Reckless trading - some clarifications

--amadeus--

With things as they are there are a lot of businesses that are either struggling or folding. On another thread the subject of Reckless Trading came up and there seems to be some confusion over it.

Essentially a few people have argued that as long as a business owner / director is "trying thier best" or "genuinley thought things would get better" then they have no case to answer. Or as long as the owner isn't taking money out themselves (fancy holidays get mentioned) or otherwise personally gaining then again there can be no charge of reckless trading.

Now I am not a solicitor or an Accountant but I have some experience in this area and that is not how I understand it all.

According to 297A of the Companies ct 1963 provides as follows:

1. If in the course of winding up of a company or in the course of proceedings under the Companies (Amendment) Act 1990, it appears that—

(a) any person was, while an officer of the company, knowingly a party to the carrying on of any business of the company in a reckless manner;…

the court, on the application of the … liquidator … of the company, may, if it thinks it proper to do so, declare that such person shall be personally responsible, without any limitation of liability, for all or any part of the debts or other liabilities of the company as the court may direct.

2. Without prejudice to the generality of subsection (1) (a), an officer of a company shall be deemed to have been knowingly a party to the carrying on of any business of the company in a reckless manner if—

(a) he was a party to the carrying on of such business and, having regard to the general knowledge, skill and experience that may reasonably be expected of a person in his position, he ought to have known that his actions or those of the company would cause loss to the creditors of the company, or any of them, or

(b) he was a party to the contracting of a debt by the company and did not honestly believe on reasonable grounds that the company would be able to pay the debt when it fell due for payment as well as all its other debts (taking into account the contingent and prospective liabilities).

(my bold for emphasis, link here)

So if you trade in a way that you could be expected to know would cause loss to your creditors you are guilty of reckless trading. If you take a line of credit and did not believe that you would be able to pay that debt when it fell due you are guilty of reckless trading.

This is different to fraudulent trading. In fraudulent trading you are consciously attempting to rip off people who you owe money to, reckless trading it's not deliberate but (by definition!) reckless.

If you are found guilty of reckless trading then you lose the protection of teh Limited Company and you can be made personally liable for all company debts.

This isn't supposed to put the frightners on anyone but as the SBP pointed out this weekend litigation goes up in a recession so you need to be aware of teh facts. Racking up debts in a failing company under the assumption that you have limited liability is not always the smart thing to do.

elgransenor

What you have pointed out here is the legal position.

The 'ah sure I was doing my best' argument is for the birds.

A lot of people will pay the consequences in the next 2 years and the consequences include being made personally liable for the debts(lifting the veil of incorporation in legalese) and being struck off or restricted as directors.

Darragh29

It is very difficult to see how anyone could be convicted under the legislation cited above. There are many factors always going on in a business, any of which, or a combination of which, can cause you to fail. You could be trading away sucessfully and all it takes is someone in your business defrauding you or some event to pull the rub out from under you and leave you exposed.

I've been down this road with stupid unenforcable legislation, I took a case against Revenue two years ago on the basis of legislation that sounds remarkably similar to the rubbish that is contained within the act being referred to above. If the legislation below reflected in any way whatsoever, the reality of running a business, then no business would fail in the first place.

I had a similar load of crap to deal with when I got a Revenue decision that would have cost me well over 10K. The basis of it was that I had settled a legal case I had taken against a former employer and was claiming tax exemption on the settlement agreed. The TCA 1997, as ammended by The Finance Act, 2005, actually set down a requirement that in order for me to be in a position to claim that exemption laid down in statute, I had to in fact prove that I would have won my case had I proceeded with it intead of settled it out of court!!! So in order to prove that you have grounds for claiming tax exemption for an out of court settlement, you in fact have to go to court to prove you would have been sucessful, which clearly defeats the whole purpose of settling a case in the first place!!!

The people who draft up this type of legisaltion are the most retarded and braindead people you will find in the civil service. Even the Appeals Commissioner said, when he overturned the decision made by Revenue against me, that it was the most rediculous and flawed piece of legislation that he had even seen in his life! When I see this type of nonsense being put into the statute book and the state of the economy, I seriously think the people who are costing us a fortune turning out legislation that is simply unenforcable, should be taken up to the rooftop of whatever government department they are based in and dropped off the highest brick in the building.

Darragh29

elgransenor wrote: »

What you have pointed out here is the legal position.

The 'ah sure I was doing my best' argument is for the birds.

A lot of people will pay the consequences in the next 2 years and the consequences include being made personally liable for the debts(lifting the veil of incorporation in legalese) and being struck off or restricted as directors.

The legal position must be first proven against you. It's not enough to just say, "That's the legal position" and the discussion ends there.

Are all the companies failing now, (christ even the state is failing to balance the books at the moment!), all failing because of poor stewardship that is implied by this legislation??? I seriously doubt it.

Normally when an economy is functioning normally, you have access to credit. This is not the case here and you can't expect directors to carry that around on their backs, the blame for this can be traced right back to the banks themselves who have no money to lend now due to capitalisation issues of their own.