R v Grantham [1984]

R v Grantham [1984]

R v Grantham [1984] QB 675 is a pivotal UK company law and insolvency law case that addresses the elements required for a conviction of fraudulent trading, as outlined in the Companies Act 1948 Section 332(3), now replaced by Section 213 of the Insolvency Act 1986. The case centres around Mr Grantham, who stood trial for fraudulent trading, with the key issue being whether he knowingly obtained credit without a reasonable belief that his company could repay the debt when due.

Mr Grantham was charged with fraudulent trading, and during the trial, the jury was directed that they could find dishonesty and intent to defraud if they believed Mr Grantham obtained credit knowing there was no good reason to think his company could meet its debt obligations in the future. Despite the possibility of a distant prospect for repayment, the focus was on whether there was an intent to defraud. Mr Grantham was convicted, and on appeal, he argued that the jury had been given the wrong direction.

The appellate court, comprised of Lord Lane CJ, Boreham J, and Stuart-Smith J, dismissed Mr Grantham's appeal. They held that the direction given to the jury was not in error. The court affirmed that, under Section 332 (now Section 213 of the Insolvency Act 1986), an intent to defraud could be established by proving an intention to dishonestly prejudice creditors in being repaid.

This case is significant in establishing a crucial principle regarding fraudulent trading. It clarifies that, for a conviction under Section 213 of the Insolvency Act 1986, it is necessary to establish an intent to defraud. The court rejected the notion that directors could incur credit based on a genuine belief in future financial recovery. The court disapproved of such an approach, asserting that if a director knew there was no short-term prospect of repaying debts, it was irrelevant whether they envisioned hypothetical future prosperity (blue skies). This decision emphasises the importance of intent and knowledge in cases of fraudulent trading under UK insolvency law.
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