The devil will be in the detail on the suspension of wrongful trading to ensure that it is not abused. The IRDA includes a statutory defence for personal liability. a. any director or secretary of the corporation or a person employed in an executive capacity by the corporation;b. a receiver and manager of any part of the undertaking of the corporation appointed under a power contained in any instrument; andc. This article highlights recent examples of how the court has considered these duties in the context of applications by liquidators or administrators of insolvent companies where allegations against directors of misfeasance (under section 212 of the Insolvency Act 1986) and wrongful trading (sections 214/246ZB of the Insolvency Act 1986) have been made. The company can do so by reviewing their current contracts and possibly attempting to renegotiate key contracts (e.g. Five ex-remisiers charged for false trading of 55 SGX-listed securities | The Edge Singapore Consequently, the earlier insolvent trading provisions were seldom relied on to hold company officers accountable. 13. On the facts, there was no wrongful trading. Given the financial stresses that many businesses will currently feel, now is an important time to pay attention to obligations not to trade if a company is insolvent (Singapore) and avoid any situation that could be seen to qualify as fraudulent trading (Hong Kong). countries such as the UK,1 Australia2 and Singapore3 recently announced a temporary suspension of wrongful trading provisions in their respective jurisdictions to discourage directors from pulling the plug early. Liability applies to “any person who was a party to the company trading” and thus may apply to stakeholders such as financiers. Further, during a three month transition period, creditors are prohibited from commencing insolvency proceedings against businesses. New wrongful trading provision We have previously discussed that the IRDA introduced a new concept of “wrongful trading” under Section 239 of the IRDA, which replaces the old concept of “insolvent trading” under section 339 (3) of the Companies Act. Is taking wrongful trading positions Is acting as the agent or partner of the person(s) who controls the company Under those circumstances, a court may decide to treat the company and one or more of its associated individuals (shareholders, directors, officers or employees) as one and the same and to hold them personally liable. The article is structured as follows. You can contact the taskforce at here. The changes provide relief to directors from the risk of personal liability for insolvent trading by allowing businesses to operate during a temporary six month period without having to enter voluntary administration or liquidation. Businesses have been disrupted, cash flows have been interrupted and economies have been thrown into a huge negative shock. There is a concept of “wrongful trading” in Singapore and the operative provision is set out in Section 339(3) of the Companies Act (Chapter 50 of Singapore) (“Singapore Companies Act”). Wrongful Trading The Bill replaces the existing insolvent trading regime with a new 'wrongful trading' provision in Sections 239. Other more minor technical amendments, and various changes to the regulation making powers given in the Act, were also made during the parliamentary process. The Singapore wrongful trading regime reflected in these provisions is potentially a powerful tool for creditors and liquidators, because: • liability is not limited to directors or officers of the company. In order to provide relief to businesses that are unable to meet their debts due to the impact of COVID-19, the Australian Federal Government has passed temporary amendments to its insolvency and corporation legislation through the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) that received Royal Assent on 24 March 2020. Although it is rarely invoked, in this time of a COVID-19 global recession … The legislation provides that the obligation to file for insolvency as well as the payment prohibitions will be suspended until 30 September 2020, unless the insolvency is not due to the effects of the COVID-19 pandemic or there is no prospect of eliminating a payment default that has occurred. 6 Companies Act 1963, s.297A. directors’ duties & responsibilities (singapore) 2 “In practice, it can be said that the board is responsible for laying down matters of principle, and of accounting, statistical and management procedures. Prior to this, the provisions pertaining to personal insolvency were contained in the Bankruptcy Act, while provisions related to corporate insolvency were contained in the Companies Act. Wrongful trading. (iii) Wrongful trading – Section 339(3) of the Act (iv) Fraudulent trading – Section 340 of the Act (v) Wrongful dividends – Section 403(2)(b) Reverse Corporate Veil Piercing. beyond a reasonable doubt) and this is a prerequisite before civil liability, where the standard of proof is based on the balance of probabilities. In many countries across the world, governments have amended their insolvency and corporation legislation, or enacted new legislation, in order to provide temporary relief to entities in financial distress as a result of the COVID-19 pandemic. It is noted that the monetary thresholds and time limits for bankruptcy and insolvency will be increased. However, this approach to wrongful trading was not actually adopted in the United Kingdom and therefore this reflects a novel and untested approach to the concept of wrongful trading. New wrongful trading provision In a new provision relating to wrongful trading, the court is empowered to make a declaration that any person who was a knowing party to the company trading wrongfully is personally responsible for debts or liabilities of the company. Wrongful trading must be established on a criminal standard of proof. Abstract This article compares reforms to directors' liability for insolvent trading in Singapore and in Australia. The government previously consulted on proposed changes to the UK’s insolvency framework and is now looking to introduce reforms including: In addition to this, the UK government has announced a temporary suspension of the wrongful trading regime, with retrospective effect from 1 March 2020, to remove the threat of personal liability for directors. This offence is premised on the basis of the director knowingly causing the company to take on a debt obligation when he had no reasonable or probable ground of expectation that the company would be able to repay the debt. Specific legal advice. In this update, we discuss the new wrongful trading provisions which have been introduced in the IRDA. Now, a party may be found personally liable for all of a company’s debts if they knew the company was trading wrongfully or, as an officer of the company, should have known it was doing so. Wrongful trading under the Insolvency, Restructuring and Dissolution Act 2018 Corporate Insolvency, Restructuring, and Recovery in the COVID-19 world – Part 1 How to use the COVID-19 (Temporary Measures) Act to protect you and your business from an economic downturn The law also relieves managing directors from liability for payments made in the ordinary course of business after the company has become insolvent, in particular, where such payments are made to maintain or resume business operations or to implement a restructuring concept. Debts can be incurred whether through the making of orders for supplies or the signing of agreements to leases spaces when the company has insufficient funds to fulfil such payments. Disclaimer: This update is provided to you for general information and should not be relied upon as legal advice. Insolvency Law Reform in Australia and Singapore: Directors' Liability for Insolvent Trading and Wrongful Trading Poh claimed that he and Koh were not given much information on the internal investigations on Zhao pertaining to that matter.8 Decisions on whether a company is solvent or approaching insolvency should be well documented in the event that the directors are subsequently required to justify their decisions and actions. However, the IRDA appears to be silent on any defences for imposing criminal liability for the offence of wrongful trading. Singapore’s existing fraudulent and insolvent trading provisions were substantially reformed and a new liability for wrongful trading was introduced in 2018 by the IRDA as part of a package of reforms to strengthen Singapore’s status as an international hub for debt restructuring. Liquidators in a recent case failed to establish company's directors should pay over £2m as liability for wrongful trading. The upshot of this is that it may be easier to impose civil liability on those who are party to wrongful trading. The Piggery, The current regime is limited by the requirement for criminal liability to be found as a prerequisite before an application can be made to … Show simple item record. Wrongful trading provisions apply to any person who is or has been a director (including a shadow, de facto, non-executive, and nominee director) of the company in question. 2 encourage directors to minimise losses to creditors. The "wrongful trading" regime also abolishes the pre-requisite (present under the insolvent trading regime) of having to establish criminal liability first before … In situations where the company is insolvent or is approaching insolvency, those involved in the company’s affairs (and not merely directors and officers of the company) should therefore be cautious about incurring debts and liabilities to ensure that they do not fall foul of the wrongful trading provisions. 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