Dominik Thiel-Czerwinke & Anor (Joint Liquidators of Courtside Recycling Limited) v Nicholas James Crabb

Fraudulent trading requires proof that the company’s business was carried on with intent to defraud creditors or for a fraudulent purpose, that the defendant participated in that conduct, and that the participation was knowing. Dishonesty is assessed under the objective test in Ivey: the court first establishes the defendant’s actual knowledge or belief as to the facts, then applies the standards of ordinary decent people. The civil standard remains the balance of probabilities, with the inherent improbability of serious wrongdoing considered as part of the evidence. A contribution under section 213 must have a nexus with loss caused to creditors. A director who receives company money must account for it and cannot rely on deliberately destroyed or withheld records to establish an exonerating business use.

Joint liquidators applied against the former sole director and shareholder of a company in compulsory liquidation. They alleged fraudulent trading under section 213 of the Insolvency Act 1986, misfeasance under section 212, and void dispositions under section 127. The allegations concerned substantial VAT under-declarations, cash withdrawals, destruction of company records, and payments made after presentation of the winding-up petition.

The central issues were whether the respondent knowingly participated in fraudulent trading, whether he was liable to account for or compensate the company for the cash withdrawals and post-petition payments, and what relief should follow.

1. Fraudulent trading. The court found that the respondent deliberately concealed the company’s trading bank accounts, caused VAT returns to omit substantial turnover and VAT, extracted large sums in cash, and deliberately destroyed trading records. These facts established fraudulent trading and knowing participation.
2. Dishonesty was assessed under the objective test in Ivey v Genting Casinos (UK) Ltd. The respondent knew the relevant facts and his conduct was dishonest by ordinary standards. The allegations were proved on the ordinary civil standard.
3. A contribution under section 213 must have a nexus with the loss caused to creditors by the fraudulent conduct. The appropriate measure was the cash withdrawn, £2,547,370. The respondent could not rely on missing records to establish that the whole sum had been used for the company.
4. Misfeasance. The same conduct involved breach of duties under sections 171 and 172 of the Companies Act 2006. The court held that it was improper to describe the conduct as a fraudulent breach of section 174. The duty to maintain and preserve company records was relevant under section 386 and as part of the director’s fiduciary obligations.
5. Section 127. Payments made after presentation of the winding-up petition and before the winding-up order were void without a validation order. £15,500 had to be restored, and £12,926 paid to others was recoverable as misfeasance.
6. The respondent was liable for £2,547,370, £15,500 and £12,926, subject to consequential submissions and non-recoupment. The consequences under section 10 of the Company Directors Disqualification Act 1986 were reserved for a further hearing.