 8CLC 93
whlch Lhe CourL of Appeal held LhaL lL mlghL noL be sufflclenL Lo show LhaL a dlrecLor
was ln conLrol of Lhe affalrs of Lhe group and LhaL he pulled all Lhe relevanL sLrlngs A
dlrecLor wlll noL be LreaLed as llable wlLh Lhe company as a [olnL LorLfeasor lf he does
no more Lhan carrylng ouL hls consLlLuLlonal role ln Lhe governance of Lhe company
say by voLlng aL board meeLlngs nor wlll lL be rlghL Lo hold a conLrolllng shareholder
llable as a [olnL LorLfeasor lf he does no more Lhan exerclse hls power of conLrol
Lhrough Lhe conLlLuLlonal organs of Lhe company say by voLlng aL general meeLlngs
and appolnLlng Lhe board Powever Lhere ls no reason why a dlrecLor should noL be
llable as a [olnL LorLfeasor lf he ls noL exerclslng conLrol Lhrough Lhe consLlLuLlonal
organs and Lhe clrcumsLances are such LhaL he wlll be so llable lf he were noL a
dlrecLor 1he key lssue ls wheLher Lhe lndlvldual has been personally lnvolved ln Lhe
commlsslon of Lhe LorL Lo an exLenL sufflclenL Lo render hlm llable as a [olnL
LorLfeasor and Lhls ls a quesLlon of facL dependlng on Lhe role played by hlm ln Lhe
commlsslon of Lhe LorL ln Lhe conLexL of lnLellecLual properLy lnfrlngemenL ln MCA
8ecords llablllLy as a [olnL LorLfeasor wlLh Lhe company mlghL arlse where Lhe
dlrecLor lnLended procured and shared a common deslgn LhaL Lhe lnfrlngemenL Look
place and Laken lnLo accounL Lhe conducL of Lhe dlrecLor he was rlghLly held llable as
a [olnL LorLfeasor17
A slmllar lssue was ralsed before Lhe CourL of Appeal ln Lhe Pong kong declslon of
Creen CarLrldge Co (Pong kong) LLd v Canon kabushlkl kalsha 1996 2 PkC 180 ln
whlch Lhe courL held LhaL Lhe mere facL LhaL a dlrecLor parLlclpaLed ln a declslon Lo
commlL an acL whlch Lurned ouL Lo be LorLlous would noL by lLself be sufflclenL Lo
esLabllsh llablllLy 1here musL be someLhlng more for example lf he knew LhaL lL was
llkely Lo be LorLlous buL neverLheless dlrecLed Lhe lnfrlnglng acLs Lo be performed
maklng lL hls own ln kabushlkl kalsha ?akulL Ponsha v ?akudo Croup Poldlngs LLd
2004 2 PkL8u 387 lL was held LhaL a dlrecLor who lnLended procured and shared a
common deslgn LhaL Lhe lnfrlngemenL by Lhe company should Lake place mlghL be
llable as a [olnL LorLfeasor 1here was no need Lo flnd LhaL Lhe dlrecLor had expllclLy
mapped ouL a plan for Lhe company Pls LaclL agreemenL would be sufflclenL as lL dld
noL have Lo be esLabllshed LhaL Lhe dlrecLor knew or oughL Lo have known LhaL Lhe
acLs were LorLlous for Lhe dlrecLor Lo be llable LlablllLy arose when Lhe dlrecLor
'vlrLually sLeered' Lhe company lnLo commlLLlng Lhe LorLs as he was Lhe one behlnd
Lhe drlvlng wheel wlLh every lnLenLlon LhaL Lhe LorLs be commlLLed1he above
prlnclples were approved and adopLed ln Cuangzhou CreenLnhan 8lo Lnglneerlng
Co LLd v Creen ower PealLh roducLs lnL Co LLd PCA 4631/2002 PCA 2802/2003
PCM 74/2004 (8 Aprll 2003)
714 unllmlLed llablllLy
SecLlon 139(1) provldes LhaL Lhe llablllLy of Lhe dlrecLors managers or managlng
dlrecLor may be unllmlLed as provlded by Lhe memorandum 8y subsecLlon (2)
where a proposal ls made for Lhe elecLlon or appolnLmenL Lo Lhe offlce of dlrecLor or
manager wlLh unllmlLed llablllLy Lhere shall be added Lo LhaL proposal a sLaLemenL
LhaL Lhe llablllLy of Lhe person holdlng LhaL offlce wlll be unllmlLed and noLlce ln
wrlLlng Lo LhaL effecL shall be glven before Lhe person accepLs Lhe offlce18
upon wlndlng up of a llmlLed company such dlrecLor wheLher pasL or presenL shall
be llable Lo make conLrlbuLlon as lf he were aL Lhe commencemenL of Lhe wlndlng up
a member of an unllmlLed company secLlon 170(2)
713 relncorporaLlon conLracL
Where any person enLers lnLo a prelncorporaLlon conLracL on behalf of a company
he wlll remaln personally llable unless aL Lhe Llme of Lhe conLracL he expressly
conLracLed ouL hls llablllLy and Lhls was duly accepLed by Lhe oLher conLracLlng parLy
secLlon 32A(1)(a) of Lhe Companles Crdlnance19
716 rospecLus llablllLy
Where a prospecLus lnvlLes persons Lo subscrlbe for shares ln or debenLures of a
company dlrecLors wlll be llable Lo pay compensaLlon Lo Lhose who subscrlbe for Lhe
shares or debenLures on Lhe falLh of Lhe prospecLus for Lhe loss or damage Lhey may
have susLalned by reason of any unLrue sLaLemenL lncluded ln lL secLlon 40 Crlmlnal
llablllLy wlll also be lmposed on Lhose who auLhorlse Lhe lssue of Lhe prospecLus
whlch lncludes any unLrue sLaLemenLs unless Lhose who auLhorlse lLs lssue prove
LhaL Lhe sLaLemenL was lmmaLerlal or LhaL Lhey have reasonable grounds Lo belleve
and dld up Lo Lhe Llme of Lhe lssue of Lhe prospecLus belleve LhaL Lhe sLaLemenL ls
Lrue secLlon 40A20
717 8reach of mlnlmum subscrlpLlon requlremenL/permlsslon for securlLles Lo be
no alloLmenL of share caplLal may be made for publlc subscrlpLlon unless Lhe amounL
sLaLed ln Lhe prospecLus as Lhe mlnlmum amounL has been subscrlbed and Lhe sum
payable on appllcaLlon for Lhe amounL so sLaLed has been pald Lo and recelved by Lhe
company (paragraph 7 ln arL l of Lhe
1hlrd Schedule) lurLhermore Lhe amounL payable on appllcaLlon of each share shall
noL be less Lhan 3 of Lhe nomlnal amounL lf Lhe aforesald condlLlons have noL been
complled wlLh wlLhln 30 days followlng Lhe flrsL lssue of Lhe prospecLus all money
recelved shall be repald forLhwlLh and lf noL so repald wlLhln 38 days afLer lssue of
Lhe prospecLus Lhe dlrecLors shall be [olnLly and severally llable Lo repay LhaL money
wlLh lnLeresL aL Lhe raLe of 8 per annum from Lhe explraLlon of Lhe sald 38Lh day
secLlon 42(4)
ln respecL of any alloLmenL made on an appllcaLlon ln pursuance of Lhe prospecLus
whlch sLaLes LhaL appllcaLlon has been or wlll be made for permlsslon for Lhe shares
or debenLures offered Lo be llsLed on Lhe sLock exchange and where Lhe permlsslon
has noL been applled or has been refused Lhe company shall forLhwlLh repay all
money recelved from Lhe appllcanLs and lf noL repald wlLhln elghL days LhereafLer
Lhe dlrecLors shall be [olnLly and severally llable Lo repay LhaL money wlLh lnLeresL aL
Lhe raLe of 8 per annum from Lhe explraLlon of Lhe 8Lh day secLlon 448(1) and
secLlon 448(2)
718 uormanL companles
Where a company has become dormanL pursuanL Lo secLlon 344A and enLers lnLo a
relevanL accounLlng LransacLlon whlch ls requlred Lo be enLered ln lLs books of
accounL all dlrecLors of Lhe company (lncludlng shareholders havlng knowledge
Lhereof) shall be personally llable for any debL or llablllLy of Lhe company arlslng ouL
of Lhe relevanL accounLlng LransacLlon
719 Loans Lo dlrecLors
1here ls a general prohlblLlon of loans made by a company Lo lLs dlrecLors 1hose
who recelve a loan from a company ln conLravenLlon of Lhls prohlblLlon shall be llable
Lo repay LhaL sum and Lo accounL Lo Lhe company for any galn madeCLher dlrecLors
shall also be [olnLly and severally llable wlLh each oLher Lo lndemnlfy Lhe company for
any loss or damage resulLlng from LhaL LransacLlon secLlon 137l
720 ulrecLors dlsquallflcaLlon
SecLlon 168C provldes LhaL a person ls personally responslble for Lhe debLs of a
company ln conLravenLlon of a dlsquallflcaLlon order or of secLlon 136 when he ls
lnvolved ln a companys managemenL or acLs ln accordance wlLh Lhe lnsLrucLlons of
Lhose sub[ecL Lo a dlsquallflcaLlon order or Lhose who are undlscharged bankrupLs
721 LlablllLy for acLs of alLernaLes
Where Lhe arLlcles of a company auLhorlse dlrecLor Lo appolnL an alLernaLe dlrecLor
Lo acL ln hls place Lhen unless Lhe arLlcles conLaln any provlslon Lo Lhe conLrary
wheLher express or lmplled an alLernaLe dlrecLor so appolnLed shall be deemed Lo
be Lhe agenL of Lhe dlrecLor who appolnLs hlm and who shall be vlcarlously llable for
any LorL commlLLed by Lhe alLernaLe dlrecLor whlle acLlng ln Lhe capaclLy of alLernaLe
dlrecLor secLlon 1338
721A Cffences concernlng admlnlsLraLlon managemenL and affalrs of company
1he Companles Crdlnance conLalns numerous clrcumsLances renderlng dlrecLors
crlmlnally llable for unlawful acLs (punlshable by boLh a flne and/or lmprlsonmenL)
and Lhey lnclude21

SecLlon 22(6) falllng Lo change a companys name on Lhe dlrecLlon of Lhe 8eglsLrar

SecLlon 30(2A) and secLlon 43(3) auLhorlslng Lhe lssue of a sLaLemenL ln lleu of
prospecLus conLalnlng an unLrue sLaLemenL

SecLlon 40A auLhorlslng Lhe lssue of a prospecLus conLalnlng an unLrue sLaLemenL

SecLlon 47A(3) glvlng flnanclal asslsLance for Lhe acqulslLlon of a companys shares

SecLlon 47l(3) and secLlon 49k(6) maklng sLaLemenL under secLlon 47L or secLlon
49k wlLhouL havlng reasonable grounds for Lhe oplnlon so expressed Lhereln

SecLlon 378(6) knowlngly and wllfully alloLLlng shares wlLhouL shareholders prlor
approval aL a general meeLlng

SecLlon 38(18)(b) reduclng a companys share caplLal ln conLravenLlon of secLlon

SecLlon 63 wllfully conceallng Lhe name of a credlLor enLlLled Lo ob[ecL Lo a caplLal
reducLlon wllfully mlsrepresenLlng Lhe amounL of debL or clalm of credlLor aldlng or
abeLLlng Lo such concealmenL or mlsrepresenLaLlon

SecLlon 89(3) knowlngly and wllfully permlLLlng Lhe omlsslon of an enLry ln Lhe
reglsLer of charges

SecLlon 121(4) falllng Lo Lake reasonable sLeps for keeplng proper books of accounL

SecLlon 122(3) and secLlon 123(6) falllng Lo Lake reasonable sLeps Lo ensure Lhe
Labllng of accounLs aL Lhe annual general meeLlng

SecLlon 124 falllng Lo Lake reasonable sLeps Lo secure compllance wlLh Lhe obllgaLlon
Lo lay group accounLs

SecLlon 129l falllng Lo Lake reasonable sLeps Lo ensure compllance wlLh secLlons
129u and 129L concernlng dlrecLors reporL and lLems lncluded Lhereln

SecLlon 134(1) recklessly or knowlngly maklng mlsleadlng false or decepLlve
sLaLemenLs Lo audlLors

SecLlon 140A(7) falllng Lo glve noLlce of reslgnaLlon of audlLors

SecLlon 1408(3) falllng Lo convene a meeLlng upon an audlLors requlslLlon

SecLlon 141u(4) falllng Lo Lake reasonable sLeps Lo ensure LhaL Lhe dlrecLors reporL
ls aLLached Lo Lhe balance sheeL

SecLlon 132(A)(4) falllng Lo produce books or papers or provlde an explanaLlon or
make a sLaLemenL Lo Lhe llnanclal SecreLary as requlred

SecLlon 1328(4) obsLrucLlng a person ln Lhe exerclse of a rlghL of enLry or search or a
rlghL Lo Lake possesslon of book and papers

SecLlon 132C(2) publlshlng or dlscloslng lnformaLlon or documenL obLalned under
secLlon 132A or 1328

SecLlon 132u(1) conceallng desLroylng muLllaLlng or falslfylng or belng prlvy
LhereLo of a book or paper concernlng a companys properLy and affalrs parLlng wlLh
alLerlng or maklng an omlsslon ln a book or paper sendlng causlng Lo be senL or
consplrlng wlLh oLhers Lo send ouL of Pong kong a book or paper concernlng a
companys properLy

SecLlon 132L provldlng a false explanaLlon made under secLlon 132A

SecLlon 133A(3) falllng Lo Lake reasonable sLeps Lo comply wlLh proposals concernlng
approval aL a general meeLlng for Lhe dlsposal of a companys flxed asseLs

SecLlon 136(1) acLlng Laklng parL ln or belng concerned wlLh managemenL by an
undlscharged bankrupL

SecLlon 137! wllfully auLhorlslng or permlLLlng LransacLlons concernlng loans made
Lo a dlrecLor or knowlngly procurlng a company Lo enLer lnLo Lhe LransacLlon

SecLlon 161 A(2) falllng Lo Lake all reasonable sLeps Lo secure compllance concernlng
Lhe amounLs Lo be lncluded ln Lhe accounLs and correspondlng amounLs for Lhe
precedlng year

SecLlon 1618A(7) falllng Lo Lake all reasonable sLeps Lo ensure compllance by a
company belng an auLhorlsed flnanclal lnsLlLuLlon wlLh provlslons relaLlng Lo loans
Lo offlcers

SecLlon 16188 falllng Lo Lake all reasonable sLeps Lo secure compllance by Lhe
company Lo enLer lnLo Lhe reglsLer Lo be malnLalned concernlng parLlculars of
quaslloans and credlL LransacLlons

SecLlon 168M acLlng ln conLravenLlon of a dlsquallflcaLlon order

SecLlon 228A(4) maklng a sLaLemenL LhaL company cannoL conLlnue ln buslness by
reason of lLs llablllLles wlLhouL havlng reasonable grounds Lo do so

SecLlon 233(3) maklng a declaraLlon LhaL company belng wound up volunLarlly can
meeL lLs debLs wlLhouL havlng reasonable grounds Lo do so

SecLlon 271(1) falllng Lo comply wlLh secLlon 271 belng offences by offlcers of
companles ln a llquldaLlon concernlng maklng dlscovery Lo Lhe llquldaLor dellverlng
up Lhe properLy of a company conceallng Lhe properLy of a company fraudulenLly
removlng a companys properLy maklng maLerlal omlsslon ln a sLaLemenL Lo a
companys affalrs falllng Lo lnform Lhe llquldaLor debLs whlch are provable upon
wlndlng up prevenLlng Lhe producLlon of a book or paper concernlng a companys
properLy or affalrs conceallng desLroylng muLllaLlng or fylng a book or paper
concernlng a companys properLy or affalrs maklng a false enLry ln a book or paper
concernlng a panys properLy or affalrs fraudulenLly parLlng wlLh alLerlng or maklng
an omlsslon ln a documenL concernlng a companys properLy or affalrs aLLempLlng Lo
accounL for a companys properLy by flcLlLlous losses or expenses pawnlng pledglng
or dlsposlng of a companys properLy obLalnlng credlLors consenL by false
mlsrepresenLaLlon or oLher fraud

SecLlon 272 desLroylng muLllaLlng alLerlng or falslfylng books papers or securlLles
or maklng of false or fraudulenL enLrles ln any reglsLer book or documenL of a
company wlLh lnLenL Lo defraud or decelve oLhers

SecLlon 273 maklng a glfL or Lransferrlng of or charglng on Lhe properLy of Lhe
company conceallng or removlng a companys properLy wlLh lnLenL Lo defraud

SecLlon 274(1) falllng Lo keep proper accounLs necessary Lo exhlblL and explaln Lhe
LransacLlons and flnanclal poslLlon of Lhe Lrade or buslness of Lhe company

SecLlon 273(3) knowlngly carrylng on of a companys buslness Lo defraud

SecLlon 291AA knowlngly or recklessly glvlng any lnformaLlon Lo Lhe 8eglsLrar LhaL ls
false or mlsleadlng ln a maLerlal parLlcular

SecLlon 3378(7) knowlngly and wllfully auLhorlslng or permlLLlng Lhe conLravenLlon
of Lhe regulaLlon of use of corporaLe name by an oversea company carrylng on
buslness ln Pong kong

SecLlon 342l(1) auLhorlslng Lhe lssue clrculaLlon or dlsLrlbuLlon ln Pong kong of a
prospecLus relaLlng Lo shares or debenLures conLalnlng an unLrue sLaLemenL

SecLlon 349 wllfully maklng a false sLaLemenL ln any reLurn reporL cerLlflcaLe
balance sheeL or oLher documenL requlred under Lhe Crdlnance

SecLlon 349A dlshonesLly desLroylng removlng alLerlng defaclng or conceallng any
reglsLer book or documenL flled Lo Lhe offlce of Lhe 8eglsLrar or wllfully or
mallclously desLroylng removlng alLerlng defaclng or conceallng any reglsLer book
or documenL flled Lo Lhe offlce of Lhe 8eglsLrar

SecLlon 360! refuslng Lo hand over Lo Lhe Cfflclal 8ecelver any key safe documenL
accounL book of Lhe company or obsLrucLlng Lhe Cfflclal 8ecelver Lo Lake possesslon
of Lhe companys premlses
1here are oLher provlslons ln Lhe Companles Crdlnance lmposlng an offence on Lhe
companles and Lhe offlcers where Lhe penalLles lmposed are a flne or flxed penalLy
(wlLhouL lmprlsonmenL) Lhe more lmporLanL provlslons of whlch are as follows

1hose concernlng members rlghL Lo recelve company documenLs and members and
ouLslders rlghL Lo lnspecLlon and Lhe malnLenance and keeplng of sLaLuLory records
such as Lhe memorandum and arLlcles (secLlon 26(2)) coples of conLracLs or
memorandum concernlng Lhe companys purchase of lLs own shares (secLlon 49C(7))
sLaLuLory declaraLlon of dlrecLors and audlLors reporL concernlng proposed
paymenLs ouL of caplLal (secLlon 49M(6)) reglsLer of holders of debenLures (secLlon
74A(4)) and lLs lnspecLlon (secLlon 73(4)) coples of lnsLrumenLs creaLlng charges
(secLlon 88(4)) reglsLer of charges (secLlon 89(4)) lnspecLlon of copy charges and
reglsLer of charges (secLlon 90(2)(a)) lndex of members (secLlon 96(3)) and lLs
(secLlons 98(3) and 98A) lnspecLlon of reglsLer of members and reglsLer of
debenLure holders (secLlon 99(4)) branch reglsLer (secLlon 104(7)) record of all
resoluLlons enLered lnLo a book kepL for LhaL purpose (secLlon 1168(10)) resoluLlons
and agreemenLs under secLlon 117 (secLlon 117(6)) mlnuLes of proceedlngs of
dlrecLors meeLlngs (secLlon 119(4)) Lhe place where Lhey were kepL (secLlon
119A(3)) and Lhelr lnspecLlon (secLlon 120(3)) coples of balance sheeLs and
dlrecLors and audlLors reporLs (secLlon 129C(3)) reglsLer of dlrecLors and secreLarles
(secLlon 138(8)) and Lhe place where lL ls kepL (secLlon 138A(3)) sLaLemenLs as Lo
loans Lo offlcers (secLlon 1618A(11)) reglsLer of sLaLemenL as Lo parLlculars of
quaslloans and credlL LransacLlons (secLlon 16188(7)) managemenL conLracLs
(secLlon 162A(2)) lnformaLlon as Lo compromlses wlLh credlLors and members
(secLlon 166A(4)) form of reglsLers (secLlon 348C(4))

1hose concernlng Lhe companys obllgaLlons Lo dellver Lo and flle wlLh Lhe 8eglsLer
noLlces or reLurns such as resoluLlons alLerlng ob[ecLs (secLlon 8(8)) noLlces of
lncrease ln members for unllmlLed company or company llmlLed by guaranLee
(secLlon 10(2)) coples of alLered arLlcles (secLlon 13(4)) prospecLus lssued (secLlon
38u(8)) sLaLemenL ln lleu of prospecLus (secLlon 43(4)) sLaLemenL as Lo commlsslons
and dlscounLs concernlng share subscrlpLlon (secLlon 46(3)) reLurn as Lo alloLmenL of
shares (secLlon 43(3)) sLaLuLory declaraLlons of dlrecLors concernlng flnanclal
asslsLance (secLlon 47l(4)) noLlces concernlng ob[ecLlons Lo paymenL ouL of caplLal
for redempLlon or repurchase (secLlon 49n(4)) noLlces of change ln share caplLal
sLrucLure (secLlon 34(2)) noLlces of lncrease ln caplLal (secLlon 33(3)) coples of courL
orders concernlng caplLal reducLlon (secLlon 64(3)) noLlces concernlng Lhe lssue of
new share cerLlflcaLlon and Lhe cancellaLlon of old ones dellvered Lo Lhe unlLed
Lxchange (secLlon 71A(9)) parLlculars of charges creaLed by Lhe company (secLlon
81(3)) parLlculars of charges exlsLlng on properLy acqulred (secLlon 82(2)) noLlces of
appolnLmenL of recelver or manager or of morLgagee Laklng possesslon (secLlon
87(3)) reglsLraLlon of charges for companles lncorporaLed ouLslde Pong kong
(secLlon 91(6)) noLlces of reglsLered offlce (secLlon 92(4)) noLlces concernlng Lhe
place of keeplng of reglsLers of members and Lhelr changes (secLlon 93(4))
sLaLemenL ln Lhe reglsLer of members LhaL company has only one member (secLlon
93A(3)) annual reLurns (secLlon 109(4)) noLlces of resoluLlons concernlng parLlculars
or explanaLlons of relevanL lnLeresLs of dlrecLors (secLlon 1338(3)(4)) noLlces
concernlng Lhe keeplng of Lhe reglsLer of dlrecLors and secreLarles (secLlon 1388(2))
coples of courL orders concernlng schemes of arrangemenL (secLlon 166(4)) courL
orders faclllLaLlng company reconsLrucLlon and amalgamaLlon (secLlon 167(3))
sLaLuLory declaraLlons of lnsolvency concernlng volunLary wlndlng up (secLlon

1hose concernlng prospecLus requlremenLs such as parLlculars Lo be lncluded ln Lhe
prospecLus (secLlon 38(3)) adverLlsemenLs publlshed ln exLracL or abrldged verslon
(secLlon 388(3)) experLs consenL Lo lssue of prospecLus conLalnlng sLaLemenL by hlm
(secLlon 38C(2)) prospecLus lssued wlLh requlred documenLs (secLlon 38u(8))
amendmenL of prospecLus conslsLlng of one documenL noL done ln compllance wlLh
arL l of 1wenLleLh Schedule (secLlon 39A(3)) amendmenL of prospecLus conslsLlng
of more Lhan one documenL noL done ln compllance wlLh arL l of Lhe 1wenLyflrsL
Schedule (secLlon 398(4)) sLaLemenL ln lleu of prospecLus (secLlon 43(4)) dlscounL
on share lssue conLalned ln prospecLus (secLlon 30(3)) parLlculars of shares wlLh
dlfferenL voLlng rlghLs conLalned ln prospecLus (secLlon 37A(3))23

1hose concernlng accounL sLaLemenLs dlsclosure and obllgaLlons owed Lowards
audlLors ln preparlng sLaLuLory audlLs such as sLaLemenL of lnformaLlon ln Lhe holdlng
companys accounLs concernlng subsldlarles buslness eLc annexed Lo a reLurn
(secLlon 128(6)) sLaLemenL of lnformaLlon ln companys accounLs concernlng
ldenLlLles and lncorporaLlon of non subsldlarles annexed Lo Lhe annual reLurn
(secLlon 129(6)) slgnlng of balance sheeL by dlrecLors (secLlon 1298(3)) accounLs Lo
be annexed and audlLors reporL Lo be aLLached Lo balance sheeL (secLlon 129C(3))
noLlce of removal of audlLor (secLlon 131(7)) provlslon of lnformaLlon and
explanaLlon Lo audlLors of holdlng company (secLlon 133(2)/(3)) lnspecLlon by
audlLor relaLlng Lo loans Lo offlcers of auLhorlsed flnanclal lnsLlLuLlons (secLlon

1hose concernlng rules of company meeLlngs such as holdlng of annual general
meeLlng (secLlon 111(3)) noLlce calllng meeLlng wlLh sLaLemenL of rlghL Lo use proxy
(secLlon 114C(3)) permlLLed use of proxy lssued Lo only some members (secLlon
114C(3)) clrculaLlon of members resoluLlons (secLlon 113A(7)) wrlLLen record where
Lhe company has only one member (secLlon 1168C(6)) noLlflcaLlon Lo audlLors of
proposed wrlLLen resoluLlon ln lleu of meeLlng (secLlon 1168A(2)) wrlLLen record of
declslon of sole dlrecLor of prlvaLe company (secLlon 133C(4)/(3))

1hose concernlng recelvershlp and llquldaLlon such as submlsslon of sLaLemenL of
companys affalrs (secLlon 190(3)) summonlng meeLlngs of company and credlLors ln
cases of credlLors volunLary wlndlng up (secLlon 228A(6)) adverLlslng noLlce of
resoluLlon of volunLary wlndlng up (secLlon 229(2)) sendlng and adverLlslng noLlce of
meeLlng Lo credlLors for volunLary wlndlng up laylng sLaLemenL of companys affalrs
and credlLors llsL (secLlon 241(6)) noLlflcaLlon LhaL a company ls ln llquldaLlon
(secLlon 280(2)) noLlflcaLlon of appolnLmenL of recelver or manager (secLlon 299(2))
sLaLemenL submlLLed Lo recelver (secLlon 3008(3))

1hose mlscellaneous maLLers such as descrlpLlon of shares havlng dlfferenL voLlng
rlghLs ln share cerLlflcaLe eLc (secLlon 37A(3)) publlcaLlon of company name ln
palnLlng and afflxlng lL ln prescrlbed manner (secLlon 93(4)) or ln leglble characLer ln
company documenLs (secLlon 93(4)) malnLalnlng mlnlmum number of dlrecLors
(secLlon 133(3)/(4)) malnLalnlng Lhe mlnlmum number of dlrecLors ln Lhe case of a
prlvaLe company (secLlon 133A(3)) noLlce Lo company maklng
dlsclosure of dlrecLors emolumenLs and loans (secLlon 161C(3)) dlsclosure of
dlrecLors maLerlal lnLeresLs ln conLracLs (secLlon 162(3)) dlsclosure of conLracLs wlLh
sole member who ls also a dlrecLor (secLlon 1628(3))
722 LlablllLy for corporaLe offence and faulLbased llablllLy
naLure of llablllLy
AparL from Lhe offences speclflcally lmposed on dlrecLors and offlcers under Lhe
Companles Crdlnance Lhere are varlous clrcumsLances ln whlch dlrecLors managers
secreLarles or offlcers of Lhe corporaLlon wlll be held llable for Lhe corporaLe
offences 1he basls on whlch such llablllLles are lmposed ls relaLed Lo Lhe noLlon of
conLrol Lhey have over Lhe corporaLlons and for whose acLs Lhey are responslble
Such llablllLy may ln cerLaln clrcumsLances be exLended Lo cover conLrolllng
shareholders whlch consLlLuLes a remlnlscence of Lhe concepL of shadow dlrecLor
MosL of Lhem are faulLbased and fraudrelaLed offences
Ceneral charglng secLlon
1he general charglng provlslon ls seL ouL ln secLlon 101L of Lhe Crlmlnal rocedure
Crdlnance whlch provldes as follows
101L LlablllLy of dlrecLors eLc
Where a person by whom an offence under any Crdlnance has been commlLLed ls a
company and lL ls proved LhaL Lhe offence was commlLLed wlLh Lhe consenL or
connlvance of a dlrecLor or oLher offlcer concerned ln Lhe managemenL of Lhe
company or any person purporLlng Lo acL as such dlrecLor or offlcer Lhe dlrecLor or
oLher offlcer shall be gullLy of Lhe llke offence
varlaLlons as Lo degree of parLlclpaLlon and lnvolved parLles
1he exlsLence of consenL or connlvance ls noL Lhe only crlLerlonln some speclflc
ordlnances llablllLy of offlcers ln resepcL of corporaLe offences may be exLended Lo
cover negllgence or fallure Lo exerclse due dlllgence ln oLher cases Lhere ls a
presumpLlon of llablllLySome buL noL all of Lhe offences also provlde for a sLaLuLory
defence of due dlllgence LlablllLy may noL only be lmposed on dlrecLors managers
or secreLarles per se buL also on Lhose exerclslng a conLrolllng funcLlon lncludlng a
shareholder and a shadow dlrecLor 8eference shall be made Lo Lhe speclflc wordlngs
of Lhe Crdlnances24
laulLbased and fraudrelaLed offences
1he courL may be prepared Lo llfL Lhe corporaLe vell where Lhe corporaLe sLrucLure
has been used Lo conceal crlmlnal acLlvlLles or Lo perpeLuaLe fraud ConLrollers of
companles cannoL avold llablllLy by hldlng behlnd Lhe corporaLe shleld and Lhe
docLrlne of alLer ego ls no excuse 1here are speclflc lnsLances under boLh Lhe 1hefL
Crdlnance (Cap 210)
and Crlmes Crdlnance (Cap 200) where faulLbased and fraudrelaLed offences are
723 LlablllLy under collaLeral conLracL/guaranLee
Llke Lhe poslLlon of shareholders dlrecLors are frequenLly called upon Lo slgn
personal guaranLees Lo supporL Lhe companys LransacLlons such as a loan or lease
1hls ls especlally Lhe case when Lhe company ln quesLlon ls a newly formed company
wlLh llLLle caplLallsaLlon and ls closely conLrolled by one person who ls boLh Lhe
ma[orlLy shareholder and a dlrecLor
724 LlablllLy for wlndlng up cosLs and conLempL
ln any courL proceedlngs Lhe order for cosLs are ln Lhe dlscreLlon of Lhe courL havlng
full power Lo deLermlne by whom and Lo whaL exLenL cosLs are Lo be pald under Lhe
Plgh CourL Crdlnance ln 8esL ConsulLanLs v Aurasound Speakers LLd 2003 4 PkC
337 uepuLy !udge oon clarlfled LhaL based on secLlon 32A(2) of Lhe Plgh CourL
Crdlnance no order of cosLs could be made agalnsL a nonparLy unless Lhere was
speclflc provlslon made ln any CrdlnanceWhere acLlons lncludlng wlndlng up
peLlLlons were made agalnsL a company and where Lhe dlrecLors chose Lo defend
Lhe case ln order Lo proLecL hls own flnanclal lnLeresL no order should be made
agalnsL hlm unless he has been [olned as a parLy26 1he poslLlon ls dlfferenL ln Lhe uk
ln LhaL [urlsdlcLlon Lhere are occaslons when Lhe courL may order cosLs agalnsL
dlrecLors personally who cause Lhe company Lo defend any wlndlng up peLlLlons
broughL agalnsL Lhe company27 1he exerclse of dlscreLlon depends on conslderaLlon
of Lhe clrcumsLances of each case28
A dlrecLor wlll ln cerLaln clrcumsLances be held llable for conLempL by Lhe company
lncludlng Lhe cosLs of Lhe proceedlngs 1he leadlng Pong kong auLhorlLy ls Abu uhahl
naLlonal 1anker Co v Lam Mlng Chl 1998 4 PkC 320 ln whlch SLone ! decllned Lo
lmpose a requlremenL of wlllfulness as was adopLed by Lhe Lngllsh courLs as a
condlLlon for upholdlng a clalm agalnsL Lhe dlrecLors personally llable for conLempL
on Lhe parL of Lhe company Pls Lordshlp followed Lhe llnes espoused by PunLer !A ln
Lhe case of nlcolas appadls Anor v Chan Shlng Sheung 8arry Crs 19892 PkL8
ln Lxcel noble uevelopmenL LLd v Wah nam Croup LLd 2001 4 PkC 149 ln relaLlon
Lo Lhe llablllLy of dlrecLors ln respecL of ln[uncLlons made agalnsL Lhelr companles
Lhe CourL of Appeal held LhaL flrsL a dlrecLor musL be made fully aware of Lhe Lerms
of Lhe order wlLh whlch Lhe company musL comply second he musL use hls poslLlon
as a dlrecLor Lo effecL compllance and Lhlrd he musL be aware LhaL lf he does noL so
acL sLeps may be Laken agalnsL hlm personally Lo enforce compllance 1hls was
approved ln AquaLelsure lndusLrles LLd v Aqua Splash LLd 2003 1 PkC 1
723 Common law llablllLles
1hls ls noL Lhe sorL of llablllLy Lhe dlrecLors shall assume when Lhe company Lhey
serve ls prlmarlly responslble8aLher llablllLy arlses because of Lhe conducL of
dlrecLors 1hey lnclude llablllLles lmposed on dlrecLors for Lhelr breach of flduclary
duLles owed Lo Lhe company and for Lhelr fallure Lo exerclse reasonable care and sklll
ln Lhe dlscharge of Lhelr duLles WhllsL Lhe former case ls relaLed Lo fraud or
dlshonesLy Lhe laLLer case ls prlmarlly concerned wlLh negllgence30
726 lraudulenL Lradlng
Charglng provlslon
8y secLlon 273(1) lf ln Lhe course of Lhe wlndlng up of a company lL appears LhaL any
buslness of Lhe company has been carrled on wlLh lnLenL Lo defraud credlLors or for
any fraudulenL purposes Lhe courL may declare LhaL any persons who were
knowlngly parLles Lo Lhe carrylng on of Lhe buslness shall be personally responslble
any llmlLaLlon of llablllLy for all Lhe debLs or llablllLles of Lhe company as Lhe courL
may dlrecL8y subsecLlon (3) every person who was knowlngly a parLy Lo Lhe carrylng
on of Lhe buslness ln Lhe manner aforesald shall be gullLy of an offence and llable Lo
lmprlsonmenL and a flne wheLher or noL Lhe company has been or ls ln Lhe course of
belng wound up31
CredlLors and parLles sub[ecL Lo fraud/buslness Lradlng and lndlvldual LransacLlon
AlLhough Lhe word 'credlLors' ls used lL may be posslble LhaL only one credlLor ls
defrauded and LhaL only one LransacLlon ls Lhe sub[ecL of a complalnL under Lhls
secLlon (8e Cerald Cooper Chemlcals LLd 1978 Ch 262 per 1empleman !) 1he CourL
of Appeal ln MorphlLles v 8ernasconl Crs 2003 LWCA Clv 289 re[ecLed Lhe
proposlLlon LhaL whenever a credlLor ls defrauded ln Lhe course of carrylng on
buslness lL musL necessarlly follow LhaL Lhe buslness ls carrled on wlLh lnLenL Lo
defraud credlLors lL was sLressed by Cllver ! ln 8e Murray WaLson LLd (unreporLed 6
Aprll 1977) LhaL Lhe secLlon was almed aL Lhe carrylng on of a buslness and noL Lhe
execuLlon of lndlvldual LransacLlons ln Lhe course of carrylng on LhaL
buslnessPowever cessaLlon of acLlve Lradlng does noL mean LhaL Lhe company may
noL be regarded as carrylng on buslness 8e Sarflax LLd 1979Ch 39232 A company
would noL be LreaLed as carrylng on buslness durlng Lhe perlod beLween Lhe
presenLaLlon of a wlndlngup peLlLlon and any consequenL wlndlng up order as any
dlsposlLlon of Lhe companys properLy made afLer commencemenL of wlndlng up ls
vold unless Lhe courL orders oLherwlse Carman v 1he Cronos Croup SA 2003All L8
(u) 90 (nov)
uefraud and fraudulenL purpose
1he concepLs of 'defraud' and 'fraudulenL purpose' were consldered ln a number of
ln 8e aLrlck Lyon LLd 1933Ch 786 Maugham ! (aL pages 790791) expressed hls
oplnlon LhaL 'Lhe words defraud" and fraudulenL purpose" are words whlch
connoLe acLual dlshonesLy lnvolvlng accordlng Lo currenL noLlons of falr Lradlng
among commerclal men real moral blame'33
ln 8e Wllllam C LelLch 8ros LLd 1932 2 Ch 71 Maugham ! (aL page 77) held LhaL lf a
company conLlnues Lo carry on buslness and lncur debLs aL a Llme where Lhere ls Lo
Lhe knowledge of Lhe dlrecLor no reasonable prospecL of Lhe credlLors ever recelvlng
paymenL of Lhose debLs lL ls ln general a proper lnference LhaL Lhe company ls
carrylng on buslness wlLh lnLenL Lo defraud34
An aLLempL was made by 8uckley ! ln 8e WhlLe and Csmond (arksLon) LLd
(unreporLed 30 !une 1960) Lo generallse Lhe poslLlon Pe sLaLed 'ln my [udgmenL
Lhere ls noLhlng wrong ln Lhe facL LhaL dlrecLors lncur credlL aL a Llme when Lo Lhelr
knowledge Lhe company ls noL able Lo meeL all lLs llablllLles as Lhey fall due WhaL ls
manlfesLly wrong ls lf dlrecLors allow a company Lo lncur credlL aL a Llme when Lhe
buslness ls belng carrled on ln such clrcumsLances LhaL lL ls clear LhaL Lhe company
wlll never be able Lo saLlsfy lLs credlLors Powever Lhere ls noLhlng Lo say LhaL
dlrecLors who genulnely belleve LhaL Lhe clouds wlll roll away and Lhe sunshlne of
prosperlLy wlll shlne upon Lhem agaln and dlsperse Lhe fog of Lhelr depresslon are
noL enLlLled Lo lncur credlL Lo help Lhem Lo geL over Lhe bad Llme'
1he CourL of Appeal ln 8 v CranLham 1984 C8 673 expressed lLs dlsagreemenL wlLh
Lhe flrsL llmb ln Lhe 'sunshlne LesL' 8y adopLlng Lhe dlcLum of Lord 8adcllffe ln
Welham v u 1961 AC 103 hls Lordshlp accepLed LhaL Lhe meanlng of 'defraud'
requlres 'a person as lLs ob[ecL LhaL ls defraudlng lnvolves dolng someLhlng Lo
someone AlLhough ln Lhe naLure of Lhlngs lL ls almosL lnvarlably assoclaLed wlLh Lhe
obLalnlng of an advanLage for Lhe person who commlLs Lhe fraud lL ls Lhe effecL upon
Lhe person who ls Lhe ob[ecL of Lhe fraud LhaL ulLlmaLely deLermlnes lLs meanlng' ln
re[ecLlng Lhe conLenLlon LhaL lL had Lo be proved LhaL Lhe relevanL defendanL knew aL
Lhe Llme aL whlch Lhe debLs were lncurred LhaL Lhere was no reasonable prospecL of
credlLors ever recelvlng paymenL of Lhelr debLs Lhe CourL of Appeal ln 8 v CranLham
held LhaL lL was enough lf Lhe defendanL reallsed aL Lhe Llme when Lhe debLs were
lncurred LhaL Lhere was no reason for Lhlnklng LhaL funds would be avallable Lo pay
Lhe debL when lL became due or shorLly LhereafLer33
1hls lssue flnally came before Lhe CourL of llnal Appeal ln AkLleselskabeL uansk
Sklbsflnanslerlng v 8oberL !ohn lrancls 8ros Crs 2000 1 PkC 311 where Lhe courL
adopLed Lhe approach enunclaLed ln 8 v CranLham and expressed Lhe vlew LhaL Lhe
generallsaLlon suggesLed by Maugham ! was noL helpfulln parLlcular where a
company conLlnued Lo Lrade and lncur llablllLles when Lhere was no reasonable
prospecL of belng able Lo pay or provlde paymenL Lhls was noL sufflclenL
AddlLlonal requlremenL of mlsrepresenLaLlon and personal galn
ln Lhe words of Menzles ! ln Pardle v Panson (1960) 103 CL8 431 (aL page 467) 'Lven
lf Lhe chances of paymenL of all credlLors ln full were so remoLe LhaL lL belonged Lo
Lhe realms of hope raLher Lhan bellef lL seems Lo me LhaL Lhe faulL grlevous Lhough
lL may be falls shorL of fraud unless lL ls coupled wlLh someLhlng else such as
mlsrepresenLaLlon of Lhe poslLlon or an lnLenLlon Lo use goods purchased on credlL
for Lhe purposes of dlshonesL galn whlch glves lL a fraudulenL characLer'
As ln 8 v CranLham Lhere was boLh an lnLenLlon Lo galn a personal advanLage and
decepLlon of Lhe suppller 1he Plgh CourL of AusLralla consldered LhaL Lhe quesLlon
was noL wheLher Lhere was a reasonable prospecL of paymenL buL wheLher Lhe
dlrecLor was personally dlshonesLAccordlng Lo klLLo ! however un[usLlfled ls Lhe
'chaslng of Lhe ralnbow' Lhe facL LhaL one had conLlnued Lo sLruggle on wlLh Lhe
buslness dld noL necessarlly amounL Lo fraud 1here ls no requlremenL LhaL for Lhere
Lo be a flndlng of lnLenL Lo defraud credlLors or oLher fraudulenL purpose Lhere
should be an lncurrlng of credlL MorphlLes v 8ernasconl 2001 2 8CLC 1 Powever
on appeal36 Lhe CourL of Appeal expressed Lhe vlew LhaL Lhe exlsLence of
mlsrepresenLaLlon or lnLenLlon Lo mlslead dld noL necessarlly amounL Lo any
lnLenLlon on Lhe parL of Lhe dlrecLors Lo defraud or LhaL Lhe carrylng on of Lhe
companys buslness afLer such represenLaLlon made dld amounL Lo defraudlng Lhe
credlLor by puLLlng lL ln a worse poslLlon Lhan lL would have been lf Lhe
represenLaLlon had noL been made ln Lhls case represenLaLlon was made by way of
sLalllng LacLlcs by Lhe dlrecLors of
an lnsolvenL company Lo Lhe effecL LhaL paymenL would be made Lo Lhe landlord
afLer Lhe explry of 12 monLhs 1here was no lnLenLlon Lo defraud credlLors Lo carry on
buslness afLer Lhe represenLaLlon was made Lo Lhe landlord lnsLead Lhe buslness
was carrled on wlLh Lhe lnLenL Lo proLecL Lhe dlrecLors from llablllLy under secLlon
216 of Lhe lnsolvency AcL 1986
1he CourL of llnal Appeal ln AkLleselskabeL case observed LhaL'Lhe quesLlon of
wheLher a person carrylng on buslness was dlshonesL musL depend upon on
assessmenL of all Lhe facLs ln cases ln whlch fraud ls lnferred Lhere ls almosL
always someLhlng else a mlsrepresenLaLlon Lo credlLors of Lhe companys poslLlon
or Lhelr prospecLs of paymenL or a dlshonesL lnLenL Lo galn some personal
WheLher Lhe dlrecLors have been dlshonesL ls a quesLlon of facL ln each case
Cb[ecLlve LesL versus hypoLheLlcal decenL honesL man
ln deLermlnlng Lhls lssue Lhe LesL ls a sub[ecLlve one ln Lhe sense LhaL Lhe dlrecLor
personally musL have been dlshonesLlL musL be esLabllshed sub[ecLlvely afLer a
careful examlnaLlon of all Lhe evldence 1he full courL of Lhe AkLleselskabeL case also
agreed wlLh Lhe Lrlal [udges flndlngs LhaL 'even ln whaL appear Lo be waLerLlghL
cases fraud may noL be found slmply an un[usLlfled albelL honesL chaslng of Lhe
ralnbow" and LhaL Lhe furLher a person deparLs from ob[ecLlve sLandards of honesLy
Lhe more llkely lL becomes LhaL he ls dlshonesL"'
WhaL was speclflcally dlsapproved by Lhe CourL of llnal Appeal ls Lhe LesL of Lhe
hypoLheLlcal decenL honesL man ln drawlng any concluslon of dlshonesLy ln Lhe
leadlng [udgmenL dellvered by Lord Poffmann he sald 'a defendanL cannoL be
allowed Lo shelLer behlnd some prlvaLe sLandard of honesLy noL shared by Lhe
communlLy l Lhlnk LhaL Lhere ls a danger ln expresslng LhaL proposlLlon by lnvoklng
Lhe concepL of Lhe hypoLheLlcal decenL honesL man 1he danger ls LhaL because
decenL honesL people also Lend Lo behave reasonably conslderaLely and so forLh
Lhere may be a LempLaLlon Lo LreaL shorLcomlngs ln Lhese respecLs as a fallure Lo
comply wlLh Lhe necessary ob[ecLlve sLandard'
8ased on Lhls LesL Lhe CourL of llnal Appeal ln Lhe AkLleselskabeL case found LhaL Lhe
facL of lncurrlng furLher loans aL a Llme when Lhe company had long been lnsolvenL
and when Lhere had been adverse commenLs from reporLs from flnanclal advlsers of
Lhe company dld noL make Lhe company Lradlng fraudulenLly when Lhe dlrecLors
were alleged Lo be under a bellef LhaL Lhe company would have parenLal supporL
Slmllarly ln 8e Sarflax LLd 1979 Ch 392 lL was held LhaL Lhe facL LhaL a debLor
company wlLh Lhe knowledge or havlng grounds Lo belleve LhaL lL dld noL have
sufflclenL asseLs Lo pay all credlLors ln full pald only some credlLors buL noL oLhers
and pald Lhem ln unequal proporLlons could noL of lLself consLlLuLe fraud under Lhe
equlvalenL of secLlon 273 lurLher Lhe facL LhaL a company had ceased acLlve Lradlng
dld noL mean LhaL lL mlghL noL be regarded as carrylng on buslness ln a
proper case a defendanL holdlng a sub[ecLlve bellef LhaL he was acLlng lawfully
would noL be LhoughL dlshonesL as he belleved he was acLlng honesLly by ordlnary
sLandards MorphlLes v 8ernasconl 2001 2 8CLC 137
SLandard of proof
Cn Lhe lssue of Lhe sLandard of proof ln fraudulenL Lradlng cases Lhe CourL of llnal
Appeal ln AkLleselskabeL found LhaL lL was noL wrong for Lhe Lrlal [udge Lo adopL Lhe
clvll sLandard of a balance of probablllLles wlLh Lhe degree of probablllLy belng
'commensuraLe wlLh Lhe occaslon and proporLlonaLe Lo Lhe sub[ecL maLLer' 1he
correcL analysls ls LhaL 'Lhe courL ls noL looklng for a hlgher degree of probablllLy lL ls
only LhaL Lhe more lnherenLly lmprobable Lhe acL ln quesLlon Lhe more compelllng
wlll be Lhe evldence needed Lo saLlsfy Lhe courL on a preponderance of probablllLy'
noLe should also be Laken LhaL Lhe sLandard requlred Lo lmpose a llablllLy under
secLlon 273(3) ls a crlmlnal sLandard of proof le proof beyond reasonable
doubLWhere fraud ls alleged Lhe courL requlres cogenL evldence and a degree of
probablllLy whlch ls commensuraLe wlLh Lhe serlousness of Lhe allegaLlon38
erson llable
LlablllLy under secLlon 273 wlll be lmposed on 'a parLy Lo Lhe carrylng on of Lhe
buslness' 1hls wlll cover clalms agalnsL pasL or presenL dlrecLors (lncludlng shadow
dlrecLors of Lhe company whlch had carrled on lLs buslness wlLh lnLenL Lo defraud
credlLors) see Morrls v 8ank of lndla 20032 8CLC 328 per Mummery L! aL 100
Accordlng Lo ennyculck vC ln 8e MaldsLone 8ulldlngs rovlslons LLd 1971 1 WL8
1083 Lhe expresslon 'parLy Lo' musL on lLs naLural meanlng lndlcaLe no more Lhan
'parLlclpaLe ln' Lakes parL ln' or 'concur ln' and lL lnvolves some poslLlve sLeps of
some naLure 1o brlng one wlLhln Lhe secLlon one musL show LhaL he ls Laklng some
poslLlve sLeps ln Lhe carrylng on of Lhe companys buslness ln a fraudulenL mannerln
Lhls case a company secreLary was held noL Lo be lncluded among'parLles Lo Lhe
carrylng on of Lhe buslness' when he knew LhaL Lhe company was lnsolvenL buL
merely falled Lo advlse Lhe board LhaL Lhe company should cease Lradlng
ln ln 8 v Mlles 1992 Crlm L8 637 Lhe CourL of Appeal held LhaL Lhe equlvalenL of
secLlon 273 was deslgned Lo lnclude Lhose exerclslng a conLrolllng or managerlal
funcLlon or Lhose who were 'runnlng Lhe buslness' lL ls lnapproprlaLe Lo broaden Lhe
scope Lo cover Lhose 'concurrlng ln Lhe Lrade whlch ls lnvolved ln Lhe buslness of Lhe
ln an exLreme case a credlLor who recelved paymenL ln seLLlemenL of a debL due by
a company ouL of Lhe money whlch he knew was obLalned by fraud by Lhe
companys dlrecLors and who refralned from presslng for repaymenL knowlng LhaL
buslness was carrled on Lo defraud credlLors would be ordered Lo be personally
llable for resLorlng Lhe money (8e Cerald Cooper Chemlcals LLd 1978 Ch 262)
Lcho can be found ln 8e AugusLus 8arneLL Co LLd 1986 8CLC 170 where Poffmann
! sald aL page 173 LhaL 'Lhe words persons parLles Lo" may be wlde enough Lo
cover ouLslders who could noL be sald Lo have carrled on or even asslsLed ln Lhe
carrylng on of Lhe companys buslness buL who neverLheless ln some way
parLlclpaLed ln Lhe fraudulenL acLs
ln Morrls v SLaLe 8ank of lndla 2003 2 8CLC 328 Lhe llquldaLors of Lhe 8CCl group
soughL conLrlbuLlon Lo Lhe 8CCl group from a separaLe bank S8l on Lhe ground LhaL
S8l had knowledge LhaL one or more of Lhe LransacLlons were belng enLered lnLo
elLher Lo defraud credlLors of 8CCl or for a fraudulenL purpose 1he conducL
complalned of was LhaL S8l had enLered lnLo slx clrcular LransacLlons wlLh 8CCl whlch
were made Lo help lL conceal serlous bad debLs by Lhe 8CCl group and Lo lmprove lLs
balance sheeL poslLlon ln Lhe flrsL lnsLance [udgmenL (see 2003 LWPC 1868) lL was
held LhaL even lf Lhe credlL lnqulrles made by S8l were wholly lnadequaLe lL fell a
long way shorL of esLabllshlng any knowledge of Lhe fraud on Lhe parL of S8l or LhaL
Lhe S8l offlclals who approved Lhe loans knowlngly lenL S8ls asslsLance Lo whaL Lhey
suspecLed or belleved Lo be a fraud on 8CCls credlLors39
Poldlng company and shadow dlrecLorshlp
An aLLempL Lo clalm agalnsL a holdlng company as a knowlng parLy falled ln 8e
AugusLus 8arneLL and Son LLd 1986 8CLC 17 ln Lhls case Lhe holdlng company
repeaLedly lssued sLaLemenLs LhaL lL would conLlnue Lo supporL lLs whollyowned
subsldlary Some of Lhe sLaLemenLs were addressed Lo Lhe subsldlarys audlLors
publlshed ln Lhe subsldlarys annual accounLs for Lhree successlve years lL was held
LhaL Lhere was no evldence LhaL Lhe parenL company lnLended Lo defraud Lhe
subsldlarys credlLors raLher Lhe acL was conslsLenL wlLh Lhe parenL company havlng
an honesL lnLenLlon Lo supporL Lhe subsldlary aL Lhe Llme when lL made Lhe
1o hold a holdlng company llable under Lhe secLlon lL ls noL sufflclenL LhaL lL could
have been ln a poslLlon Lo lnfluence Lhe conducL of Lhe affalrs of lLs subsldlary or LhaL
Lhe subsldlarys board ls nomlnaLed by lL LlablllLy wlll only arlse lf Lhe holdlng
company Lhrough lLs agenL Lakes parL ln managlng Lhe subsldlarys affalrs under lLs
dlcLaLlon Lo defraud credlLors 1he concepL of shadow dlrecLor may arguably flL ln
Lhls analysls (for Lhe concepL of shadow dlrecLor see 8e Pydrodan (Corby) LLd 1994
2 8CLC 180 SecreLary of SLaLe lor 1rade and lndusLry v ueverell Anor 2000 2 WL8
907) 1he same raLlonale can apply Lo an lndlvldual shareholder wlLh a large
shareholdlng ln 8e Pydrodan Lhe llquldaLor falled Lo persuade Lhe courL Lo hold
dlrecLors of a parenL company as shadow dlrecLors of a subsldlary company for Lhe
purpose of lmposlng llablllLy on wrongful Lradlng under secLlon 214 of Lhe lnsolvency
AcL 1986 1he posslblllLy of parenL company Lhrough lLs board as Lhe approprlaLe
organ glvlng lnsLrucLlons Lo Lhe dlrecLors of a subsldlary who were accusLomed Lo acL
ln accordance LherewlLh ls lefL open Also lefL open ls Lhe posslblllLy of lndlvldual
dlrecLors of Lhe parenL company glvlng lnsLrucLlons Lo dlrecLors of a subsldlary so as
Lo render Lhemselves personally llable as shadow dlrecLors1hls ls more llkely Lhe
case where Lhe board of Lhe parenL company conLrols Lhe composlLlon of Lhe board
of Lhe subsldlary or where Lhe members of Lhe board of Lhe subsldlary musL
necessarlly be comlng from Lhe board of Lhe parenL company40 1hls was made clear
ln MorphlLes v 8ernasconl 2001 2 8CLC 1 where Lhe courL held LhaL shadow
dlrecLors employees or agenLs lf Lhey were knowlng parLles Lo Lhe relevanL carrylng
on of Lhe buslness could be llable for fraudulenL Lradlng upon appeal41 Lhe CourL
of Appeal found on Lhe facLs of Lhe case LhaL Lhere was no evldence of lnLenL Lo
defraud by slmply carrylng on buslness followlng a represenLaLlon made by Lhe
LffecL of fraudulenL Lradlng
1he person agalnsL whom such a declaraLlon ls soughL ls noL Lhereby made llable Lo
Lhe companys credlLor raLher he may be ordered by Lhe courL Lo pay Lo Lhe
llquldaLor who ln Lurn applles Lhe same ln
paylng all Lhe companys credlLors on a parl passu basls42 1he courL may glve effecL
Lo Lhe declaraLlon by maklng Lhe llablllLy of Lhe fraudulenL person a charge on any
debL or obllgaLlon due from Lhe company Lo hlm or on any asseLs of Lhe company
held by hlm or by any person on hls behalf or by cerLaln asslgnees (secLlon 273(2))
8y dolng so Lhe prlorlLy of belng a secured credlLor wlll be desLroyed and no
defrauded credlLor of Lhe company wlll Lhen be subrogaLed Lo LhaL fraudulenL
persons rlghLs as a nomlnee or asslgnee43
upon flndlng LhaL a person has been gullLy of an offence for whlch he ls llable an
order for dlsquallflcaLlon may be made agalnsL Lhe fraudulenL person under secLlon
1 See generally secLlon 101L of Lhe Crlmlnal rocedure Crdlnance
2 SecLlon 31
3 SecLlon 373
4 SecLlon 168n
3 Where Lhe parenL company made a clear underLaklng Lo assume Lhe llablllLy of lLs
subsldlary Lhe absence of a proper form of guaranLee does noL prohlblL Lhe
enforcemenL of such a guaranLee Chemco Leaslng SpA v 8edlffuslon 1987 1 l1L8
201 lor Lhe Pong kong poslLlon see 8ouygues SA v Shanghal Llnks LxecuLlon
CommunlcLy LLd 19982 PkL8u 479 1oppan rlnLlng Co v Chlnese unlLed ress LLd
PCA 2898/2002 (13 May 2003)
6 See also LlndholsL Co A/S v lowler 1988 8CLC 166 8lum v CC eparLlLlon SA
1988 8CLC 170 llorenLlno Comm Cluseppe Srl v larnesl 2003 8CC 771
7 1he conLracL would noL be rendered vold even Lhough Lhe companys reglsLered
name dld noL appear on Lhe documenLaLlon Moreland MeLal Co LLd v Cowllshaw
(1919) 19 S8 (nSW) 231 Where [udgmenL has been obLalned agalnsL a Lrade name
leave may be obLalned from Lhe courL Lo enforce Lhe [udgmenL agalnsL Lhe real
corporaLe enLlLy
8 ln Lhls case an appllcaLlon for recLlflcaLlon of cheques Lo lnserL Lhe company name
was refused because appllcanL was noL a parLy 1he courL held LhaL Lhe lnLenLlon Lo
recLlfy was noL Lo glve effecL Lo Lhe lnLenLlon of Lhe parLles buL Lo escape llablllLy and
LhaL Lhe plalnLlffs rlghL arose on secLlon 93(3) noL on Lhe cheque lLself
9 See 8anque de llndochlne eL de Suez SA v Luroseas Croup llnance Co LLd 19813
All L8 198 and SLacey Co LLd v Wallls (1912) 106 L1 344 whlch ralsed Lhe same
10 See SLacey Co LLd v Wallls (1912) 106 L1 344 whlch ralsed Lhe same query
11 ln Lhls case Lhe company name 'rlmekeen LLd' was mlsspelL as 'rlmkeen LLd'
Accordlng Lo 8 1lLherldge CC (slLLlng as depuLy [udge) he refused Lo come Lo any
concluslon whlch he consldered nonsenslcal ln parLlcular he sLaLed LhaL he 'should
flnd lL exLremely dlfflculL Lo say LhaL somebody responslble for an undersLandable
and slmple and common spelllng error were gullLy of a crlmlnal offence on Lhe basls
LhaL because of Lhe spelllng error Lhe courL could be saLlsfled so LhaL lL was sure
LhaL Lhe company name was noL menLloned ln Lhe documenL'
12 1he quesLlon of wheLher a conLracL was esLabllshed Lhrough agenLs wlLh Lhelr
prlnclpal were maLLers of facL whlch warranLed lnqulry ln Lhls case
13 SecLlon 33 operaLes Lo proLecL ouLslders when corporaLe negoLlable lnsLrumenLs
are execuLed 1he secLlon does noL preclude any oLher posslble acLlon LhaL Lhe
ouLslders may Lake agalnsL Lhe slgnaLory of Lhe company 1hls ls Lhe case where Lhe
slgnaLory has falled Lo slgn Lhe negoLlable lnsLrumenL ln a represenLaLlve capaclLy
14 lL ls arguable LhaL Lhe socalled composlLe slgnaLure approach may noL help lf Lhe
documenL concerned ls noL a cheque or lf Lhe company ls noL drawlng up Lhe blll of
exchange as ln Lhese cases lL ls unllkely LhaL Lhe companys name wlll be preprlnLed
on Lhe documenL wlLh lLs accounL number from whlch monles are Lo be drawn
13 Approved and adopLed by Lhe CourL of llnal Appeal ln Pong kong ln ?lu Chown
Leung v Chow Wal Lam Wllllam 20034 PkL8u 246
16 1he essence of Lhe clalm ln naLural Llfe PealLh loods was one of LorL of
negllgence where a clalmanL musL esLabllsh LhaL Lhe defendanL owed hlm a duLy of
care 1here ls no such requlremenL ln Lhe case of decelL and Lhls was Lhe basls
adopLed by Lhe Pouse of Lords ln dlsLlngulshlng and chooslng noL Lo follow naLural
Llfe PealLh loods see SLandard CharLered 8ank v aklsLan naLlonal Shlpplng Corp
Crs 2003 1 8CLC 244 per Lord 8odger aL page 238 As Lord Poffman puL lL aL page
232 'no one can escape llablllLy for hls fraud by saylng l wlsh Lo make lL clear LhaL l
am commlLLlng Lhls fraud on behalf of someone else and l am noL Lo be personally
17 See also konlnkll[ke hlllps LlecLronlcs nv v rlnco ulglLal ulsc CmbP 2004 2
8CLC 30 where Lhe courL held LhaL a dlrecLor who was closely lnvolved ln Lhe
dayLoday acLlons of Lhe company could be sufflclenLly bound up ln Lhe companys
acL of lmporLlng paLenLlnfrlnglng Cu8s Lo make hlm [olnLly llable wlLh Lhe company
1he basls of holdlng a dlrecLor as a [olnL LorLfeasor where Lhe prlmary lnfrlnger was
Lhe company covered Lhose clrcumsLances ln whlch Lhe dlrecLors procured or
lnduced Lhose acLs done by Lhe company or LhaL ln some way he and Lhe company
[olned LogeLher ln concerLed acLlon Lo secure Lhe dolng of Lhose acLs
18 SecLlon 160 provldes LhaL a llmlLed company lf so auLhorlsed by lLs arLlcles may
by speclal resoluLlon alLer lLs memorandum so as Lo render unllmlLed Lhe llablllLy of
lLs dlrecLors or managers or of any managlng dlrecLor
19 lor furLher dlscusslon of Lhls Loplc see ChapLer 8
20 LlablllLles lmposed on dlrecLors are noL resLrlcLed Lo Lhose found ln Lhe
Companles Crdlnance CLher sLaLuLes namely Lhe SecurlLles and luLures Crdlnance
(effecLlve on 1 Aprll 2003) and Lhe 1hefL Crdlnance also conLaln provlslons relevanL
Lo publlc lssue see ChapLer 17 lor Lhe correspondlng provlslons ln respecL of
oversea companles/nonPong kong companles see secLlons 342L and 342l
21 See Palsburys Laws of Pong kong vol 6 Companles and CorporaLlons paragraph
930189 and noLe 18
22 See 726
23 1he correspndlng provlslons lmposlng llablllLles on Lhe dlrecLors and offlcers ln
respecL of a nonPong kong companys prospecLus can be found ln arL xll see
secLlons 342(4) 342CA(3) 342C8(4) 342u and 342l
24 See for example secLlon 20 of Lhe 1rade uescrlpLlon Crdlnance secLlon 33 of Lhe
WelghLs and Measures Crdlnance secLlon 26 of Lhe 1oys and Chlldrens roducLs
SafeLy Crdlnance and secLlon 168n of Lhe Companles Crdlnance
23 1he speclflc faulLbased and fraudrelaLed offences under Lhe 1hefL Crdlnance

obLalnlng properLy by decepLlon (le dlshonesLly obLalnlng properLy belonglng Lo
anoLher wlLh Lhe lnLenLlon of permanenLly deprlvlng Lhe oLher of lL) secLlon 17

obLalnlng pecunlary advanLage by decepLlon (le dlshonesLly obLalnlng for oneself or
anoLher any pecunlary advanLage lncludlng belng granLed a credlL faclllLy or credlL
arrangemenL and Lhelr lmprovemenL and exLenslon LhereLo a credlL Lo or a seLoff
agalnsL an accounL belng allowed Lo borrow by way of lnLer alla overdrafL and any
lmprovemenL LhereLo and belng glven Lhe opporLunlLy Lo earn lnLer alla
remuneraLlon) secLlon 18

obLalnlng servlces by decepLlon (le dlshonesLly obLalnlng servlces from anoLher by
lnduclng oLhers Lo confer a beneflL by lnLer alla dolng some acL) secLlon 18A

evadlng llablllLy by decepLlon (le dlshonesLly securlng Lhe remlsslon wlLh lnLenL Lo
make defaulL on any exlsLlng llablllLy or dlshonesLly obLalnlng any exempLlon from
llablllLy) secLlon 188

maklng off wlLhouL paymenL (le dlshonesLly maklng off wlLhouL havlng pald wlLh
lnLenL Lo avold paymenL of amounL due) secLlon 18C

procurlng enLry ln cerLaln records by decepLlon (le dlshonesLly procurlng wlLh a vlew
Lo galn for oneself or anoLher or wlLh lnLenL Lo cause loss Lo anoLher Lhe maklng
omlsslon alLerlng absLracLlng conceallng or desLrucLlon of an enLry ln a record of
lnLer alla a bank) secLlon 18u

false accounLlng (le dlshonesLly desLroylng defaclng conceallng or falslfylng wlLh a
vlew Lo galn for hlmself or anoLher or wlLh lnLenL Lo cause loss Lo anoLher any
accounL or any record or documenL made or requlred for any accounLlng purpose or
ln furnlshlng lnformaLlon for any purpose produces or makes use of any accounL or
any such record or documenL whlch ls mlsleadlng false or decepLlve ln a maLerlal
parLlcular) secLlon 19

suppresslng documenLs (le dlshonesLly desLroylng defaclng or conceallng wlLh a
vlew Lo galn for oneself or anoLher or wlLh lnLenL Lo cause loss Lo anoLher any
valuable securlLy wlll or oLher LesLamenLary documenL or any orlglnal documenL of
or belonglng Lo or flled or deposlLed ln any courL or any governmenL deparLmenL)
secLlon 22 SecLlon 20 makes Lhe dlrecLor manager secreLary or any person
purporLlng Lo acL as such Lo be gullLy of Lhe above offences lf commlLLed by Lhe
company wlLh Lhelr consenL or connlvance Cf parLlcular relevance Lo an offlcer
concernlng Lhe maklng of false sLaLemenLs ls secLlon 21 whlch provldes LhaL where
an offlcer wlLh lnLenL Lo decelve members or credlLors of Lhe body corporaLe abouL
lLs affalrs publlshes or concurs ln publlshlng a wrlLLen sLaLemenL or accounL whlch Lo
hls knowledge ls or may be mlsleadlng false or decepLlve ln a maLerlal parLlcular he
shall be gullLy of an offenceunder Lhe Crlmes Crdlnance lL ls an offence Lo make a
false lnsLrumenL or Lo make a copy of an lnsLrumenL whlch ls and whlch one knows
or belleves Lo be a false lnsLrumenL or Lo use an lnsLrumenL whlch ls and whlch one
knows or belleves Lo be false or Lo use a copy of an lnsLrumenL whlch ls and whlch
one knows or belleves Lo be a false lnsLrumenL and ln elLher slLuaLlon for Lhe
purpose of lnduclng somebody Lo accepL lL as genulne and by reason of so accepLlng
lL Lo do or noL Lo do some acL Lo ones own or oLhers pre[udlce secLlons 71 secLlon
72 secLlon 73 secLlon 74 under secLlon 73 lL ls also an offence for a person who
has ln hls cusLody or under hls conLrol an lnsLrumenL whlch ls and whlch he knows
or belleves Lo be false wlLh Lhe lnLenLlon LhaL he or anoLher shall use lL Lo lnduce
somebody Lo accepL lL as genulne by reason of so accepLlng lL Lo do or noL Lo do
some acL Lo hls own or oLhers pre[udlce Concernlng compuLer access fraud secLlon
161 provldes LhaL any person who obLalns access Lo a compuLer wlLh lnLenL Lo
commlL an offence wlLh a dlshonesL lnLenL Lo decelve wlLh a vlew Lo dlshonesL galn
for hlmself or anoLher or wlLh a dlshonesL lnLenL Lo cause loss Lo anoLher wheLher
on Lhe same occaslon as he obLalns such access or on any fuLure occaslon commlLs
an offence
26 8uL Lhere are some lnroads and excepLlons where Lhe courL may be prepared Lo
[oln a parLy for Lhe purpose of awardlng cosLs see 1he Pong kong Pouslng AuLhorlLy
v Psln ?leh ArchlLecLs LLd CACv no 83/2003 World luel Servlces (Slngapore) Le LLd
L/a 1rans1ecAsla PCA! no 133/2003 (13 SepLember 2003)
27 lL ls especlally Lhe case when Lhe peLlLlon was dlspuLed on ones beneflL and Lhere
ls no [usLlflcaLlon for maklng someone else pay Lhe cosLs Clobe LqulLles LLd v Clobe
Legal Servlces LLd (1999) 8L8 232 per MorrlLL L! aL page 240 see also Cl8C Mellon
1rusL v SLolzenberg 2003 2 8CLC 618
28 See Lhe varlous facLors relevanL Lo Lhe exerclse of dlscreLlon referred Lo ln
Symphony Croup plc v Podgson 19934 All L8 143 ln 8e Aurum MarkeLlng LLd (ln
llquldaLlon) 20002 8CLC 643 Lhe courL made an order for cosLs agalnsL Lhe sole
dlrecLor as Lhe companys buslness was a swlndle operaLed by hlm Lhrough Lhe
company LhaL lL was ln hls lnLeresL for Lhe company Lo conLesL and Lhereby delay Lhe
proceedlngs and LhaL noL maklng a cosLs order would puL Lhe burden of cosLs of
proceedlngs onLo Lhe general publlc and Lhe credlLors WhaL Lhe courL was looklng
for was evldence of mala fldes abuse of process procedural manlpulaLlon or
lmproper defence of Lhe peLlLlon
29 See also ?uen laL Wharf Cordown Co LLd v WayrosperlLy Cargo Servlces Co LLd
Crs unrep PCA 3110 of 2001 (6 november 2001) per uepuLy !udge MuLLrle
30 lor furLher deLalls see ChapLer 26 1he facL LhaL Lhe company goes lnLo
llquldaLlon wlll noL affecL Lhelr llablllLles slnce rlghLs of acLlon wlll be accrued Lo Lhe
llquldaLor pursuanL Lo secLlon 276 whlch provldes LhaL lf ln Lhe course of wlndlng up
lL appears LhaL any person who has Laken parL ln a companys formaLlon or
promoLlon or any pasL or presenL offlcer llquldaLor or recelver has mlsapplled
reLalned or become llable or accounLable for any money or properLy of Lhe company
or ls gullLy of any mlsfeasance or breach of duLy ln relaLlon Lo Lhe company whlch ls
acLlonable aL Lhe sulL of Lhe company Lhe Cfflclal 8ecelver llquldaLor or any credlLor
or conLrlbuLory may apply Lo Lhe courL Lo examlne hls conducL and compel hlm Lo
pay or resLore Lhe money or properLy or Lo conLrlbuLe a sum Lo Lhe asseLs of Lhe
company by way of compensaLlon
31 SubsecLlon (1) creaLes a clvll llablllLy on Lhose who abuse Lhe use of and seek
shelLer behlnd Lhe vell of lncorporaLlon Lo perpeLuaLe a fraud whereas subsecLlon (3)
lmposes a crlmlnal sancLlon ln Lhe laLLer case Lhere ls no requlremenL LhaL Lhe
company ln quesLlon has been or ls ln Lhe course of belng wound up
32 ln 8 v kemp 1988 8CLC 217 Lhe CourL of Appeal ln conslderlng Lhe mlschlef of
Lhe provlslon held LhaL lL was fraudulenL Lradlng noL slmply Lradlng lnsofar as lL
affecLed credlLors and Lhe relevanL vlcLlms could be cusLomers who mlghL or mlghL
noL be conLlngenL credlLors See also MorphlLes v 8ernasconl 2001 2 8CLC 1 aL 27
per AnLhony Llleray CC a polnL noL seemlngly dlsLurbed upon appeal 1he secLlon
does noL requlre LhaL Lhe lnLenLlon Lo defraud should consLlLuLe Lhe sole or domlnanL
cause lL sufflces lf lL was relayed Lo Lhe carrylng on of Lhe companys buslness ln 8 v
hlllppou (1989) 89 Cr App 8 290 lL was held LhaL Lhe dlrecLors and shareholders of a
company engaglng ln Lhe Lravel Lrade who concealed from Lhe avlaLlon auLhorlLy Lhe
companys Lrue flnanclal poslLlon Lo avold lLs llcence belng revoked were found gullLy
of fraudulenL Lradlng slnce Lhe keeplng of Lhe llcence was consldered as an lnLegral
parL of a buslness and LhaL Lhe fraudulenL way ln whlch Lhe llcence was secured by
Lhe company could amounL Lo carrylng on of Lhe companys buslness fraudulenLly
33 ln Lhls case lL was held LhaL an aLLempL made by a dlrecLor Lo conLlnue Lhe
companys buslness noL genulnely for a Lradlng purpose ln order LhaL Lhe debenLures
he held would noL be oLherwlse lnvalldaLed upon company lnsolvency was noL
fraudulenL for Lhe purpose of Lhls acLlon 1he defendanL was noL held llable because
Lhe buslness was carrled on Lo geL ln asseLs and Lo dlscharge debLs and noL wlLh a
vlew Lo securlng by purchases on credlL asseLs avallable as securlLy for debenLures
34 ln Lhls case Lhe defendanL dlrecLor had ordered goods whlch exceeded Lhe
companys acLual requlremenL aL a Llme when Lhe company could noL pay lLs debLs
wlLh Lhe resulL LhaL Lhe goods so ordered were Lo be sub[ecL Lo Lhe banks floaLlng
charge and LhaL hls llablllLy on Lhe guaranLee of Lhe companys overdrafL would be
33 ln Lhls case Lhere was a flndlng of an acLual lnLenLlon Lo decelve when Lhe
company wlLh no asseLs and no credlL faclllLles ordered goods on credlL Lerms and
Lhen resold Lhem aL a greaL dlscounL 1he sale proceeds were Lhen dlsLrlbuLed among
Lhe dlrecLors Accordlng Lo Lord Lane C! lL was open Lo Lhe [ury Lo flnd LhaL whoever
was runnlng Lhe buslness was lnLendlng Lo decelve or was acLually decelvlng Lhe
suppller of goods lnLo bellevlng LhaL he would be pald wlLhln Lhe credlL when he
knew perfecLly well LhaL Lhere was no hope of LhaL comlng abouL
36 2003 LWCA Clv 289
37 upon appeal see 2003 LWCA Clv 289 See Lhe dlrecLlons clLed ln 8 v Clowes (no
2) 1994 2 All L8 316 aL 332334
38 As Lord SLeyn puL lL ln SmlLh new CourL SecurlLles LLd v Scrlmgeour vlckers (AsseL
ManagemenL) LLd 1996 4 All L8 769 aL 783 1997 AC 234 aL 274 'Counsel puL ln
Lhe forefronL of hls submlsslons Lhe undlspuLed proposlLlon LhaL whlle as a maLLer of
law fraud only has Lo be proved Lo Lhe clvll sLandard proof Lo LhaL sLandard musL
necessarlly Lake lnLo accounL Lhe conslderaLlon LhaL Lhe more serlous Lhe allegaLlon
ls Lhe greaLer Lhe proof ls needed Lo persuade a courL LhaL lL can be saLlsfled LhaL Lhe
allegaLlon ls esLabllshedln oLher words Lhe very gravlLy of an allegaLlon of fraud ls a
clrcumsLance whlch has Lo be welghed ln Lhe scale ln decldlng as Lo Lhe balance of
probablllLles (see 8e P (mlnors) 1996 1 All L8 1 aL 1618 1996 AC363 aL 386387
per Lord nlcholls of 8lrkenhead)'
39 aLLen ! ln Lhls case dlsLlngulshed beLween Lurnlng a bllnd eye Lo Lhe posslblllLy of
fraud when Lhere was a consclous appreclaLlon of Lhe Lrue naLure of Lhe buslness
belng carrled on and fallure however negllgenL Lo appreclaLe LhaL fraud was belng
perpeLuaLed slnce Lhe basls of llablllLy for bllndeye knowledge was fallure Lo lnqulre
lnLo a flrmly grounded susplclon LargeLed on speclflc facLs as opposed Lo mere
speculaLlve or unLargeLed susplclon 1he declslon was afflrmed upon appeal lL ls
lnLeresLlng Lo noLe LhaL Lhe Lngllsh CourL of Appeal dld suggesL LhaL lL may well be
posslble Lo slmpllfy cases of Lhls klnd by pleadlng and relylng on Lhe docLrlne of
vlcarlous llablllLy so LhaL an employee could be made llable as a parLy Lo fraudulenL
Lradlng and hls corporaLe employer made vlcarlously llable Lo conLrlbuLe Lo Lhe losses
caused by hls wrongful acLs ln Lhls connecLlon rellance could be placed on Lhe
analysls of Lhe docLrlne of vlcarlous llablllLy by Lhe Pouse of Lords ln uubal
Alumlnlum Co LLd v Salaam 2002 ukPL 48 parLlcularly ln Lhe speeches of Lord
nlcholls and Lord MllleLL
40 1hls ls ln facL one of Lhe crlLerla under secLlon 2(4) ln deLermlnlng lf a holdlng
company and subsldlary relaLlonshlp exlsLs
41 See 2003LWCA Clv 289
42 See Lhe 8e WC LelLch case buL see 8e Cyona ulsLrlbuLors LLd 1967 Ch 889 whlch
suggesLed LhaL an order may be made Lo Lhe effecL LhaL Lhe sum declared Lo be pald
by Lhe fraudulenL person be made Lo a parLlcular credlLor and Lhls ls Lhe case where
paymenL was obLalned by a credlLor of a company from dlrecLors ouL of Lhelr own
resources by LhreaLenlng Laklng proceedlngs agalnsL Lhem for an order maklng Lhem
personally llable
43 1he unfalr preference provlslon under s 2668 of Lhe Companles Crdlnance could
have produced Lhe same resulL lf a case of unfalr preference can be esLabllshed lor
fraudulenL Lransfer of properLy by a company wlLh lnLenL Lo defraud credlLor see s 60
of Lhe Conveyanclng and roperLy Crdlnance (Cap 219)