Re W C Leitch Bros Ltd [1932]
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Re W C Leitch Bros Ltd [1932] 2 Ch 71 provides crucial insights into the definition of fraud under Section 213 of the Insolvency Act 1986 and acknowledges the potentially punitive nature of contributions under this Section.
W C Leitch Bros Ltd, while insolvent, continued its business operations and made further purchases on credit. The company already owed approximately £6,500 for goods and lacked the means to settle these debts. Despite its financial state, the director ordered additional goods worth £6,000, and the company's account with the Midland Bank was overdrawn by around £800. The liquidator sought to hold the company director personally liable under Section 275 of the Companies Act 1929 (now Section 213 of the Insolvency Act 1986) for carrying on the business with the intent to defraud creditors. One of the directors was held personally liable for the price of the goods, with a judgment against the director for a specific sum of £6,000.
Maugham J, in providing a definition for fraud under Section 213 of the Insolvency Act 1986, stated that if a company continues to operate and incur debts when the directors know there is no reasonable prospect of creditors receiving payment, it is a proper inference that the company is carrying on business with the intent to defraud.
Maugham J expressed an inclination toward the view that Section 275 (now Section 213) is of a punitive nature. He suggested that when the court makes a declaration regarding all or any of the debts or other liabilities of the company, it is within the court's discretion to issue an order without necessarily limiting it to the amount of the proven debts of creditors defrauded by the director's actions. However, he noted that such orders would generally be limited to the proven amounts.
It is important to note that Maugham J later offered a stricter definition for fraud in the case of Re Patrick and Lyon [1933]. The decision in Re W C Leitch Bros Ltd provides insight into the court's interpretation of fraudulent intent and the potentially punitive nature of contributions under Section 213 of the Insolvency Act 1986.
W C Leitch Bros Ltd, while insolvent, continued its business operations and made further purchases on credit. The company already owed approximately £6,500 for goods and lacked the means to settle these debts. Despite its financial state, the director ordered additional goods worth £6,000, and the company's account with the Midland Bank was overdrawn by around £800. The liquidator sought to hold the company director personally liable under Section 275 of the Companies Act 1929 (now Section 213 of the Insolvency Act 1986) for carrying on the business with the intent to defraud creditors. One of the directors was held personally liable for the price of the goods, with a judgment against the director for a specific sum of £6,000.
Maugham J, in providing a definition for fraud under Section 213 of the Insolvency Act 1986, stated that if a company continues to operate and incur debts when the directors know there is no reasonable prospect of creditors receiving payment, it is a proper inference that the company is carrying on business with the intent to defraud.
Maugham J expressed an inclination toward the view that Section 275 (now Section 213) is of a punitive nature. He suggested that when the court makes a declaration regarding all or any of the debts or other liabilities of the company, it is within the court's discretion to issue an order without necessarily limiting it to the amount of the proven debts of creditors defrauded by the director's actions. However, he noted that such orders would generally be limited to the proven amounts.
It is important to note that Maugham J later offered a stricter definition for fraud in the case of Re Patrick and Lyon [1933]. The decision in Re W C Leitch Bros Ltd provides insight into the court's interpretation of fraudulent intent and the potentially punitive nature of contributions under Section 213 of the Insolvency Act 1986.
