This section basically re-enacts section 297 (3) of the 1963 Act. Section 297 currently prohibits fraudulent trading, and imposes both criminal and civil sanctions for contravention of the section. In the case of the criminal sanctions, the penalties at present in force provide for maximum imprisonment of two years or a maximum fine of £2,500. The civil sanctions provide that the High Court may declare such persons personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company concerned.
Section 297 has been criticised in the past because both the criminal and civil offences of fraudulent trading were contained in the same section. Civil plaintiffs, therefore, tended to be reluctant to embark on proceedings because the same strict standards of proof might be required by the court in respect of civil proceedings as for criminal proceedings. In an effort to overcome this alleged difficulty, to facilitate court proceedings and to encourage liquidators and creditors to be more confident about civil proceedings, sections 115 and 116 provide for the separation of the civil and criminal elements of section 297 of the Principal Act. Thus, the criminal offence of fraudulent trading is contained in section 115. The essential element of the offence is, as heretofore, the existence of an intent to defraud.
Amendment No. 151 would extend this section to include reckless trading as well. This gets us into very difficult territory indeed. To begin with, I think we would all agree that fraudulent trading ought to be a criminal offence — in other words, if somebody sets out with the intention of defrauding somebody else, then that is pretty clear-cut — even though it may be difficult to prove in any given case. However, when we come to recklessness that is another matter altogether and a completely different set of considerations apply.
First of all, the amendment would criminally penalise any person who was knowingly a party to the carrying on of the company's business "in a reckless manner". The amendment does not, however, make any effort to define what trading "in a reckless manner" means, and I think this would cause enormous uncertainty for companies, their directors and, indeed, even public prosecutors.
Deputy Rabbitte may suggest that the court would look to the definition in section 116 of the Bill for assistance. However, even on the assumption that the court would do this, I am satisfied — and I am sure the committee will agree with me on this — that the wording of section 116 (2) would be totally unsuitable for application in criminal cases, bearing in mind the standards of proof required in such cases.
The whole concept of recklessness, as we have it in section 116, is designed around the behaviour of people in a situation where they ought to have known the effect of their actions. It does not, in my view, have anything to do with criminal intent or purpose, as section 115 does.
Overall, I would much prefer, in the context of criminal proceedings, to stay with a concept where the offence is clear-cut, rather than look to the outcome or effect of a particular course of action. As the committee is aware, the onus of proof in criminal proceedings is very considerable, and rightly so, and in this context I think it is right to confine the section to fraudulent trading, where it can be proved to the satisfaction of the court that the intention was to defraud.
I am happy that the separation of criminal and civil sanctions which we propose and the distinctions which we make in the two sections is the correct way to proceed and in the circumstances I could not accept the proposed amendment.
