The Supreme Court recently rejected a claim that Section 297 of the Companies Act 1963 which imposes personal liability on directors and other officers found guilty of fraudulent trading was essentially criminal in nature and unconstitutional.
The liquidator of a company had sought a declaration that a former director of the company was knowingly a party to the carrying on of the company's business with intent to defraud creditors and should be personally responsible for all or part of the debts of the company. The former director claimed that the proceedings were in effect criminal in nature with criminal sanctions but without due procedures for a criminal trial and, as a result, unconstitutional.
The Supreme Court found that the Section did not create a criminal offence nor did it impose a criminal sanction in a civil context. It was held to be designed to protect creditors and others who may fall victim to people engaged in fraud and therefore the sanctions permitted, while having a punitive element, were not unconstitutional.
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